-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EgntbMIUSYPc1xn7w82vl4100pZGeIvVY438OY4qjiRI/T1k932RG8zsO4aaUjyi Smb/wgAoP3mbBeTjjueWaw== 0000950133-06-004765.txt : 20070129 0000950133-06-004765.hdr.sgml : 20070129 20061107173023 ACCESSION NUMBER: 0000950133-06-004765 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 26 FILED AS OF DATE: 20061107 DATE AS OF CHANGE: 20061214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Double-Take Software, Inc. CENTRAL INDEX KEY: 0001370314 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 200230046 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-136499 FILM NUMBER: 061194956 BUSINESS ADDRESS: STREET 1: 257 TURNPIKE ROAD, SUITE 210 CITY: SOUTHBOROUGH STATE: MA ZIP: 01772 BUSINESS PHONE: 508-229-8810 MAIL ADDRESS: STREET 1: 257 TURNPIKE ROAD, SUITE 210 CITY: SOUTHBOROUGH STATE: MA ZIP: 01772 S-1/A 1 w23440a3sv1za.htm DOUBLE-TAKE SOFTWARE FORM S-1 AMENDMENT NO. 3 sv1za
 

As filed with the Securities and Exchange Commission on November 7, 2006
Registration No. 333-136499
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Pre-Effective Amendment No. 3
to
Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
 
 
Double-Take Software, Inc.
(Exact name of registrant as specified in its charter)
 
         
Delaware   7372   20-0230046
(State or other jurisdiction of
incorporation or organization) 		  (Primary Standard Industrial
Classification Code Number) 		  (I.R.S. Employer
Identification Number)
 
 
257 Turnpike Road, Suite 210
Southborough, Massachusetts 01772
877-335-5674
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
 
 
Dean Goodermote
President and Chief Executive Officer
Double-Take Software, Inc.
257 Turnpike Road, Suite 210
Southborough, Massachusetts 01772
877-335-5674
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
 
 
Copies to:
 
     
Michael J. Silver
Thene M. Martin
Charles E. Sieving
Hogan & Hartson L.L.P.
111 South Calvert Street
Baltimore, Maryland 21202
(410) 659-2700 		  Selim Day
Wilson Sonsini Goodrich & Rosati
Professional Corporation
1301 Avenue of the Americas, 40th Floor
New York, New York 10019
(212) 999-5800
 
 
CALCULATION OF REGISTRATION FEE
 
             
      Proposed Maximum
 		    Amount of
      Aggregate
 		    Registration
Title of Each Class of Securities to be Registered     Offering Price(1)(2)     Fee(3)
Common Stock, $0.001 par value per share     $100,000,000     $10,700.00
             
 
(1)  Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act.
 
(2)  Includes offering price of shares that the underwriters have the option to purchase to cover over-allotments, if any.
 
(3)  $9,228.75 previously paid.
 
Approximate date of commencement of proposed sale to the public:  As soon as practicable after this registration statement becomes effective.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
PROSPECTUS (Subject to Completion) Dated November 7, 2006
 
7,500,000 Shares
 
(DOUBLE-TAKE SOFTWARE LOGO)
 
Common Stock
 
 
This is an initial public offering of shares of our common stock. We are selling 5,000,000 shares of common stock and the selling stockholders are selling 2,500,000 shares of common stock. We will not receive any proceeds from the shares of common stock sold by the selling stockholders. Prior to this offering, there has been no public market for our common stock. We have applied for quotation of our common stock on The NASDAQ Stock Market under the symbol “DBTK.” We expect that the public offering price will be between $9.00 and $11.00 per share.
 
Our business and an investment in our common stock involve significant risks. These risks are described under the caption “Risk Factors” beginning on page 7 of this prospectus.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
 
 
                 
    Per Share     Total  
 
Public offering price
  $       $    
Underwriting discount
  $       $    
Proceeds, before expenses, to Double-Take Software, Inc. 
  $       $    
Proceeds, before expenses, to the selling stockholders
  $       $  
 
The underwriters may also purchase up to an additional 1,125,000 shares from the selling stockholders at the initial public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments.
 
The underwriters expect to deliver the shares against payment in New York, New York on          , 2006.
 
 
 
Cowen and Company Thomas Weisel Partners LLC
 
 
CIBC World Markets
Pacific Crest Securities
 
          , 2006

 

 
TABLE OF CONTENTS
 
         
    Page
 
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  98
  102
  102
  102
  F-1
 
 
You should rely only on the information contained in this prospectus. We have not, and the selling stockholders and underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the selling stockholders and underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.
 
Market data and industry statistics used in this prospectus are based on independent industry publications and other publicly available information.
 
 

 

PROSPECTUS SUMMARY
 
This summary does not contain all of the information you should consider before investing in our common stock and you should read this entire prospectus carefully before investing, especially the information discussed under “Risk Factors” beginning on page 7. As used in this prospectus, the terms “we,” “our,” “us,” or “Double-Take Software” refer to Double-Take Software, Inc. and its subsidiaries, taken as a whole, as well as any predecessor entities, unless the context otherwise indicates.
 
Double-Take Software, Inc.
 
Double-Take Software develops, sells and supports affordable software that reduces downtime and protects data for business-critical systems. We believe that we are the leading supplier of replication software for Microsoft server environments and that our business is distinguished by our focus on software license sales, our productive distribution network and our efficient services infrastructure. Organizations of all sizes and in all industries increasingly rely on application systems and stored electronic data to conduct business. Also, new regulations have increased data protection requirements for businesses, and new threats of business disruption from events such as 9/11 and Hurricane Katrina are encouraging organizations to re-examine their data and server recovery strategies. Our software responds to these needs by continuously replicating changes made to application data on a primary operating server to a duplicate server located on- or off-site. Because the duplicate server can commence operating in place of the primary server at almost any time, our software facilitates rapid failover and application recovery in the event of a service interruption.
 
Our success has been driven in large part by our software technology, released in 1995 and enhanced by years of customer feedback. Residing on the server operating system, our software continuously monitors and captures file system activity and replicates only changed files. Our hardware- and application-independent software efficiently protects data created by any application on any type or brand of disk storage on almost any brand of server running Windows file systems.
 
We sell our software through multiple channels, all supported by an experienced direct sales force. Our distribution partners include leading server manufacturers, such as Dell Computer Corporation and Hewlett-Packard Company, leading distributors, such as Bell Microproducts Inc. and Tech Data Corporation, and over 120 value-added resellers that we believe are generally well-connected with small- and medium-sized enterprises. Our broad distribution network, coupled with affordable price points, feature-rich proven software, modest implementation costs and dependable support, makes our software accessible and scalable from small enterprises of 20 people to Fortune 500 companies. As of September 30, 2006, our customer base of more than 10,000 organizations included over half of the Fortune 500 companies as well as a large number of law firms, financial institutions, hospitals, school districts and governmental entities.
 
Our Markets and Opportunities
 
The storage replication market is large and growing. In 2006, International Data Corp., or IDC, a market research firm, estimated in its Worldwide Storage Replication Software 2006-2010 Forecast, Mar 2006 Doc #200998, that the worldwide storage replication software market would grow from $2.1 billion in sales in 2005 to $4.2 billion in 2010, representing a compound annual growth rate of approximately 15%. IDC further estimated that sales in the Windows server sub-segment of this market, which our software currently addresses, would increase at a compound annual growth rate of approximately 25%, from $310 million in 2005 to $940 million in 2010. In addition, we believe that our software is particularly attractive to businesses in the small-and medium-sized enterprise information technology market, which we believe has been growing at a faster rate than the large enterprise information technology market.
 
We believe that growth in our market is driven by a number of factors, including the following:
 
  •  the rapid growth in digital data, driven by increased usage of automated systems;

1

 

 
  •  an increased focus on protecting a growing number of business-critical applications, such as email applications, particularly in service-oriented industries;
 
  •  government and industry regulations, such as the Health Insurance Portability and Accountability Act of 1996 and the Sarbanes-Oxley Act of 2002, which require data protection and recovery;
 
  •  a heightened awareness of the potential for natural and man-made disasters; and
 
  •  the increasingly high cost of downtime, which is partly attributable to an increase in the sharing of applications with customers, partners and remote users.
 
Our Software
 
By combining efficient, continuous, remote and local data replication with the ability to monitor and quickly switch critical applications to alternate servers, we believe that we have designed our software to provide an affordable, easy to implement and scalable approach to reduce downtime and enhance data recovery for business-critical applications.
 
Our software provides organizations with recovery solutions that we believe meet their needs by providing the following:
 
  •  Fast and Reliable Data Recovery.  Our software provides fast recovery for the server and application itself, creating a server ready to take over, substantially on command and provide rapid access or failover to the replicated data to meet the new availability requirements of business-critical applications, such as Microsoft Exchange Server or Microsoft SQL Server.
 
  •  Simple and Affordable Software.  Our software can be easily installed on new or existing file or application servers, can work with most existing storage and network infrastructure and is hardware and application independent. This makes it possible to install and begin protecting an existing server easily and quickly and makes the solution more cost effective than some other approaches. Once installed, our application recovery tools automate failover and user redirection. With a median selling price of approximately $4,000, our software is affordable for a wide variety of organizations.
 
  •  Flexible and Scalable Software.  Our software works with a variety of applications within the Windows server environment and almost any type of storage architecture from almost any mix of vendors. It efficiently captures changes, optimizes data transmission, and controls which files and which changes need to be replicated, rather than blindly copying disk block changes regardless of whether they contain required information. Our software is easily deployed and can be centrally managed across any number of machines, including “virtual machines” partitioned with software such as VMware.
 
  •  Continuous Backup of Data.  Our software minimizes or eliminates data loss by continuously and efficiently replicating data changes to one or more protected, local or remote locations. Even open applications and files can be mirrored and changes replicated, which enables our software to protect 24x7 applications, such as email and databases.
 
  •  Efficient, Optimized Protection.  Our software captures the exact changes an application is generating before those changes are abstracted into generic “disk blocks.” For example, it can distinguish between a new email being sent to an Exchange mailbox that needs to be immediately replicated from a temporary file that does not need to be protected. Efficiently transmitting the minimum amount of data to maintain protection is a significant architectural advantage.
 
  •  Significant Expertise and Experience.  Our software incorporates our years of experience protecting critical Windows servers and applications like Microsoft Exchange Server, Microsoft SQL Server, Microsoft SharePoint Portal Server and Oracle Database. Although our focus has been on the Windows server environment because of its large position in the business critical market place, we anticipate that we can apply our technology in other server environments to the extent market dynamics shift.


2

 

 
Our suite of software is offered in a variety of versions that are aligned to operating system capabilities. Additional versions include those that have been specifically crafted to run within virtual systems, to perform replication only, and versions designed to run within Microsoft Cluster Services called GeoCluster. Some versions are also available from OEM partners under different brand names.
 
Our Strategy
 
Our goal is to provide affordable software that will reduce our customers’ downtime for business-critical systems to as close to zero as possible and offer effective protection and recovery for less critical systems. In striving for this goal, we seek to be the leading provider of software for application availability and data protection. We are pursuing the following key initiatives:
 
  •  Expand our customer base within our current markets;
 
  •  Cross-sell existing and new software to our customer base;
 
  •  Enter new markets;
 
  •  Expand globally; and
 
  •  Continue to innovate.
 
About Us
 
We were organized as a New Jersey corporation in 1991, and we reincorporated in Delaware in 2003. In July 2006 we changed our name to Double-Take Software, Inc. from NSI Software, Inc. Our principal executive offices are located at 257 Turnpike Road, Suite 210, Southborough, Massachusetts 01772, and our main telephone number at that address is (877) 335-5674. We maintain our general corporate website at www.doubletake.com. The contents of our website, however, are not a part of this prospectus.
 
We own, or claim ownership rights to, a variety of trade names, service marks and trademarks for use in our business, including Double-Take®, GeoCluster®, Balancetm, Double-Take for Virtual Systemstm and Double-Take for Virtual Serverstm in the United States and, where appropriate, in foreign countries. This prospectus also includes product names and other trade names and service marks owned by us and other companies. The trade names and service marks of other companies are the property of those other companies.
 
 


3

 

The Offering
 
Common stock offered by us 5,000,000 shares
 
Common stock offered by the selling stockholders 2,500,000 shares
 
Common stock to be outstanding after this offering 20,490,259 shares
 
Use of proceeds We estimate that our net proceeds from the offering will be approximately $43.5 million. We intend to use approximately $33.3 million of the net proceeds for working capital and other general corporate purposes. In addition, we expect to use approximately $10.2 million of the net proceeds to fund a mandatory payment to the holders of our Series B convertible preferred stock in connection with the conversion of all of the outstanding shares of our Series B convertible preferred stock immediately before the completion of the offering.
 
We will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholders.
 
Risk factors See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding whether to invest in shares of our common stock.
 
Proposed NASDAQ Stock Market symbol “DBTK”
 
The share information above is based on 15,490,259 shares of common stock outstanding as of October 31, 2006 and excludes:
 
  •  3,018,231 shares of common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $3.04; and
 
  •  163,265 shares of common stock issuable upon the exercise of outstanding warrants as of October 31, 2006 at a weighted average exercise price of $2.15;
 
but, includes 266,871 shares of our common stock to be issued upon the consummation of this offering to our chief executive officer pursuant to an employment agreement.
 
Unless we indicate otherwise, the information in this prospectus:
 
  •  reflects a 1-for-4.9 reverse split of our outstanding common stock that occurred on November 3, 2006;
 
  •  reflects the conversion of the outstanding shares of our Series B convertible preferred stock, including accrued dividends, into 9,536,790 shares of common stock immediately before the completion of this offering, which we have assumed for this purpose occurred on October 31, 2006;
 
  •  reflects the conversion of the outstanding shares of our Series C convertible preferred stock, including accrued dividends, into 1,889,049 shares of common stock immediately before the completion of this offering, which we have assumed for this purpose occurred on October 31, 2006;
 
  •  assumes that the initial public offering price of the common stock will be $10.00 per share, which is the midpoint of the range we show on the cover page of this prospectus; and
 
  •  assumes that the underwriters will not exercise their option to purchase up to an additional 1,125,000 shares from the selling stockholders to cover over-allotments.


4

 

Summary Financial Data
 
The following table shows our summary statement of operations data for each of the years ended December 31, 2005, 2004 and 2003 and the nine months ended September 30, 2006 and 2005, and summary balance sheet data at September 30, 2006. The summary statement of operations data for the years ended December 31, 2005, 2004 and 2003 are derived from our audited financial statements prepared in accordance with generally accepted accounting principles, which are included elsewhere in this prospectus. The summary statement of operations data for the nine months ended September 30, 2006 and 2005 and the summary balance sheet data at September 30, 2006, which are presented elsewhere in this prospectus, are unaudited, but include, in the opinion of management, all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of such data. Our historical results are not necessarily indicative of our results for any future period.
 
This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our financial statements and related notes, and our unaudited pro forma financial data and related notes appearing elsewhere in this prospectus.
 
                                         
    Year ended December 31,     Nine Months ended September 30,  
    2005     2004     2003     2006     2005  
                      (unaudited)  
    (in thousands)  
 
Statement of Operations Data:
                                       
Revenue:
                                       
Software licenses
  $ 26,222     $ 19,943     $ 16,283     $ 26,240     $ 18,341  
Maintenance and professional services
    14,488       9,895       7,650       15,547       10,540  
                                         
Total revenue
    40,710       29,838       23,933       41,787       28,881  
                                         
Cost of revenue:
                                       
Software licenses
    38       559       1,426       1,329       31  
Maintenance and professional services
    4,357       3,694       3,103       4,426       3,214  
                                         
Total cost of revenue
    4,395       4,253       4,529       5,755       3,245  
                                         
Gross profit
    36,315       25,585       19,404       36,032       25,636  
                                         
Operating expenses:
                                       
Sales and marketing
    17,191       16,188       13,654       15,591       12,645  
Research and development
    9,748       8,717       6,373       7,749       7,292  
General and administrative
    6,730       5,666       5,253       6,371       5,268  
Depreciation and amortization
    805       527       1,617       1,094       570  
Legal fees and settlement costs
    5,671       1,755       200       —       1,040  
                                         
Total operating expenses
    40,145       32,853       27,097       30,805       26,815  
                                         
Income (loss) from operations
    (3,830 )     (7,268 )     (7,693 )     5,227       (1,179 )
Interest income
    83       7       19       213       35  
Interest expense
    (36 )     (765 )     (341 )     (69 )     (21 )
Foreign exchange gains (losses)
    —       —       —       79       —  
                                         
Income (loss) before income taxes
    (3,783 )     (8,026 )     (8,015 )     5,450       (1,165 )
Income tax expense
    —       —       —       403       —  
                                         
Net income (loss)
    (3,783 )     (8,026 )     (8,015 )     5,047       (1,165 )
Less:
                                       
Accretion of redeemable preferred stock
    (5,332 )     (5,314 )     (4,928 )     (4,000 )     (4,000 )
Beneficial conversion feature on Series B preferred stock
    —       —       (1,194 )     —       —  


5

 

                                         
    Year ended December 31,     Nine Months ended September 30,  
    2005     2004     2003     2006     2005  
                      (unaudited)  
    (in thousands, except per share data)  
 
Dividends on preferred stock
    (2,686 )     (2,029 )     (1,637 )     (2,163 )     (1,988 )
                                         
Net loss attributable to common stockholders
  $ (11,801 )   $ (15,369 )   $ (15,774 )   $ (1,116 )   $ (7,153 )
                                         
Net loss attributable to common stockholders per share:
                                       
Basic and diluted
  $ (3.11 )   $ (4.06 )   $ (4.16 )   $ (0.29 )   $ (1.89 )
                                         
Weighted average shares used in computing per share amounts:
                                       
Basic and diluted
    3,789       3,786       3,786       3,794       3,788  
                                         
 
                         
    As of September 30, 2006  
                Pro Forma
 		 
    Actual     Pro Forma(1)     As Adjusted(2)  
    (unaudited, in thousands)  
 
Balance Sheet Data:
                       
Cash and cash equivalents
  $ 10,438     $ 213     $ 44,593  
Working capital
    (1,604 )     (11,829 )     33,140  
Total assets
    30,911       20,686       63,597  
Deferred revenue
    14,658       14,658       14,658  
Long-term deferred revenue
    3,778       3,778       3,778  
Long-term deferred rent
    434       434       434  
Long-term capital lease obligations
    22       22       22  
Redeemable convertible preferred stock
    56,827       0       0  
Total stockholders’ equity (deficit)
    (54,551 )     (7,949 )     35,551  
                         
 
 
(1) Pro forma to give effect to the conversion of our outstanding shares of Series B convertible preferred stock and Series C convertible preferred stock into an aggregate of 11,348 shares of our common stock, including the payment of $10,225 to the Series B preferred stockholders, immediately before the completion of this offering, which we have assumed for this purpose occurred on September 30, 2006.
 
(2) Pro forma as adjusted to give effect to (i) the conversion of our outstanding shares of Series B convertible preferred stock and Series C convertible preferred stock into an aggregate of 11,348 shares of our common stock, including the payment of $10,225 to the Series B preferred stockholders, immediately before the completion of this offering, which we have assumed for this purpose occurred on September 30, 2006 and (ii) our sale of common stock in this offering at an assumed offering price of $10.00 per share, which is the midpoint of the range we show on the cover page of this prospectus, and the receipt and application of the net proceeds thereof.

6

 

 
RISK FACTORS
 
An investment in our stock involves a high degree of risk. You should carefully consider the following risks and all of the other information set forth in this prospectus before deciding to invest in shares of our common stock. If any of the events or developments described below occur, our business, financial condition or results of operations could be negatively affected. In that case, the trading price of our common stock could decline, and you could lose all or part of your investment in our common stock.
 
Risks Related to Our Business
 
Intense competition in our industry may hinder our ability to generate revenue and may adversely affect our margins.
 
The market for our software is intensely competitive. Our primary competitors include EMC Corporation (Legato), Neverfail Group, Ltd., Symantec Corporation (Veritas) and CA, Inc. (XOsoft Inc.). Some of these companies and many of our other current and potential competitors have longer operating histories and substantially greater financial, technical, sales, marketing and other resources than we do, as well as larger installed customer bases and greater name recognition. Our competitors may be able to devote greater resources to the development, marketing, distribution, sale and support of their products than we can and some may have the ability to bundle their data replication offerings with their other products. The extensive relationships that these competitors have with existing customers may make it increasingly difficult for us to increase our market share. The resources of these competitors also may enable them to respond more rapidly to new or emerging technologies and changes in customer requirements and to reduce prices to win new customers.
 
As this market continues to develop, a number of other companies with greater resources than ours, including Microsoft, could attempt to enter the market or increase their presence by acquiring or forming strategic alliances with our competitors or business partners or by introducing their own competing products.
 
Our success will depend on our ability to adapt to these competitive forces, to develop more advanced products more rapidly and less expensively than our competitors, to continue to develop a global sales and support network, and to educate potential customers about the benefits of using our software rather than our competitors’ products. Existing or new competitors could introduce products with superior features, scalability and functionality at lower prices. This could dramatically affect our ability to sell our software. In addition, some of our customers and potential customers may buy other software, other competing products and related services from our competitors, and to the extent that they prefer to consolidate their software purchasing from fewer vendors, they may choose not to continue to purchase our software and support services.
 
We expect additional competition from other established and emerging companies. Increased competition could result in reduced revenue, price reductions, reduced gross margins and loss of market share, any of which would harm our results of operations.
 
Because a large majority of our sales are made to or through distributors, value-added resellers and original equipment manufacturers, none of which have any obligation to sell our software applications, the failure of this distribution network to sell our software effectively could materially adversely affect our revenue and results of operations.
 
We rely on distributors, value-added resellers and original equipment manufacturers, or OEMs, together with our inside and field-based direct sales force, to sell our products. These distributors, resellers and OEMs sell our software applications and, in some cases, incorporate our software into systems that they sell. We expect that these arrangements will continue to generate a large majority of our total revenue. Sales to or through our distributors, resellers and OEMs accounted for approximately 93% of our total revenue for the year ended December 31, 2005 and 94% for the nine months ended September 30, 2006. Sales to or through our top five distributors, resellers and OEMs accounted for approximately 63% of our total revenue for 2005 and 51% of our total revenue for the nine months ended September 30, 2006.


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We have limited control over the amount of software that these businesses purchase from us or sell on our behalf, we do not have long term contracts with any of them, and they have limited obligations to recommend, offer or sell our software applications. Thus there is no guarantee that this source of revenue will continue at the same level as it has in the past. Any material decrease in the volume of sales generated by our larger distributors, resellers and OEMs could materially adversely affect our revenue and results of operations in future periods.
 
We depend on growth in the storage replication market, and lack of growth or contraction in this market could materially adversely affect our sales and financial condition.
 
Demand for data replication software is driven by several factors, including an increased focus on protecting business-critical applications, government and industry regulations requiring data protection and recovery, a heightened awareness of the potential for natural and man-made disasters and the growth in stored data from the increased use of automated systems. Segments of the computer and software industry have in the past experienced significant economic downturns and decreases in demand as a result of changing market factors. A change in the market factors that are driving demand for data replication software could adversely affect our sales, profitability and financial condition.
 
Our current products are designed exclusively for the Microsoft server environment, which exposes us to risks if Microsoft products are not compatible with our software or if Microsoft chooses to compete more substantially with us in the future.
 
We currently depend exclusively on customers that deploy Microsoft products within their organizations. Microsoft could make changes to its software that render our software incompatible or less effective. Furthermore, Microsoft may choose to focus increased resources on applications that compete with our applications, including competing applications that Microsoft bundles with its operating platform. These actions could materially adversely affect our ability to generate revenue and maintain acceptable profit margins.
 
We have not generated net profits for any year since our inception and we may be unable to achieve or sustain profitability in the future.
 
We generated net losses, before dividends and accretion attributable to preferred stock, of $8.0 million for 2003, $8.0 million for 2004, and $3.8 million for 2005, and we had a net profit of $5.0 million for the nine months ended September 30, 2006, all before dividends and accretion attributable to preferred stock. As of September 30, 2006, we had an accumulated stockholders’ deficit of $54.6 million. We may be unable to sustain or increase profitability in future periods. We intend to continue to expend significant funds in developing our software offerings and for general corporate purposes, including marketing, services and sales operations, hiring additional personnel, upgrading our infrastructure, and regulatory compliance obligations in connection with being a public reporting company. We expect that associated expenses will precede any revenue generated by the increased spending. If we experience a downturn in our business, we may incur or continue to incur losses and negative cash flows from operations, which could materially adversely affect our results of operations and capitalization.
 
Because we generate substantially all of our revenue from sales of our Double-Take software and related services, a decline in demand for our Double-Take software could materially adversely affect our revenue, profitability and financial condition.
 
We derive nearly all of our software revenue from our Double-Take software, which generated over 97% of our total revenue for the year ended December 31, 2005 and 96% for the nine months ended September 30, 2006. In addition, we derive substantially all of our maintenance and professional services revenue from associated maintenance and customer support of these applications. As a result, we are particularly vulnerable to fluctuations in demand for these software applications, whether as a result of competition, product obsolescence, technological change, budgetary constraints of our customers or other factors. If demand for any of these software applications declines significantly, our revenue, profitability and financial condition would be adversely affected.


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We may not be able to respond to technological changes with new software applications, which could materially adversely affect our sales and profitability.
 
The markets for our software applications are characterized by rapid technological changes, changing customer needs, frequent introduction of new software applications and evolving industry standards. The introduction of software applications that embody new technologies or the emergence of new industry standards could make our software applications obsolete or otherwise unmarketable. As a result, we may not be able to accurately predict the lifecycle of our software applications, which may become obsolete before we receive any revenue or the amount of revenue that we anticipate from them. If any of the foregoing events were to occur, our ability to retain or increase market share in the storage replication market could be materially adversely affected.
 
To be successful, we need to anticipate, develop and introduce new software applications on a timely and cost-effective basis that keep pace with technological developments and emerging industry standards and that address the increasingly sophisticated needs of our customers and their budgets. We may fail to develop or sell software applications that respond to technological changes or evolving industry standards, experience difficulties that could delay or prevent the successful development, introduction or sale of these applications or fail to develop applications that adequately meet the requirements of the marketplace or achieve market acceptance. Our failure to develop and market such applications and services on a timely basis, or at all, could materially adversely affect our sales and profitability.
 
Our failure to offer high quality customer support services could harm our reputation and could materially adversely affect our sales of software applications and results of operations.
 
Our customers depend on us, and, to some extent, our distribution partners, to resolve implementation, technical or other issues relating to our software. A high level of service is critical for the successful marketing and sale of our software. If we or our distribution partners do not succeed in helping our customers quickly resolve post-deployment issues, our reputation could be harmed and our ability to make new sales or increase sales to existing customers could be damaged.
 
Defects or errors in our software could adversely affect our reputation, result in significant costs to us and impair our ability to sell our software.
 
If our software is determined to contain defects or errors our reputation could be materially adversely affected, which could result in significant costs to us and impair our ability to sell our software in the future. The costs we would incur to correct product defects or errors may be substantial and would adversely affect our operating results. After the release of our software, defects or errors have been identified from time to time by our internal team and by our clients. Such defects or errors may occur in the future.
 
Any defects that cause interruptions to the data recovery functions of our applications, or that cause other applications on the operating system to malfunction or fail, could result in:
 
  •  lost or delayed market acceptance and sales of our software;
 
  •  loss of clients;
 
  •  product liability suits against us;
 
  •  diversion of development resources;
 
  •  injury to our reputation; and
 
  •  increased maintenance and warranty costs.
 
We may fail to realize the anticipated benefits of our acquisition of Sunbelt System Software S.A.S.
 
Our future success will depend in significant part on our ability to realize the operating efficiencies, new revenue opportunities and cost savings we expect to result from the integration of Sunbelt System Software S.A.S., which is now known as Double-Take Software S.A.S., or Double-Take EMEA. Our


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operating results and financial condition may be adversely affected if we are unable to integrate successfully the operations of Double-Take EMEA, or incur unforeseen costs and expenses or experience unexpected operating difficulties that offset anticipated cost savings. In particular, the integration may involve, among other items, integration of sales, marketing, billing, accounting, management, personnel, payroll, network infrastructure and other systems and operating hardware and software, some of which may be incompatible with our existing systems and therefore may need to be replaced. The integration may place significant strain on our management, financial and other resources.
 
We may not receive significant revenue from our research and development efforts for several years,
if at all.
 
We have made a significant investment in developing and improving our software. Our research and development expenditures were $9.7 million, or approximately 24% of our total revenue, for 2005, $8.7 million, or approximately 29% of our total revenue, for 2004 and $7.7 million, or approximately 19% of our total revenue, for the nine months ended September 30, 2006. We believe that we must continue to dedicate a significant amount of our resources to our research and development efforts to maintain our competitive position, and we plan to do so. However, we may not receive significant revenue from these investments for several years following each investment, if ever.
 
The loss of key personnel or the failure to attract and retain highly qualified personnel could adversely affect our business.
 
Our future performance depends on the continued service of our key technical, sales, services and management personnel. We rely on our executive officers and senior management to execute our existing business plans and to identify and pursue new opportunities. The loss of key employees could result in significant disruptions to our business, and the integration of replacement personnel could be time consuming, cause additional disruptions to our business and be unsuccessful. We do not carry key person life insurance covering any of our employees.
 
Our future success also depends on our continued ability to attract and retain highly qualified technical, services and management personnel. Competition for such personnel is intense, and we may fail to retain our key technical, services and management employees or attract or retain other highly qualified technical, services and management personnel in the future. Conversely, if we fail to manage employee performance or reduce staffing levels when required by market conditions, our personnel costs would be excessive and our business and profitability could be adversely affected.
 
We will not be able to maintain our sales growth if we do not retain or attract and train qualified sales personnel.
 
A portion of our revenue is generated by our direct sales force, and our future success will depend in part upon its continued productivity and expansion. To the extent we experience attrition in our direct sales force, we will need to hire replacements. We face intense competition for sales personnel in the software industry, and we may not be successful in retaining, hiring or training our sales personnel in accordance with our plans. If we fail to retain the experienced members of our sales force, or maintain and expand our sales force as needed, our future sales and profitability could be adversely affected.
 
Changes in the regulatory environment and general economic condition and other factors in countries in which we have international sales and operations could adversely affect our operations.
 
We derived approximately 24% of our revenue from sales outside the United States in 2005 and approximately 31% of our revenue from sales outside the United States in the nine months ended September 30, 2006. We anticipate that our acquisition of Double-Take EMEA in May 2006 will significantly increase the percentage of our revenue generated from sales outside the United States in


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future periods. Our international operations are subject to risks related to the differing legal, political, social and regulatory requirements and economic conditions of many countries, including:
 
  •  difficulties in staffing and managing our international operations;
 
  •  costs and delays in downsizing non-United States workforces, if necessary, as a result of applicable non-United States employment and other laws;
 
  •  the adoption or imposition by foreign countries of additional withholding taxes, other taxes on our income, or tariffs or other restrictions on foreign trade or investment, including currency exchange controls;
 
  •  general economic conditions in the countries in which we operate could adversely affect our earnings from operations in those countries;
 
  •  imposition of, or unexpected adverse changes in, foreign laws or regulatory requirements may occur, including those pertaining to export duties and quota, trade and employment restrictions;
 
  •  longer payment cycles for sales in foreign countries and difficulties in collecting accounts receivables;
 
  •  competition from local suppliers; and
 
  •  political unrest, war or acts of terrorism.
 
Each of the foregoing risks could reduce our revenue or increase our expenses.
 
We are exposed to domestic and foreign currency fluctuations that could harm our reported revenue and results of operations.
 
Historically, our international sales were generally denominated in the United States dollar. As a result of our acquisition of Double-Take EMEA, we now have international sales that are denominated in foreign currencies, and this revenue could be materially affected by currency exchange rate fluctuations. Our primary exposures are to fluctuations in exchange rates for the United States dollar versus the Euro and, to a lesser extent, the British Pound. Changes in currency exchange rates could adversely affect our reported revenue and could require us to reduce our prices to remain competitive in foreign markets, which could also materially adversely affect our results of operations. We have not historically hedged exposure to changes in foreign currency exchange rates and, as a result, we could incur unanticipated gains or losses.
 
Protection of our intellectual property is limited, and any misuse of our intellectual property by others could materially adversely affect our sales and results of operations.
 
Proprietary technology in our software is important to our success. To protect our proprietary rights, we rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality procedures and contractual provisions. While we own two issued patents, we have not emphasized patents as a source of significant competitive advantage and have also sought to protect our proprietary technology under laws affording protection for trade secrets, copyright and trademark protection of our software, products and developments where available and appropriate. In addition, our issued patents may not provide us with any competitive advantages or may be challenged by third parties, and the patents of others may seriously impede our ability to conduct our business. Further, any patents issued to us may not be timely or broad enough to protect our proprietary rights.
 
We also have five registered trademarks in the U.S., including the Double-Take mark. Although we attempt to monitor use of and take steps to prevent third parties from using our trademarks without permission, policing the unauthorized use of our trademarks is difficult. If we fail to take steps to enforce our trademark rights, our competitive position and brand recognition may be diminished.
 
We protect our software, trade secrets and proprietary information, in part, by requiring all of our employees to enter into agreements providing for the maintenance of confidentiality and the assignment of rights to inventions made by them while employed by us. We also enter into non-disclosure agreements


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with our consultants to protect our confidential and proprietary information. There can be no assurance that our confidentiality agreements with our employees, consultants and other third parties will not be breached, that we will be able to effectively enforce these agreements, have adequate remedies for any breach, or that our trade secrets and other proprietary information will not be disclosed or otherwise be protected. Furthermore, there also can be no assurance that others will not independently develop technologies that are similar or superior to our technology or reverse engineer our products.
 
Protection of trade secret and other intellectual property rights in the markets in which we operate and compete is highly uncertain and may involve complex legal and scientific questions. The laws of countries in which we operate may afford little or no protection to our trade secrets and other intellectual property rights. Policing unauthorized use of our trade secret technologies and proving misappropriation of our technologies is particularly difficult, and we expect software piracy to continue to be a persistent problem. Piracy of our products represents a loss of revenue to us. Furthermore, any changes in, or unexpected interpretations of, the trade secret and other intellectual property laws in any country in which we operate may adversely affect our ability to enforce our trade secret and intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our confidential information and trade secret protection. If we are unable to protect our proprietary rights or if third-parties independently develop or gain access to our or similar technologies, our competitive position and revenue could suffer.
 
Claims that we misuse the intellectual property of others could subject us to significant liability and
disrupt our business, which could materially adversely affect our results of operations and financial condition.
 
Because of the nature of our business, we may become subject to material claims of infringement by competitors and other third-parties with respect to current or future software applications, trademarks or other proprietary rights. Our competitors, some of which may have substantially greater resources than us and have made significant investments in competing technologies or products, may have, or seek to apply for and obtain, patents that will prevent, limit or interfere with our ability to make, use and sell our current and future products, and we may not be successful in defending allegations of infringement of these patents. Further, we may not be aware of all of the patents and other intellectual property rights owned by third-parties that may be potentially adverse to our interests. We may need to resort to litigation to enforce our proprietary rights or to determine the scope and validity of a third party’s patents or other proprietary rights, including whether any of our products or processes infringe the patents or other proprietary rights of third-parties. The outcome of any such proceedings is uncertain and, if unfavorable, could significantly harm our business. If we do not prevail in this type of litigation, we may be required to:
 
  •  pay damages, including actual monetary damages, royalties, lost profits or other damages and third-party’s attorneys’ fees, which may be substantial;
 
  •  expend significant time and resources to modify or redesign the affected products or procedures so that they do not infringe a third-party’s patents or other intellectual property rights; further, there can be no assurance that we will be successful in modifying or redesigning the affected products or procedures;
 
  •  obtain a license in order to continue manufacturing or marketing the affected products or processes, and pay license fees and royalties; if we are able to obtain such a license, it may be non-exclusive, giving our competitors access to the same intellectual property, or the patent owner may require that we grant a cross-license to part of our proprietary technologies; or
 
  •  stop the development, manufacture, use, marketing or sale of the affected products through a court-ordered sanction called an injunction, if a license is not available on acceptable terms, or not available at all, or our attempts to redesign the affected products are unsuccessful.
 
Any of these events could adversely affect our business strategy and the value of our business. In addition, the defense and prosecution of intellectual property suits, interferences, oppositions and related legal and administrative proceedings in the United States and elsewhere, even if resolved in our favor,


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could be expensive, time consuming, generate negative publicity and could divert financial and managerial resources.
 
In December 2005, we agreed to terms for settlement of a legal proceeding with a provider of information storage systems that involved claims regarding some of the intellectual property components of our software. Pursuant to a settlement agreement, we paid $3.8 million in January 2006 and agreed to pay, or make purchase of their products for our use or for resale in amounts equal to, $500,000 in each of January 2007, 2008, 2009 and 2010.
 
We expect that software developers will increasingly be subject to infringement claims as the number of software applications and competitors in our industry segment grows and the functionality of software applications in different industry segments overlaps. Thus, we could be subject to additional patent infringement claims in the future. There can be no assurance that the claims that may arise in the future can be amicably disposed of, and it is possible that litigation could ensue.
 
Intellectual property litigation can be complex, costly and protracted. As a result, any intellectual property litigation to which we are subject could disrupt our business operations, require us to incur substantial costs and subject us to significant liabilities, each of which could severely harm our business.
 
Plaintiffs in intellectual property cases often seek injunctive relief. Any intellectual property litigation commenced against us could force us to take actions that could be harmful to our business, including the following:
 
  •  stop selling our products or using the technology that contains the allegedly infringing intellectual property;
 
  •  attempt to obtain a license to use the relevant intellectual property, which may not be available on reasonable terms or at all; and
 
  •  attempt to redesign the products that allegedly infringed upon the intellectual property.
 
If we are forced to take any of the foregoing actions, our business, financial position and operating results could be harmed. We may not be able to develop, license or acquire non-infringing technology under reasonable terms, if at all. These developments would result in an inability to compete for customers and would adversely affect our ability to increase our revenue. The measure of damages in intellectual property litigation can be complex, and is often subjective or uncertain. If we were to be found liable for the infringement of a third party’s proprietary rights, the amount of damages we might have to pay could be substantial and would be difficult to predict.
 
We may engage in future acquisitions or investments that present many risks, and we may not realize the anticipated financial and strategic goals for any of these transactions.
 
We do not have significant experience acquiring companies. Since our inception, our only acquisition has been the acquisition of Double-Take EMEA. We may acquire or make investments in additional companies. Acquisitions and investments involve a number of difficulties that present risks to our business, including the following:
 
  •  we may be unable to achieve the anticipated benefits from the acquisition or investment;
 
  •  we may have difficulty integrating the operations and personnel of the acquired business, and may have difficulty retaining the key personnel of the acquired business;
 
  •  we may have difficulty incorporating the acquired technologies or products with our existing software and technology;
 
  •  our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically and culturally diverse locations;
 
  •  we may have difficulty maintaining uniform standards, controls, procedures and policies across locations; and


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  •  we may experience significant problems or liabilities associated with product quality, technology and legal contingencies.
 
These factors could materially adversely affect our business, results of operations and financial condition or cash flow, particularly in the case of a larger acquisition or multiple acquisitions in a short period of time. From time to time, we may enter into negotiations for acquisitions or investments that are not ultimately consummated. These negotiations could result in significant diversion of management time, as well as expense.
 
The consideration paid for an investment or acquisition may also affect our financial results. If we were to proceed with one or more significant acquisitions in which the consideration included cash, we could be required to use a substantial portion of our available cash, including proceeds of this offering. To the extent we issue shares of our capital stock or other rights to purchase shares of our capital stock as consideration for the acquisitions, including options or other rights, our existing stockholders may be diluted, and our earnings per share may decrease. In addition, acquisitions may result in the incurrence of debt, write-offs and restructuring charges. They may also result in goodwill and other intangible assets that are subject to an impairment test, which could result in future impairment charges.
 
We cannot predict our future capital needs and we may be unable to obtain additional financing to fund acquisitions, which could materially adversely affect our business, results of operations and financial condition.
 
We may need to raise additional funds in the future in order to acquire complementary businesses, technologies, products or services. Any required additional financing may not be available on terms acceptable to us, or at all. If we raise additional funds by issuing equity securities, you may experience significant dilution of your ownership interest, and the newly-issued securities may have rights senior to those of the holders of our common stock. 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 additional financing is not available when required or is not available on acceptable terms, we may be unable to successfully develop or enhance our software and services through acquisitions in order to take advantage of business opportunities or respond to competitive pressures, which could materially adversely affect our software and services offerings, revenue, results of operations and financial condition. We have no current plans, nor are we currently considering any proposals or arrangements, written or otherwise, to acquire a business or a material technology, product or service.
 
Risks Related to this Offering
 
We will incur significant increased costs as a result of operating as a public company, and our management and key employees will be required to devote substantial time to new compliance initiatives.
 
We have never operated as a public company. As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules implemented by the SEC and Nasdaq, impose various new requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will devote substantial amounts of time to these new compliance initiatives. Moreover, these rules and regulations will significantly increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We expect these rules and regulations to increase our legal and financial compliance costs. In addition, we will incur additional costs associated with our public company reporting requirements. We will incur significant costs to remediate any material weaknesses we identify through these efforts. We also expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. We currently are evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. If our profitability is adversely affected because of these additional costs, it could have a negative effect on the trading price of our common stock.


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We do not know whether a market will develop for our common stock or what the market price of our common stock will be.
 
Before this offering, there was no public trading market for our common stock. If a market for our common stock does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at an attractive price or at all. We cannot predict the prices at which our common stock will trade. The initial public offering price range for our common stock has been determined through negotiations with the underwriters and may not bear any relationship to the market price at which the common stock will trade after this offering or to any other established criteria of our value. It is possible that in one or more future periods our operating results may be below the expectations of public market analysts and investors and, as a result of these and other factors, the price of our common stock may fall.
 
The price of our common stock may be volatile.
 
The trading price of our common stock following this offering may fluctuate substantially. The price of the common stock that will prevail in the market after this offering may be higher or lower than the price you pay, depending on many factors, some of which are beyond our control and may not be related to our operating performance. The price of the common stock may fluctuate as a result of:
 
  •  price and volume fluctuations in the overall stock market from time to time;
 
  •  significant volatility in the market price and trading volume of software companies;
 
  •  actual or anticipated changes in our earnings or fluctuations in our operating results or in the expectations of securities analysts;
 
  •  announcements of technological innovations, new solutions, strategic alliances or significant agreements by us or by our competitors;
 
  •  general economic conditions and trends;
 
  •  catastrophic events;
 
  •  sales of large blocks of our stock; or
 
  •  recruitment or departure of key personnel.
 
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Because of the potential volatility of our stock price, we may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.
 
We may experience a decline in revenue or volatility in our operating results, which may adversely affect the market price of our common stock.
 
We cannot predict our future revenue with certainty because of many factors outside of our control. A significant revenue or profit decline, lowered forecasts or volatility in our operating results could cause the market price of our common stock to decline substantially. Factors that could affect our revenue and operating results include the following:
 
  •  the possibility that our customers may cancel, defer or limit purchases as a result of reduced information technology budgets;
 
  •  the possibility that our customers may defer purchases of our software applications in anticipation of new software applications or updates from us or our competitors;
 
  •  the ability of our distributors, value-added resellers and OEMs to meet their sales objectives;
 
  •  market acceptance of our new applications and enhancements;
 
  •  our ability to control expenses;
 
  •  changes in our pricing and distribution terms or those of our competitors;


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  •  the demands on our management, sales force and services infrastructure as a result of the introduction of new software applications or updates; and
 
  •  the possibility that our business will be adversely affected as a result of the threat of terrorism or military actions taken by the United States or its allies.
 
Our expense levels are relatively fixed and are based, in part, on our expectations of our future revenue. If revenue levels fall below our expectations, our net income would decrease because only a small portion of our expenses varies with our revenue. Therefore, any significant decline in revenue for any period could have an immediate adverse impact on our results of operations for the period. We believe that period-to-period comparisons of our results of operations should not be relied upon as an indication of future performance. In addition, our results of operations could be below expectations of public market analysts and investors in future periods, which would likely cause the market price of our common stock to decline.
 
If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock could decline.
 
The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. If one or more of the analysts covering us downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease coverage of our company, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.
 
Sales of outstanding shares of our common stock into the market in the future could cause the market price of our common stock to drop significantly, even if our business is doing well.
 
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline below the initial public offering price. After this offering, approximately 20.5 million shares of our common stock will be outstanding. Of these shares, 8.8 million shares of our common stock (including the 7.5 million shares of our common stock sold in this offering) will be freely tradable, without restriction, in the public market. Cowen and Company, LLC and Thomas Weisel Partners LLC, may, in their discretion, permit our directors, officers, employees and current stockholders who are subject to a 180-day contractual lockup to sell shares prior to the expiration of the lockup agreements. The lockup is subject to extension under certain circumstances. See “Shares Eligible for Future Sale — Lockup Agreements.”
 
After the lockup agreements pertaining to this offering expire 180 days from the date of this prospectus, up to an additional 11.7 million shares will be eligible for sale in the public market, 9.0 million of which are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act of 1933 as amended, or the Securities Act. In addition, the 0.2 million shares subject to outstanding warrants and the 3.0 million shares underlying options that are either subject to the terms of our equity compensation plans or reserved for future issuance under our equity compensation plans will become eligible for sale in the public market to the extent permitted by the provisions of various option agreements and warrants, the lockup agreements and Rules 144 and 701 under the Securities Act. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline. For additional information, see “Shares Eligible for Future Sale.”
 
Some of our stockholders will continue to exert significant influence over us.
 
As of October 31, 2006, funds affiliated with ABS Capital Partners beneficially owned in the aggregate shares representing approximately 55.9% of our outstanding voting power. Two general partners of ABS Capital Partners currently serve on our board of directors. After completion of this offering, assuming that affiliates of ABS Capital Partners sell the number of shares indicated in the “Principal and Selling Stockholders” section, affiliates of ABS Capital Partners are expected to beneficially own in the aggregate shares representing approximately 34.4% of our outstanding voting power, or approximately 29.5% if the underwriters exercise their over-allotment option in full. As a result, these stockholders will continue to be able to exert significant influence over all matters presented to our stockholders for approval, including election and removal of our directors and change of control transactions. The interests


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of these stockholders may not coincide with the interests of the other holders of our common stock with respect to our operations or strategy.
 
If stockholders affiliated with our principal stockholder reduce the number of shares they intend to sell in this offering, or do not sell in this offering, these stockholders will have a very significant control position in us that could be increased at any time.
 
Funds affiliated with ABS Capital Partners have indicated an interest in selling shares in the offering as described in the “Principal and Selling Stockholders” section of this prospectus. However, these funds are under no obligation to sell the number of shares indicated and may elect to sell a lower number of shares or no shares at all. If funds affiliated with ABS Capital Partners do not sell any shares in the offering, they are expected to beneficially own in the aggregate shares representing approximately 42.2% of our outstanding voting power. That ownership level will give them a very significant degree of power to control us. These funds are not restricted from purchasing additional shares in the public market and they could increase their ownership at any time, including to a majority position. Depending on the amount of control these funds have over us, they may be able to elect all of the members of our board of directors, determine the outcome of all matters submitted to a vote of our stockholders, including matters involving mergers or other business combinations, the acquisition or disposition of assets, the issuance of substantial amounts of our common stock, or take other actions that might be desirable to these funds but not to other stockholders.
 
We do not anticipate paying any dividends on our common stock.
 
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. If we do not pay cash dividends, you could only receive a return on your investment in the common stock if the market price of the common stock increases before you sell your shares. In addition, the terms of our loan and security agreement restrict our ability to pay dividends.
 
You will experience immediate and substantial dilution in your investment.
 
The offering price of the common stock is substantially higher than the net tangible book value per share of our common stock, which on a pro forma basis was $(0.89) as of September 30, 2006. As a result, you will experience immediate and substantial dilution in net tangible book value when you buy shares of common stock in the offering. This means that you will pay a higher price per share than the amount of our total assets, minus our total liabilities, divided by the number of outstanding shares. Holders of the common stock will experience further dilution if options, warrants or other rights to purchase our common stock that are outstanding or that we may issue in the future are exercised or converted, or if we issue additional shares of our common stock, at prices lower than our net tangible book value at such time.
 
Provisions in our organizational documents and in the Delaware General Corporation Law may prevent takeover attempts that could be beneficial to our stockholders.
 
Provisions in our charter and bylaws and in the Delaware General Corporation Law may make it difficult and expensive for a third party to pursue a takeover attempt we oppose even if a change in control of our company would be beneficial to the interests of our stockholders. Our board of directors has the authority to issue up to 20,000,000 shares of preferred stock in one or more series and to fix the powers, preferences and rights of each series without stockholder approval. The ability to issue preferred stock could discourage unsolicited acquisition proposals or make it more difficult for a third-party to gain control of our company, or otherwise could adversely affect the market price of our common stock. Further, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. This section generally prohibits us from engaging in mergers and other business combinations with stockholders that beneficially own 15% or more of our voting stock, or with their affiliates, unless our directors or stockholders approve the business combination in the prescribed manner. However, because funds affiliated with ABS Capital Partners acquired their shares prior to this offering, Section 203 is currently inapplicable to any business combination or transaction with it or its affiliates.
 
We will retain broad discretion in using the net proceeds from this offering and may spend a substantial portion in ways with which you do not agree.
 
Our management will retain broad discretion to allocate the net proceeds of this offering. The net proceeds may be applied in ways with which you and other investors in the offering may not agree, or which do not increase the value of your investment. We anticipate we will use a substantial portion of the


17

 

net proceeds that we receive from the offering for working capital and general corporate purposes, including potential acquisitions of products, technologies or companies. We have not allocated these net proceeds for any specific purposes. Our management might not be able to yield a significant return, if any, on any investment of these net proceeds. We will not receive any of the proceeds from the sale of the shares of our common stock by the selling stockholders.
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” contains forward-looking statements. We may, in some cases, use words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” “will,” or “may,” or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements in this prospectus include statements about:
 
  •  competition and competitive factors in the markets in which we operate;
 
  •  demand for replication software;
 
  •  the advantages of our technology as compared to others;
 
  •  changes in customer preferences and our ability to adapt our product and services offerings;
 
  •  our ability to obtain and maintain distribution partners and the terms of these arrangements;
 
  •  our ability to develop and maintain positive relationships with our customers;
 
  •  our ability to maintain and establish intellectual property rights;
 
  •  our ability to retain and hire necessary employees and appropriately staff our development, marketing, sales and distribution efforts;
 
  •  our spending of the proceeds from this offering;
 
  •  our cash needs and expectations regarding cash flow from operations;
 
  •  our ability to manage and grow our business and execution of our business strategy;
 
  •  our financial performance; and
 
  •  the costs associated with being a public company.
 
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. There are a number of important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements, which apply only as of the date of this prospectus. These important factors include those that we discuss in this prospectus under the caption “Risk Factors” and elsewhere. You should read these factors and the other cautionary statements made in this prospectus as being applicable to all related forward-looking statements wherever they appear in this prospectus. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.


18

 

 
USE OF PROCEEDS
 
We estimate that we will receive approximately $43.5 million in net proceeds from our sale of the 5,000,000 shares of common stock sold by us in the offering. Our net proceeds from the offering represent the amount we expect to receive after paying the underwriting discounts and commissions and other expenses of the offering payable by us. For purposes of estimating our net proceeds, we have assumed that the initial public offering price of our common stock will be $10.00, which is the midpoint of the range that we show on the cover page of this prospectus.
 
We will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholders, including any shares sold by the selling stockholders upon exercise of the underwriters’ over-allotment option.
 
We intend to use approximately $33.3 million of the net proceeds from this offering for working capital and other general corporate purposes. In addition, we also expect to use approximately $10.2 million of the net proceeds to fund a mandatory payment to the holders of our Series B convertible preferred stock in connection with the conversion of the outstanding shares of our Series B convertible preferred stock immediately before the completion of this offering.
 
We pursue acquisitions of other businesses as part of our business strategy and may use a portion of the net proceeds to fund these acquisitions. We have no agreement with respect to any acquisition, although we assess opportunities on an ongoing basis and from time to time have discussions with other companies about potential transactions.
 
Our management will have significant flexibility in applying the net proceeds of the offering. Further, changing business conditions and unforeseen circumstances could cause the actual amounts used for these purposes to vary from our estimates. Pending their use, we will invest the net proceeds of the offering in short-term, interest-bearing securities. We cannot predict whether the proceeds invested will yield a favorable return.
 
DIVIDEND POLICY
 
We do not anticipate that we will pay cash dividends on our common stock in the foreseeable future. Future declaration and payment of dividends, if any, on our common stock will be determined by our board of directors in light of factors the board of directors deems relevant, including our earnings, operations, capital requirements and financial condition and restrictions in our financing agreements. In addition, the terms of our loan and security agreement with Silicon Valley Bank restrict our ability to pay dividends.


19

 

 
CAPITALIZATION
 
The following table shows our cash and capitalization as of September 30, 2006:
 
  •  on an actual basis, after giving affect to a 1-for-4.9 reverse split of our common stock that occurred on November 3, 2006;
 
  •  on a pro forma basis to reflect:
 
  •  the conversion of the outstanding shares of our Series B convertible preferred stock into 9,471,539 shares of common stock immediately before completion of the offering, which we have assumed for this purpose occurred on September 30, 2006;
 
  •  the conversion of the outstanding shares of our Series C convertible preferred stock into 1,876,123 shares of common stock immediately before completion of the offering, which we have assumed for this purpose occurred on September 30, 2006; and
 
  •  our payment of $10.2 million to the holders of our Series B convertible preferred stock in connection with the conversion of such preferred stock;
 
  •  on a pro forma as adjusted basis to reflect:
 
  •  the conversion of the outstanding shares of our preferred stock, which we have assumed for this purpose occurred on September 30, 2006, and our payment to the holders of our Series B convertible preferred stock in connection with the conversion; and
 
  •  the sale of 5,000,000 shares of common stock in the offering by us at an assumed initial public offering price of $10.00 per share, which is the midpoint of the range we show on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and other offering expenses.
 
You should read this table together with the information under “Selected Financial Data,” “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as our financial statements and related notes and the other financial information included elsewhere in this prospectus.
 
                         
    As of September 30, 2006  
                Pro Forma
 		 
    Actual     Pro Forma     As Adjusted  
    (in thousands)  
 
Cash and cash equivalents
  $ 10,438     $ 213     $ 44,593  
                         
Total long-term-debt, including current portion
    —       —       —  
                         
Redeemable convertible preferred stock, $0.01 par value per share:
                       
Series B convertible preferred stock, 14,451,572 shares authorized, 13,633,334 shares outstanding, actual, no shares outstanding pro forma or pro forma as adjusted
    47,802       —       —  
                         
Series C convertible preferred stock, 8,382,201 shares authorized, 7,840,092 shares outstanding, actual, no shares outstanding as adjusted
    9,025       —       —  
                         
Stockholders’ equity (deficit):
                       
Common stock, par value $.001 per share, 100,000,000 shares authorized, 3,795,478 shares outstanding, actual, 20,143,140 shares outstanding pro forma and pro forma as adjusted
    4       15       20  
Additional paid-in capital
    39,826       86,417       129,912  
Accumulated deficit
    (94,358 )     (94,358 )     (94,358 )
Cumulative translation adjustment
    (23 )     (23 )     (23 )
                         
Total stockholders’ equity (deficit)
    (54,551 )     (7,949 )     35,551  
                         
Total capitalization
  $ 2,276     $ (7,949 )   $ 35,551  
                         


20

 

 
DILUTION
 
Purchasers of the common stock in the offering will suffer an immediate and substantial dilution in net tangible book value per share. Dilution is the amount by which the initial public offering price paid by purchasers of shares of our common stock exceeds the net tangible book value per share of our common stock after the offering. Net tangible book value represents the amount of our total tangible assets reduced by our total liabilities. Tangible assets equals our total assets less goodwill and intangible assets. Net tangible book value per share represents our net tangible book value divided by the number of shares of our common stock outstanding. As of September 30, 2006, on a pro forma basis after giving effect to the conversion of the outstanding shares of Series B and Series C convertible preferred stock into 11,347,662 shares of common stock immediately before completion of the offering, which we have assumed for this purpose occurred on September 30, 2006, our pro forma net tangible book value was $(13.4) million and our pro forma net tangible book value per share was $(0.89).
 
Pro forma net tangible book value at September 30, 2006 is calculated as follows:
 
         
Common shares outstanding, actual
    3,795,478  
Common shares issuable upon conversion of Series B and C preferred shares and accrued dividends
    11,347,662  
         
Pro forma common shares outstanding
    15,143,140  
         
Tangible net book value, actual
  $ (60,030,000 )
Conversion of preferred shares to equity
    56,827,000  
Mandatory payment on preferred shares
    (10,225,000 )
         
Pro forma tangible net book value
  $ (13,428,000 )
         
 
After giving effect to the sale by us of 5,000,000 shares of common stock in the offering at an initial public offering price of $10.00 per share, which is the midpoint of the range we show on the cover page of this prospectus, and the application of the estimated net proceeds from the offering, including the payment of approximately $10.2 million to the holders of our Series B convertible preferred stock in connection with the conversion of the outstanding shares of Series B convertible preferred stock immediately before the completion of this offering, our pro forma net tangible book value as of September 30, 2006 would have been $31.5 million, or $1.57 per share. This represents an immediate increase in pro forma net tangible book value of $2.46 per share to existing stockholders and an immediate dilution of $8.15 per share to new investors purchasing shares in the offering. The following table illustrates this per share dilution:
 
                 
Assumed public offering price per share
          $ 10.00  
Pro forma net tangible book value per share as of September 30, 2006
  $ (0.89 )        
Increase in pro forma net tangible book value per share attributable to the offering
  $ 2.46          
Pro forma net tangible book value per share after the offering
          $ 1.57  
Dilution per share to new investors
          $ 8.43  
 
Our pro forma net tangible book value after the offering, and the dilution to new investors in the offering, will not change from the amounts shown above if the underwriters’ over-allotment option is exercised as any overallotment shares will be purchased from selling shareholders.


21

 

 
The following table illustrates, on the pro forma basis described above as of September 30, 2006, the total number of shares held, total consideration paid and average price per share paid by existing stockholders and by new investors for the shares of common stock, assuming the sale of shares of common stock in the offering at an initial public offering price of $10.00 per share, which is the midpoint of the range we show on the cover page of this prospectus:
 
                                         
    Shares Purchased     Total Consideration     Average Price
 		 
    Number     Percent     Amount     Percent     Per Share  
 
Existing stockholders
    15,143,140       75 %   $ 80,443,000       62 %   $ 5.31  
New investors
    5,000,000       25 %     50,000,000       38 %   $ 10.00  
                                         
Total
    20,143,140       100 %   $ 130,443,000       100 %   $ 6.48  
                                         
 
The data in the tables above assume that outstanding options and warrants to purchase common stock are not exercised and do not give effect to the issuance of 266,871 shares of common stock to our chief executive officer upon the completion of this offering pursuant to an employment agreement. As of September 30, 2006, options to purchase 3,020,303 shares of common stock at a weighted average exercise price of $3.04 per share and warrants to purchase 163,265 shares of common stock at a weighted average exercise price of $2.16 per share were outstanding. If all those options and warrants had been exercised, and assuming the issuance of the 266,871 shares to our chief executive officer, the dilution to new investors purchasing shares in the offering as of September 30, 2006 would have decreased by $0.17 per share to $8.26 per share. To the extent that any options or warrants are granted in the future and are exercised, new investors will experience further dilution.


22

 

 
SELECTED FINANCIAL DATA
 
The following table shows our selected statement of operations data for each of the years ended December 31, 2005, 2004, 2003, 2002 and 2001 and the nine months ended September 30, 2006 and 2005 and our selected balance sheet data as of December 31, 2005 2004, 2003, 2002 and 2001 and September 30, 2006. The selected statement of operations data for the years ended December 31, 2005, 2004 and 2003 and the balance sheet data at December 31, 2005 and 2004 are derived from our audited financial statements prepared in accordance with generally accepted accounting principles, which are included elsewhere in this prospectus. The selected statement of operations data for the years ended December 31, 2002 and 2001 and the selected balance sheet data at December 31, 2003, 2002 and 2001 are derived from our audited financial statements prepared in accordance with generally accepted accounting principles, which are not included in this prospectus. The selected statement of operations data for the nine months ended September 30, 2006 and 2005 and the selected balance sheet data at September 30, 2006, which are included elsewhere in this prospectus, are unaudited, but include, in the opinion of management, all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of such data. Our historical results are not necessarily indicative of our results for any future period.
 
You should read the selected financial data in conjunction with “Use of Proceeds,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes appearing elsewhere in this prospectus.
 
                                                         
    Year ended December 31,     Nine Months ended September 30,  
    2005     2004     2003     2002     2001     2006     2005  
                                  (unaudited)  
    (in thousands)  
 
Statement of Operations Data:
                                                       
Revenue:
                                                       
Software licenses
  $ 26,222     $ 19,943     $ 16,283     $ 10,200     $ 4,590     $ 26,240     $ 18,341  
Maintenance and professional services
    14,488       9,895       7,650       4,125       3,039       15,547       10,540  
                                                         
Total revenue
    40,710       29,838       23,933       14,325       7,629       41,787       28,881  
                                                         
Cost of revenue:
                                                       
Software licenses
    38       559       1,426       1,351       1,432       1,329       31  
Maintenance and professional services
    4,357       3,694       3,103       2,182       684       4,426       3,214  
                                                         
Total cost of revenue
    4,395       4,253       4,529       3,533       2,116       5,755       3,245  
                                                         
Gross margin
    36,315       25,585       19,404       10,792       5,513       36,032       25,636  
                                                         
Operating expenses:
                                                       
Sales and marketing
    17,191       16,188       13,654       10,307       10,696       15,591       12,645  
Research and development
    9,748       8,717       6,373       6,645       6,716       7,749       7,292  
General and administrative
    6,730       5,666       5,253       3,532       5,105       6,371       5,268  
Depreciation and amortization
    805       527       1,617       1,753       1,682       1,094       570  
Legal fees and settlement costs
    5,671       1,755       200       —       —       —       1,040  
                                                         
Total operating expenses
    40,145       32,853       27,097       22,237       24,199       30,805       26,815  
                                                         
Income (loss) from operations
    (3,830 )     (7,268 )     (7,693 )     (11,445 )     (18,686 )     5,227       (1,179 )
Interest income
    83       7       19       19       909       213       35  
Interest expense
    (36 )     (765 )     (341 )     (2,923 )     (4,590 )     (69 )     (21 )
Foreign exchange gains (losses)
    —       —       —       —       —       79       —  
                                                         
Income (loss) before income taxes
    (3,783 )     (8,026 )     (8,015 )     (14,349 )     (22,367 )     5,450       (1,165 )
Income tax expense
    —       —       —       —       —       403       —  
                                                         
Net income (loss)
  $ (3,783 )   $ (8,026 )   $ (8,015 )   $ (14,349 )   $ (22,367 )   $ 5,047     $ (1,165 )
 


23

 

                                                         
    Year ended December 31,     Nine Months ended September 30,  
    2005     2004     2003     2002     2001     2006     2005  
                      (unaudited)     (unaudited)  
    (in thousands, except per share data)  
 
Less:
                                                       
Accretion of preferred stock
  $ (5,332 )   $ (5,314 )   $ (4,928 )   $ (1,240 )   $ (503 )   $ (4,000 )   $ (4,000 )
Beneficial conversion feature on preferred stock:
                                                       
Reduction in Series B preferred stock conversion price
    —       —       (1,194 )     —       —       —       —  
Warrants exchanged for common stock
    —       —       —       (4 )     —       —       —  
Exchange of Series A for Series B preferred stock
    —       —       —       (1,511 )     —       —       —  
Dividends on preferred stock
    (2,686 )     (2,029 )     (1,637 )     (206 )     —       (2,163 )     (1,988 )
                                                         
Net loss attributable to common stockholders
  $ (11,801 )   $ (15,369 )   $ (15,774 )   $ (17,310 )   $ (22,870 )   $ (1,116 )   $ (7,153 )
                                                         
Net loss attributable to common stockholders per share:
                                                       
Basic and diluted
  $ (3.11 )   $ (4.06 )   $ (4.16 )   $ (6.57 )   $ (10.63 )   $ (0.29 )   $ (1.89 )
                                                         
Weighted average shares used in computing per share amounts:
                                                       
Basic and diluted
    3,789       3,786       3,786       2,633       2,151       3,794       3,788  
                                                         
Unaudited pro forma net income (loss) attributable to common stockholders per share
                                                       
Basic
  $ (0.26 )                                   $ 0.33          
                                                         
Diluted
  $ (0.26 )                                   $ 0.29          
                                                         
Unaudited pro forma weighted average shares used in computing per share amounts
                                                       
Basic
    14,457                                       15,141          
                                                         
Diluted
    14,457                                       17,568          
                                                         
 
                                                         
    As of December 31,     As of September 30, 2006  
    2005     2004     2003     2002     2001     Actual     Pro Forma(1)  
                                  (unaudited)  
    (in thousands)        
 
Balance Sheet Data:
                                                       
Cash and cash equivalents
  $ 8,341     $ 5,831     $ 676     $ 4,373     $ 1,118     $ 10,438     $ 213  
Working capital
    (2,256 )     497       62       3,955       (266 )     (1,604 )     (11,829 )
Total assets
    18,590       13,318       8,772       11,307       9,581       30,911       20,686  
Deferred revenue
    10,562       7,304       4,144       2,292       1,017       14,658       14,658  
Long-term deferred revenue
    2,887       1,607       586       —       —       3,778       3,778  
Long-term deferred rent
    518       610       668       692       439       434       434  
Long term capital lease obligation
    7       38       —       —       —       22       22  
Redeemable convertible preferred stock
    50,561       42,489       27,646       19,501       34,623       56,827       —  
Total stockholders’ deficit
  $ (54,307 )   $ (42,601 )   $ (27,386 )   $ (13,077 )   $ (31,955 )   $ (54,551 )   $ (7,949 )
 
 
(1) Pro forma to give effect to the conversion of our outstanding shares of Series B convertible preferred stock and Series C convertible preferred stock into an aggregate of 11,348 shares of our common stock, including the payment of $10,225 to the Series B preferred stockholders, immediately before the completion of this offering, which we have assumed for this purpose occurred on September 30, 2006.

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UNAUDITED PRO FORMA FINANCIAL DATA
 
On May 23, 2006, Double-Take Software acquired all of the issued and outstanding shares of Sunbelt System Software S.A.S. which is now known as Double-Take Software S.A.S., or Double-Take EMEA. From 1998 through the acquisition date, Double-Take EMEA was the principal or exclusive distributor of our software in the European, Middle Eastern and African market and a certified Double-Take training organization. An initial payment of $1.1 million was made to the former stockholders of Double-Take EMEA for the acquisition, which represented earn-out payments for the period ended January 1, 2006 to April 30, 2006. Subsequent payments totaling $1.5 million were made through September 30, 2006. A portion of the earn-out payments are held in escrow.
 
Our acquisition of Double-Take EMEA was accounted for using the purchase method of accounting, and the assets acquired and liabilities assumed were accounted for at their fair values at the acquisition date based on a management review, including a valuation report issued by an independent third party. The amounts are based on currently available information and certain assumptions and estimates that management believes are reasonable.
 
The initial purchase price was as follows (in thousands):
 
         
Earn-out payments for the period January 1, 2006 through April 30, 2006
  $ 1,133  
Amount due to former Double-Take EMEA shareholders
    932  
Transaction costs
    318  
         
Total purchase price
  $ 2,383  
         
 
In accordance with SFAS 141, future earn-out payments, which are estimated to be between $10 and $12 million, have not all been included in the calculation of purchase price because they are contingent in nature and based on a specified percentage of the payments made to us by Double-Take EMEA under our intercompany distribution agreement through December 2007. A portion of the contingent purchase price equal to the excess of the fair value of the assets acquired and liabilities assumed over the non-contingent portion of the purchase price was accrued in accordance with SFAS No. 141. If future earn-out payments exceed the initial amount recorded as the liability, the amount by which the earn-out payments exceed the recorded liability will be recorded as additional purchase price and goodwill.
 
The identifiable assets and liabilities on the date of acquisition are in thousands as follows:
 
                 
          Life  
Cash and cash equivalents
  $ 1,778          
Accounts receivable, net of allowance
    2,927          
Inventory
    1,381          
Prepaid expenses
    2,694          
Account payable
    (1,229 )        
Accrued expenses
    (1,790 )        
Other liabilities
    (144 )        
Deferred revenue
    (3,944 )        
Property and equipment
    275          
Other assets
    54          
Customer relationships
    1,992       5 years  
Marketing relationships
    2,267       8 years  
                 
Net assets acquired
  $ 6,261          
                 
Purchase price paid through September 30, 2006
  $ 3,235          
Accrued purchase price
    3,026          
                 
Total
  $ 6,261          
                 


25

 

The following pro forma financial data has been prepared by our management to give effect to our acquisition of Double-Take EMEA. The pro forma adjustments, which are based upon available information and upon assumptions that our management believes are reasonable, are described in the accompanying notes.
 
The unaudited pro forma statements of operations combine Double-Take Software’s statement of operations with Double-Take EMEA’s for the year ended December 31, 2005 and for the nine month period ended September 30, 2006, to reflect our acquisition of Double-Take EMEA as if such acquisition had been completed and was effective as of January 1, 2005 and January 1, 2006, respectively.
 
The financial effects to us of our acquisition of Double-Take EMEA as presented in the pro forma financial data are not necessarily indicative of the consolidated financial position or results of operations we would have obtained if the Double-Take EMEA acquisition had actually occurred on the dates described above, nor are they necessarily indicative of the results of our future operations. The pro forma financial data should be read in conjunction with the accompanying notes, which are an integral part of the pro forma information, and the historical financial statements of Double-Take Software and Double-Take EMEA and the related notes appearing elsewhere in this prospectus.


26

 

Double-Take Software, Inc.

Pro Forma Statement of Operations
Year Ended December 31, 2005
(unaudited)
 
                                         
    Double-
 		    Double-Take
    Pro Forma
    Double-Take
 		       
    Take(1)     EMEA(2)     Adjustments     Pro Forma        
    (historical)                    
    (in thousands of US $, except share and per share amounts)  
 
Revenue:
                                       
Software licenses
  $ 26,222     $ 11,673     $ (4,207 )(3)   $ 33,688          
Maintenance and professional services
    14,488       4,828       (1,995 )(4)     17,321          
                                         
Total revenue
    40,710       16,501       (6,202 )     51,009          
Cost of revenue:
                                       
Software licenses
    38       5,081       (2,654 )(5)     2,465          
Maintenance and professional services
    4,357       2,649       (1,922 )(6)     5,084          
                                         
Total cost of revenue
    4,395       7,730       (4,576 )     7,549          
                                         
Gross margin
    36,315       8,771       (1,626 )     43,460          
Operating expenses:
                                       
Sales and marketing
    17,191       5,589       —       22,780          
Research and development
    9,748       —       —       9,748          
General and administrative
    6,730       1,454       —       8,184          
Depreciation and amortization
    805       106       702  (7)     1,613          
Legal fees and settlement costs
    5,671       —       —       5,671          
                                         
Total operating expenses
    40,145       7,149       702       47,996          
                                         
                                         
Income (loss) from operations
    (3,830 )     1,622       (2,328 )     (4,536 )        
Interest income
    83       47       —       130          
Interest expense
    (36 )     (144 )     —       (180 )        
                                         
Income (loss) before income taxes
    (3,783 )     1,525       (2,328 )     (4,586 )        
Income tax expense
    —       (461 )     —       (461 )        
                                         
Net income (loss)
    (3,783 )     1,064       (2,328 )     (5,047 )        
Accretion on redeemable shares:
                                       
Series B
    (5,310 )     —       —       (5,310 )        
Series C
    (22 )     —       —       (22 )        
Dividends on Series B
    (2,035 )     —       —       (2,035 )        
Dividends on Series C
    (651 )     —       —       (651 )        
                                         
Net income (loss) attributable to common stockholders
  $ (11,801 )   $ 1,064     $ (2,328 )   $ (13,065 )        
                                         
Net loss attributable to common stockholders per share:
                                       
Basic and diluted
  $ (3.11 )                   $ (3.45 )        
                                         
Weighted-average number of shares used in per share amounts:
                                       
Basic and diluted
    3,788,733                       3,788,733          
                                         
 
See accompanying notes to unaudited pro forma statements of operations


27

 

 
Double-Take Software, Inc.

Pro Forma Consolidated Statement of Operations
Nine Months Ended September 30, 2006
(unaudited)
 
                                 
    Double-
 		    Double-Take
 		    Pro Forma
 		    Double-Take
 		 
    Take(1)     EMEA(2)     Adjustments     Pro Forma  
    (historical)              
    (in thousands of US $, except share and per share amounts)  
 
Revenue:
                               
Software licenses
  $ 26,240     $ 4,173     $ (1,358 )(3)   $ 29,055  
Maintenance and professional services
    15,547       2,890       (924 )(4)     17,513  
                                 
Total revenue
    41,787       7,063       (2,282 )     46,568  
                                 
Cost of revenue:
                               
Software licenses
    1,329       2,055       (1,326 )(5)     2,058  
Maintenance and professional services
    4,426       1,275       (908 )(6)     4,793  
                                 
Total cost of revenue
    5,755       3,330       (2,234 )     6,851  
                                 
Gross margin
    36,032       3,733       (48 )     39,717  
                                 
Operating expenses:
                               
Sales and marketing
    15,591       2,162       —       17,753  
Research and development
    7,749       —       —       7,749  
General and administrative
    6,371       764       —       7,135  
Depreciation and amortization
    1,094       44       278 (7)     1,416  
Legal fees and settlement costs
    —       —       —       —  
                                 
Total operating expenses
    30,805       2,970       278       34,053  
                                 
Income (loss) from operations
    5,227       763       (326 )     5,664  
Interest income
    213       120       —       333  
Interest expense
    (69 )     (56 )     —       (125 )
Foreign currency exchange gain (loss)
    79       (131 )     —       (52 )
                                 
Income (loss) before income taxes
    5,450       696       (326 )     5,820  
Income tax expense
    403       215       —       618  
                                 
Net income (loss)
    5,047       481       (326 )     5,202  
Accretion on redeemable shares:
                               
Series B
    (3,983 )     —       —       (3,983 )
Series C
    (17 )     —       —       (17 )
Dividends on Series B
    (1,636 )     —       —       (1,636 )
Dividends on Series C
    (527 )     —       —       (527 )
                                 
Net income (loss) attributable to common stockholders
  $ (1,116 )   $ 481     $ (326 )   $ (961 )
                                 
Net income (loss) attributable to common stockholders per share:
                               
Basic and diluted
  $ (0.29 )                   $ (0.25 )
                                 
Weighted-average number of shares used in per share amounts:
                               
Basic and diluted
    3,793,721                       3,793,721  
                                 
 
See accompanying notes to unaudited pro forma statements of operations


28

 

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except where noted otherwise)
 
  (1)  Derived from our historical statement of operations for the year ended December 31, 2005 and the historical unaudited consolidated statement of operations for the nine months ended September 30, 2006, which includes the results of Double-Take EMEA (which is Double-Take Software S.A.S. and formerly Sunbelt System Software) from May 24, 2006.
 
  (2)  Derived from the historical consolidated statement of operations for Double-Take EMEA for the year ended December 31, 2005 and the period from January 1, 2006 to May 23, 2006 and converted from Euros to US dollars using the $/Euro average exchange rate of 1.2447 for the year ended December 31, 2005 and 1.2206 for the period from January 1, 2006 to May 23, 2006.
 
  (3)  Elimination of our revenue recorded in Software licenses related to sales of licenses to Double-Take EMEA.
 
  (4)  Elimination of our revenue recorded in Maintenance and professional services related to maintenance sold to Double-Take EMEA.
 
  (5)  Elimination of Double-Take EMEA cost of software licenses sold related to the cost of the licenses purchased from us during the periods presented.
 
  (6)  Elimination of Double-Take EMEA cost of maintenance and professional services associated with maintenance fees paid by Double-Take EMEA to us.
 
  (7)  Adjustment to record amortization of the identified intangible assets from the Double-Take EMEA acquisition.
 
The adjustment for the year ended December 31, 2005 was calculated as follows:
 
         
Customer relationships
  $ 2,267  
Life
    5  
         
Annual amortization
  $ 453  
         
Marketing relationships
  $ 1,992  
Life
    8  
         
Annual amortization
  $ 249  
         
 
The adjustment for the period from January 1, 2006 through May 23, 2006 was calculated as follows:
 
         
Full year amortization
  $ 702  
Portion of year from January 1, 2006 to May 23, 2006
    0.396  
         
Amortization for period
  $ 278  
         


29

 

 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion and analysis together with our historical and pro forma financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed below. Accordingly, investors should not place undue reliance upon our forward-looking statements. See “Risk Factors” and “Special Note Regarding Forward-Looking Statements” for a discussion of these risks and uncertainties.
 
Overview
 
Double-Take Software develops, sells and supports affordable software that reduces downtime and protects data for business-critical systems. We believe that we are the leading supplier of replication software for Microsoft server environments. By simply loading our software onto servers running current Windows operating systems, organizations of any size can maintain an off-site standby server with replicated data, providing rapid recovery in the event of a disaster. We estimate that we have sold licenses for approximately 100,000 copies of Double-Take to more than 10,000 customers.
 
In recent years, we have experienced substantial growth, increasing our total revenue from $7.6 million for the year ended December 31, 2001 to $40.7 million for the year ended December 31, 2005, and we have reduced our net losses from $22.4 million to $3.8 million during that same period. We believe that our focus on providing affordable replication software to companies of all sizes through an efficient direct sales team and a robust distribution network has been instrumental to our continued revenue growth. Revenue generated by sales of our software represented 63% of our total revenue in the nine months ended September 30, 2006. Sales of maintenance and professional services generated the remainder of our revenue.
 
As a result of our investments in developing our software and establishing our broad distribution network (as well as legal fees and settlement costs associated with the defense and settlement of a legal case involving our intellectual property) we experienced significant operating losses through 2005. Our ability to increase the productivity of our sales force and distribution partners while controlling our other expenses has driven an improvement in our results, from an operating loss of $18.7 million and a net loss of $22.4 million in 2001 to an operating and net loss of $3.8 million in 2005. We achieved operating income of $5.2 million and net income of $5.0 million in the nine months ended September 30, 2006.
 
We commenced operations in 1991, primarily developing software for load balancing between network interface cards of servers running NetWare, a then-popular network operating system developed by Novell, Inc. We released the first Windows-based version of Double-Take in 1996 based, in part, on these experiences.
 
Some Important Aspects of Our Operations
 
We license our software under perpetual licenses to end-user customers directly and to a network of distributors, value-added resellers and original equipment manufacturers, or OEMs. Our distributors primarily sell our software to our resellers. Our resellers bundle or sell our software together with their own products and also sell our software independently. Our OEMs market, sell and support our software and services on a stand-alone basis and incorporate our software into their own hardware and software products.
 
Software sales made to or through our distributors, value-added resellers and OEMs generated approximately 94% of total software revenue in 2005 and in the nine months ended September 30, 2006. During the nine months ended September 30, 2006, approximately 6% of our software sales were made solely by our direct sales force, approximately 19% were made to our distributors for sale to value-added resellers, approximately 67% of which were made directly through resellers and approximately 8% were made through OEMs, primarily Hewlett-Packard Co. We believe that we will need to continue to maintain close relationships with our partners to sustain and increase profitability. We have no current plans to focus future growth on one distribution channel versus another. We believe our direct sales force


30

 

complements our indirect distribution network, and we intend to continue to increase revenue generated by both.
 
In 2005, the median price of sales of Double-Take software licenses to customers was approximately $4,000 and the average sales cycle was less than three months. The pricing of our product has not materially changed from 2003 through 2005. We believe that these factors have contributed to more balanced sales throughout the quarter and more predictable revenue streams in comparison to other software companies with perpetual license models. We believe that the affordability of our software is a competitive advantage.
 
On May 23, 2006, we completed our acquisition of Sunbelt System Software S.A.S., which is now known as Double-Take Software S.A.S., or Double-Take EMEA. From 1998 through the acquisition date, Double-Take EMEA was the principal or exclusive distributor of our software in our European, Middle Eastern and African markets and a certified Double-Take training organization. Sales of our software and related services generated 93% of Double-Take EMEA’s revenue in 2005. Our acquisition of Double-Take EMEA has provided us with a direct presence in the European, Middle Eastern and African markets, the opportunity to further our strategic initiative to increase revenue generated outside of the United States, and opportunities for improved margins. The inclusion of Double-Take EMEA’s assets and operations in our business since May 23, 2006 has contributed to a significant increase in the size of our business.
 
Revenue
 
We derive revenue from sales of perpetual licenses for our software and from maintenance and professional services.
 
Software Licenses.  We derive the majority of our revenue from sales of perpetual licenses of our software applications, which allow our customers to use the software indefinitely. We do not customize our software for a specific end user customer. We recognize revenue from sales of perpetual licenses generally upon shipment of the software. In accordance with EITF 01-9, our software revenue is reported net of rebates and discounts because we do not receive an identifiable benefit in exchange for the rebate or discount.
 
Our software revenue generated approximately 64% of our total revenue in 2005 and 63% of our total revenue in the nine months ended September 30, 2006. Sales to existing customers generated approximately 54% of our software revenue in 2005 and 56% in the nine months ended September 30, 2006. Sales to new customers generated the remainder of our software revenue for these periods. We do not anticipate that our acquisition of Double-Take EMEA in May 2006 will materially affect the percentage of our total revenue that is generated by software sales.
 
Our software revenue generally experiences some seasonality. Many organizations do not make the bulk of their information technology purchases, including software, in the first quarter of any year. We believe that this generally has resulted in lower revenue generated by software sales in our first quarter in prior years. We also have experienced in prior years lower revenue in the summer months.
 
Maintenance and Professional Services.  We also generate revenue by providing our customers with maintenance comprised of software updates and product support. We generally include our maintenance for a designated period in the price of the software at the time of sale. In addition, many of our customers enter into a maintenance agreement for periods longer than a year. These agreements entitle our customers to software updates on a when-and-if-available basis and product support for an annual fee based on the licenses purchased and the level of service subscribed. Almost all of our customers that purchase maintenance pay the entire amount payable under the agreement in advance, although we recognize maintenance revenue ratably over the term of the agreement. This policy has contributed to increasing deferred revenue balances on our balance sheet and positive cash flow from operations.
 
In some cases, most often in connection with the licensing of our software, we provide professional services to assist our customers in strategic planning for disaster recovery and application high availability, the installation of our software and the training of their employees to use our software. We provide most


31

 

of our professional services on a fixed price basis and we recognize the revenue for professional services once we complete the engagement.
 
Of total maintenance and professional services revenue, maintenance revenue represented 84% in 2005 and 86% in the nine months ended September 30, 2006. Professional services generated the remainder of our total maintenance and professional services revenue in these periods.
 
Of our total revenue, maintenance revenue represented 30% in 2005 and 32% in the nine months ended September 30, 2006. Professional services accounted for 6% of our total revenue in 2005 and 5% for the nine months ended September 30, 2006. Our maintenance and professional services revenue historically has generated lower gross margins than our software revenue. The gross margin generated by our maintenance and professional services revenue was 70% in 2005 and 71% in the nine months ended September 30, 2006. We expect the proportion of revenue derived from sales of maintenance to increase in the future as we increase the number of software licenses sold and in service. As the percentage of total revenue attributable to maintenance increases, our overall gross margins will be adversely affected.
 
Cost of Revenue
 
Our cost of revenue primarily consists of the following:
 
Cost of Software Revenue.  Cost of software revenue consists primarily of media, manual, translation and distribution costs and may in the future include royalties to third-party software developers for technology embedded within our software. Cost of software revenue also has included amortization of internally-developed capitalized software. Because our recent development initiatives have resulted in a significant decrease in the time and costs incurred between technological feasibility and the point at which the software is ready for general release, we no longer capitalize costs of our internally-developed software. As a result, we do not believe that amortization of internally developed software will have any effect on our cost of software revenue in future periods. Cost of software related to Double-Take EMEA sales in the period from May 24, 2006 through September 30, 2006 will discontinue now that the sale of Double-Take products on hand on May 23, 2006 has occurred, as substantially all of Double-Take EMEA sales are sales of our products.
 
Cost of Services Revenue.  Cost of services revenue consists primarily of salary and other personnel-related costs incurred in connection with our provision of maintenance and professional services. Cost of services revenue also includes other allocated overhead expenses for our professional services and product support personnel, as well as travel-related expenses for our staff to perform work at a customer’s site.
 
Operating Expenses
 
We classify our operating expenses as follows:
 
Sales and Marketing.  Sales and marketing expenses primarily consist of the following:
 
  •  personnel and related costs for employees engaged in sales, corporate marketing, product marketing and product management, including salaries, commissions and other incentive compensation, including equity-based compensation, related employee benefit costs and allocated overhead expenses;
 
  •  travel related expenses to meet with existing and potential customers, and for other sales and marketing related purposes; and
 
  •  sales promotion expenses, public relations expenses and costs for marketing materials and other marketing events, including trade shows, industry conventions and advertising, and marketing development funds for our distribution partners.
 
We expense our sales commissions at the time of sale. We expect our sales and marketing expense to increase in the future as we increase the number of direct sales professionals and invest in marketing programs. However, we expect sales and marketing expense to decrease as a percentage of revenue for the near future as we anticipate that our revenue will increase more rapidly than our sales and marketing costs.


32

 

Research and Development.  Research and development expenses primarily represent the expense of developing new software and modifying existing software. These expenses primarily consist of the following:
 
  •  personnel and related costs, including salaries, employee benefits, equity and other incentive compensation and allocated overhead expenses, for research and development personnel, including software engineers, software quality assurance engineers and systems engineers; and
 
  •  contract labor expense and consulting fees paid to independent consultants and others who provide software engineering services to us, as well as other expenses associated with the design and testing of our software.
 
To date, our research and development efforts have been primarily devoted to increases in features and functionality of our existing software. We expect research and development expense to increase in the future as we continue to develop new solutions for our customers. However, we expect research and development expense to remain relatively consistent, or possibly decrease slightly, as a percentage of revenue.
 
General and Administrative.  General and administrative expenses represent the costs and expenses of managing and supporting our operations. General and administrative expenses consist primarily of the following:
 
  •  personnel and related costs including salaries, employee benefits, equity and other incentive compensation and allocated overhead expenses, for our executives, finance, human resources, corporate information technology systems, strategic business, corporate quality, corporate training and other administrative personnel;
 
  •  legal and accounting professional fees;
 
  •  recruiting and training costs;
 
  •  travel related expenses for executives and other administrative personnel; and
 
  •  computer maintenance and support for our internal information technology system.
 
We expect general and administrative expenses to increase in the future as we incur increased expenses related to being a publicly-traded company and invest in an infrastructure to support our continued growth. However, we expect general and administrative expenses to decrease as a percentage of revenue for the foreseeable future after fiscal 2006, as we believe the rate at which our revenue will increase will exceed the rate at which we expect to incur these additional expenses. In the period in which our proposed public offering goes effective, we will incur significant general and administrative expenses related to the restricted shares to be issued to and the acceleration of options of our Chief Executive Officer.
 
Depreciation and Amortization.  Depreciation and amortization expense consists of depreciation expense primarily for computer equipment we use for information services and in our development and test labs, and amortization of intangible assets acquired.
 
Legal Fees and Settlement Costs.  In December 2005, we agreed to terms for settlement of a legal proceeding with a provider of information storage systems that involved claims regarding some of the intellectual property used in our software. Pursuant to a settlement agreement entered into in January 2006, we paid $3.8 million in January 2006, which represented our initial settlement payment in connection with the resolution of this matter, and we agreed to pay the other company an additional $0.5 million in each of January 2007, 2008, 2009 and 2010. Our obligation to make these future payments will be reduced on a dollar-for-dollar basis to the extent that we purchase or resell the other company’s products. Our obligation to make these payments is collateralised by a letter of credit from Silicon Valley Bank. Legal fees and settlement costs are composed of the legal fees and expenses we have incurred in connection with this legal proceeding.


33

 

Results of Operations
 
The following table sets forth our sources of revenue, costs of revenue and other selected financial data for the specified periods and as a percentage of our total revenue for those periods.
 
                                         
    Year Ended
 		    Nine Months
 		 
    December 31,     Ended September 30,  
    2005     2004     2003     2006     2005  
                      (unaudited)  
    (in thousands)  
 
Revenue:
                                       
Software licenses
  $ 26,222     $ 19,943     $ 16,283     $ 26,240     $ 18,341  
Maintenance and professional services
    14,488       9,895       7,650       15,547       10,540  
                                         
Total revenue
    40,710       29,838       23,933       41,787       28,881  
                                         
Cost of revenue:
                                       
Software licenses
    38       559       1,426       1,329       31  
Maintenance and professional services
    4,357       3,694       3,103       4,426       3,214  
                                         
Total cost of revenue
    4,395       4,253       4,529       5,755       3,245  
                                         
Gross profit
    36,315       25,585       19,404       36,032       25,636  
                                         
Operating expenses:
                                       
Sales and marketing
    17,191       16,188       13,654       15,591       12,645  
Research and development
    9,748       8,717       6,373       7,749       7,292  
General and administrative
    6,730       5,666       5,253       6,371       5,268  
Depreciation and amortization
    805       527       1,617       1,094       570  
Legal fees and settlement costs
    5,671       1,755       200       —       1,040  
                                         
Total operating expenses
    40,145       32,853       27,097       30,805       26,815  
                                         
Income (loss) from operations
    (3,830 )     (7,268 )     (7,693 )     5,227       (1,179 )
Interest income
    83       7       19       213       35  
Interest expense
    (36 )     (765 )     (341 )     (69 )     (21 )
Foreign exchange gains (losses)
    —       —       —       79       —  
                                         
Income (loss) before income taxes
    (3,783 )     (8,026 )     (8,015 )     5,450       (1,165 )
Income tax expense
    —       —       —       403       —  
                                         
Net income (loss)
    (3,783 )     (8,026 )     (8,015 )     5,047       (1,165 )
Accretion on redeemable shares:
                                       
Series B
    (5,310 )     (5,310 )     (4,928 )     (3,983 )     (3,983 )
Series C
    (22 )     (4 )     —       (17 )     (17 )
Beneficial conversion feature — Series B
    —       —       (1,194 )     —       —  
Dividends on Series B
    (2,035 )     (1,882 )     (1,637 )     (1,636 )     (1,507 )
Dividends on Series C
    (651 )     (147 )     —       (527 )     (481 )
                                         
Net loss attributable to common stockholders
  $ (11,801 )   $ (15,369 )   $ (15,774 )   $ (1,116 )   $ (7,153 )
                                         
 


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    Year Ended
 		    Nine Months
 		 
    December 31,     Ended September 30,  
     2005       2004       2003       2006       2005   
 
Revenue:
                                       
Software licenses
    64 %     67 %     68 %     63 %     64 %
Maintenance and professional services
    36 %     33 %     32 %     37 %     36 %
                                         
Total revenue
    100 %     100 %     100 %     100 %     100 %
                                         
Cost of revenue:
                                       
Software licenses
    —       2 %     6 %     3 %     —  
Maintenance and professional services
    11 %     12 %     13 %     11 %     11 %
                                         
Total cost of revenue
    11 %     14 %     19 %     14 %     11 %
                                         
Gross profit
    89 %     86 %     81 %     86 %     89 %
                                         
Operating expenses:
                                       
Sales and marketing
    42 %     54 %     57 %     37 %     44 %
Research and development
    24 %     29 %     27 %     19 %     27 %
General and administrative
    17 %     19 %     22 %     15 %     17 %
Depreciation and amortization
    2 %     2 %     7 %     2 %     2 %
Legal fees and settlement costs
    14 %     6 %     1 %     —       4 %
                                         
Total operating expenses
    99 %     110 %     113 %     73 %     93 %
                                         
Income (loss) from operations
    (9 )%     (24 )%     (32 )%     13 %     (4 )%
Interest income
    —       —       —       —       —  
Interest expense
    —       (3 )%     (1 )%     —       —  
Foreign exchange gains (losses)
    —       —       —       —       —  
                                         
Income (loss) before income taxes
    (9 )%     (27 )%     (33 )%     13 %     (4 )%
                                         
Income tax expense
    —       —       —       1 %     —  
                                         
Net income (loss)
    (9 )%     (27 )%     (33 )%     12 %     (4 )%
                                         
Accretion on redeemable shares:
                                       
Series B
    (13 )%     (18 )%     (21 )%     (10 )%     (14 )%
Series C
    —       —       —       —       —  
Beneficial conversion feature — Series B
    —       —       (5 )%     —       —  
Dividends on Series B
    (5 )%     (6 )%     (7 )%     (4 )%     (5 )%
Dividends on Series C
    (2 )%     —       —       (1 )%     (2 )%
                                         
Net loss attributable to common stockholders
    (29 )%     (51 )%     (66 )%     (3 )%     (25 )%
                                         
 
Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005
 
Revenue
 
Total revenue increased $12.9 million, or 45%, from $28.9 million in the nine months ended September 30, 2005 to $41.8 million in the nine months ended September 30, 2006. Of our total revenue in the 2006 nine-month period, 94% was attributable to sales to or through our distribution partners, which was an increase from 90% of our total revenue attributable to sales to or through our distribution partners in the 2005 nine-month period. Of our total revenue in the 2006 nine-month period, 6% was attributable to direct sales to end users, a decrease from 10% of our total revenue attributable to end users in the 2005 nine-month period.
 
Software License Revenue.  Software revenue increased $7.9 million, or 43%, from $18.3 million in the 2005 nine-month period to $26.2 million in the 2006 nine-month period. The increase in software revenue was due to increased volume of $1.9 million resulting from broader demand for, and acceptance of, our software, $1.1 million due to the release of our new product Double-Take for Virtual Systems,

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$1.8 million due to a price increase that was effective on August 1, 2005 and $3.1 million from Double-Take EMEA sales from May 24 through September 30, 2006.
 
Maintenance and Professional Services Revenue.  Maintenance and professional services revenue increased $5.0 million, or 48%, from $10.5 million in the 2005 nine-month period to $15.5 million in the 2006 nine-month period. Maintenance and professional services revenue represented 36% of our total revenue in the 2005 nine-month period and 37% of our total revenue in the 2006 nine-month period. Maintenance revenue increased $4.6 million, or 53%, from $8.7 million in the 2005 nine-month period to $13.3 million in the 2006 nine-month period. The increase in maintenance revenue was attributable to higher sales to our expanding base of customers, as well as maintenance revenue of $2.4 million generated by Double-Take EMEA. Professional services revenue increased $0.4 million, or 22%, from $1.8 million in the 2005 nine-month period to $2.2 million in the 2006 nine-month period. The increase in professional services revenue was due to more professional service deliveries due to an increase in professional services personnel as well as $0.2 million of revenue generated by Double-Take EMEA.
 
Cost of Revenue and Gross Profit
 
Total cost of revenue increased $2.6 million, or 77%, from $3.2 million in the 2005 nine-month period to $5.8 million in the 2006 nine-month period. Total cost of revenue represented 11% of our total revenue in the 2005 nine-month period and 14% of our total revenue in the 2006 nine-month period.
 
Cost of software revenue increased $1.3 million, or 4,187%, from $0.0 million in the 2005 nine-month period to $1.3 million in the 2006 nine-month period. The increase was due to cost of inventory related to Double-Take EMEA sales in the nine-month period. We expect this amount to decrease as Double-Take EMEA sold through their remaining inventory in the third quarter of 2006. Cost of software revenue represented 0% of our software revenue in the 2005 nine-month period and 3% of our software revenue in the 2006 nine-month period.
 
Cost of services revenue increased $1.2 million, or 38%, from $3.2 million in the 2005 nine-month period to $4.4 million in the 2006 nine-month period. The increase was the result of higher employee compensation of $0.6 million due to an increase in the number of our maintenance and professional services personnel, higher facility costs associated with the increase of personnel of $0.1 million and $0.4 million of costs of Double-Take EMEA maintenance and professional services personnel. Cost of services revenue represented 31% of our services revenue in the 2005 nine-month period and 29% of our services revenue in the 2006 nine-month period.
 
Gross profit increased $10.4 million, or 41%, from $25.6 million in the 2006 nine-month period to $36.0 million in the 2006 nine-month period. Gross profit decreased from 89% in the 2005 nine-month period to 86% in the 2006 nine-month period. This decrease is related to the cost of software increase related to Double-Take EMEA.
 
Operating Expenses
 
Sales and Marketing.  Sales and marketing expenses increased $3.0 million, or 23%, from $12.6 million in the 2005 nine-month period to $15.6 million in the 2006 nine-month period. The increase was due to an increase of compensation and commission expense of $0.8 million resulting from increased sales, an increase of $0.2 million in marketing and advertising related to our Double-Take brand re-launch and $2.0 million of costs of Double-Take EMEA sales and marketing efforts.
 
Research and Development.  Research and development expenses increased by $0.4 million, or 6%, from $7.3 million in the 2005 nine-month period to $7.7 million in the 2006 nine-month period. The increase resulted from higher compensation expense of $0.2 million due to the implementation of a company wide incentive plan in the second half of 2005, and $0.2 million from outsourced development projects.
 
General and Administrative.  General and administrative expenses increased $1.1 million, or 21%, from $5.3 million in the 2005 nine-month period to $6.4 million in the 2006 nine-month period. The increase was related to $0.9 million in compensation expense in the 2006 nine-month period attributable


36

 

to expensing of stock options because of the adoption of SFAS 123R in January 2006, an increase in compensation expense of $0.2 million due to the implementation of a company wide incentive plan in the second half and $0.6 million of costs from Double-Take EMEA. These increases were offset by a decrease in legal fees of $0.6 million incurred in the 2005 nine-month period related to an investigation of expenses attributable to former employees.
 
Depreciation and Amortization.  Depreciation and amortization expense increased $0.5 million, or 92%, from $0.6 million in the 2005 nine-month period to $1.1 million in the 2006 nine-month period. The increase was attributable to increased depreciation expense associated with increased capital expenditures, which were applied primarily for product development and other computer-related equipment, as well as amortization related to the intangible assets acquired in the Double-Take EMEA acquisition.
 
Legal Fees and Settlement Costs.  Legal fees and settlement costs decreased $1.0 million, or 100%, from $1.0 million in the 2005 nine-month period to $0.0 million in the 2006 nine-month period. This decrease is attributable to the settlement in December 2005 of the legal proceeding between us and a provider of information storage systems regarding certain intellectual property rights.
 
Interest Income
 
Interest income increased $0.2 million from $0.0 million in the 2005 nine-month period to $0.2 million in the 2006 nine-month period. The increase is attributable to higher cash balances in our deposit accounts and an increase in related interest rates.
 
Foreign Exchange gains (losses)
 
Foreign currency gains totaled $0.1 million due to foreign currency fluctuations related to Double-Take EMEA from May 24 to September 30, 2006.
 
Income Tax Expense
 
Income tax expense increased from $0.0 million in the 2005 nine-month period to $0.4 million in the 2006 nine-month period. The increase is related to income tax expense incurred by Double-Take EMEA as well as a nominal amount related to our domestic operations. We expect that our income tax expense will continue to increase in future periods related to Double-Take EMEA’s operations. This increase will be partially offset by our domestic operating loss carryforwards available as well as associated foreign tax credits related to Double-Take EMEA tax payments. As of September 30, 2006, we have approximately $67.0 million in net operating loss carryforwards.
 
Net Income (Loss)
 
Net income increased from a loss of $1.2 million in the 2005 nine-month period to income of $5.0 million in the 2006 nine-month period. This increase is related to our revenue growth of 45% from the 2005 nine-month period while operating expenses have increased by only 15% in the same period. This increase was the result of our continued focus on expense control and continuing to leverage our existing sales force and partners to generate incremental revenue.
 
Preferred Stock
 
Accretion on our Series B and Series C Preferred stock did not change from $4.0 million in the 2005 nine-month period to the 2006 nine-month period. The accretion increases the carrying value of the preferred shares from their carrying value to their redemption value on a straight-line basis over the period from the investment date to the mandatory redemption date. Accretion will continue until November 12, 2006 for both issuances.
 
Dividends on our Series B and Series C Preferred stock increased from $2.0 million in the 2005 nine-month period to $2.2 million in the 2006 nine-month period. The increase is a result of to the monthly compounding of the dividends pursuant to the terms of each issuance.


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If this offering is completed, all shares of our Series B and Series C Preferred stock will be converted into common stock. As of October 31, 2006, they will convert to 11,425,839 shares of common stock. Also, there will be a mandatory payment to the Series B holders of approximately $10.2 million upon completion of the offering.
 
2005 Compared to 2004
 
Revenue
 
Total revenue increased $10.9 million, or 36%, from $29.8 million in 2004 to $40.7 million for 2005. Of our total revenue in 2005, 93% was attributable to sales to or through our distribution partners, which was an increase from 90% of our total revenue attributable to sales to or through our distribution partners in 2004. Of our total revenue in 2005, 7% was attributable to direct sales to end users, which was a decrease of 10% of our total revenue attributable to end users in 2004.
 
Software License Revenue.  Software revenue increased $6.3 million, or 31%, from $19.9 million in 2004 to $26.2 million in 2005. Software revenue represented 67% of our total revenue in 2004 and 64% of our total revenue in 2005. The increase in software revenue was a result of an increase in the number of new licenses sold. In 2005, we sold approximately 18,000 new licenses compared to approximately 14,000 licenses in 2004 due to broader demand for, and acceptance of, our software applications.
 
Maintenance and Professional Services Revenue.  Maintenance and professional services revenue increased $4.6 million, or 46%, from $9.9 million in 2004 to $14.5 million in 2005. Maintenance and professional services revenue represented 33% of our total revenue in 2004 and 36% of our total revenue in 2005. Maintenance revenue increased $3.7 million, or 31%, from $8.4 million in 2004 to $12.1 million in 2005. The increase in maintenance revenue was attributable to higher sales to our expanding base of customers. Professional services revenue increased $0.9 million, or 60%, from $1.5 million in 2004 to $2.4 million in 2005. The increase in professional services revenue was due to our efficient use of resources to reduce our backlog built up from the second half of 2004 as well as an increase in overall professional service bookings.
 
Cost of Revenue and Gross Profit
 
Total cost of revenue increased $0.1 million, or 3%, from $4.3 million in 2004 to $4.4 million in 2005. Total cost of revenue represented 14% of our total revenue in 2004 and 11% of our total revenue in 2005.
 
Cost of software revenue decreased $0.6 million, or 93%, from $0.5 million in 2004 to $0.0 million in 2005. The decrease was due to $0.5 million of amortization of internally-developed capitalized software costs in 2004. Since 2004, we no longer capitalize these costs due to the reduction in time between technological feasibility and the release to market of our software, which resulted in no amortization in 2005.
 
Cost of services revenue increased $0.7 million, or 18%, from $3.7 million in 2004 to $4.4 million in 2005. Cost of services revenue represented 37% of our services revenue in 2004 and 30% of our services revenue in 2005. The increase in total cost of revenue and cost of services revenue was the result of higher employee compensation of $0.7 million resulting from an increase in the number of our maintenance and professional services personnel.
 
Gross profit increased $10.7 million, or 42%, from $25.6 million in 2004 to $36.3 million in 2005. Gross margin increased from 86% in 2004 to 89% in 2005. This increase in gross margin resulted from the significant increase in revenue, which grew at a higher rate than cost of revenue.
 
Operating Expenses
 
Sales and Marketing.  Sales and marketing expenses increased $1.0 million, or 6%, from $16.2 million in 2004 to $17.2 million in 2005. The increase was due to an increase of $1.2 million in commission expense resulting from increased sales, which was offset in part by a decrease of $0.2 million in employee compensation resulting from a decrease in the number of sales and marketing personnel.


38

 

Research and Development.  Research and development expenses increased $1.0 million, or 12%, from $8.7 million in 2004 to $9.7 million in 2005. The increase was due to an increase in employee compensation resulting from an increase in the number of our research and development personnel.
 
General and Administrative.  General and administrative expenses increased $1.1 million, or 19%, from $5.6 million in 2004 to $6.7 million in 2005. The increase reflected increased legal fees of $0.5 million related to an investigation of expenses attributable to former employees and increased compensation expense attributable to an increase in the number of general and administrative personnel.
 
Depreciation and Amortization.  Depreciation and amortization expense increased $0.3 million, or 53%, from $0.5 million in 2004 to $0.8 million in 2005. The increase was attributable to increased depreciation expense associated with increased capital expenses, which were applied primarily for product development and other computer-related equipment.
 
Legal Fees and Settlement Costs.  Legal fees and settlement costs increased $3.9 million, or 223%, from $1.8 million in 2004 to $5.7 million in 2005. This increase is the result of our agreeing in December 2005 to a payment of $3.8 million in connection with the settlement of a legal proceeding between us and a provider of information storage systems regarding certain intellectual property rights.
 
Interest Expense
 
Interest expense decreased $0.8 million, from $0.8 million in 2004 to $0.0 million in 2005. The decrease was primarily attributable to an interest charge of $0.5 million related to the conversion of $2.0 million of convertible notes to shares of our Series C convertible preferred stock in October 2004.
 
Interest Income
 
Interest income increased to $0.1 million in 2005 as a result of higher cash balances in our deposit accounts and an increase in related interest rates.
 
Net Income (Loss)
 
Net loss decreased from a loss of $8.0 million in 2004 to a loss of $3.8 million in 2005. This decrease is a result of revenue growth of 36% from 2004 compared to an operating expenses increase of 22% in the same period. This decrease in net loss was the result of headcount remaining virtually the same from 2004 to 2005 while continuing to leverage our existing sales force and partners to generate incremental revenue.
 
Preferred Stock
 
Accretion on our Series B and Series C Preferred stock increased nominally in 2005 from 2004 and was $5.3 million in both periods. The accretion increases the carrying value of the preferred shares from their carrying value to their redemption value on a straight-line basis over the period from the investment date to the mandatory redemption date.
 
Dividends on our Series B and Series C Preferred stock increased from $2.0 million in 2004 to $2.7 million in 2005. The increase is a result of the monthly compounding of the dividends pursuant to the terms of each issuance as well as the dividend accrual for a full year for the Series C Preferred stock, which was originally issued in October 2004.
 
2004 Compared to 2003
 
Revenue
 
Total revenue increased $5.9 million, or 25%, from $23.9 million in 2003 to $29.8 million in 2004. Of our total revenue in 2004, 90% was attributable to sales to or through our distribution partners, which was a decrease from 91% of our total revenue attributable to sales to or through our distribution partners in 2003. Of our total revenue in 2004, 10% was attributable to direct sales to end users, which was an increase from 9% of our total revenue attributable to end users in 2003.


39

 

Software License Revenue.  Software revenue increased $3.6 million, or 22%, from $16.3 million in 2003 to $19.9 million in 2004. Software revenue represented 68% of our total revenue in 2003 and 67% of our total revenue in 2004. The increase in software revenue was a result of an increase in the number of new licenses sold. In 2004, we sold 14,233 new licenses compared to 11,951 licenses in 2003 due to broader demand for, and acceptance of, our software applications.
 
Maintenance and Professional Services Revenue.  Maintenance and professional services revenue increased $2.2 million, or 29%, from $7.7 million in 2003 to $9.9 million in 2004. Maintenance and professional services revenue represented 32% of our total revenue in 2003 and 33% of our total revenue in 2004. Maintenance revenue increased $2.7 million, or 47%, from $5.7 million in 2003 to $8.4 million in 2004. The increase in maintenance revenue was attributable to higher sales to our expanding base of customers. Professional services revenue decreased $0.5 million, or 26%, from $2.0 million in 2003 to $1.5 million in 2004. The decrease in professional services revenue was due to an increase in our backlog of engagements to be performed resulting from bookings in the second half of 2004 that were completed in 2005.
 
Cost of Revenue and Gross Profit
 
Total cost of revenue decreased $0.2 million, or 6%, from $4.5 million in 2003 to $4.3 million in 2004. Total cost of revenue represented 19% of our total revenue in 2003 and 14% of our total revenue in 2004.
 
Cost of software revenue decreased $0.8 million, or 61%, from $1.4 million in 2003 to $0.6 million in 2004. This was a result of a decrease in amortization of internally-developed capitalized software costs in 2004. We no longer capitalize or amortize these costs due to the reduction in time between technological feasibility and the release to market of our software.
 
Cost of services revenue increased $0.6 million, or 19%, from $3.1 million in 2003 to $3.7 million in 2004. Cost of services revenue represented 41% of our total services revenue in 2003 and 37% of our total services revenue in 2004. The increase in cost of services revenue was primarily the result of higher employee compensation of $0.5 million resulting from an increase in the number of our maintenance and professional services personnel.
 
Gross profit increased $6.2 million, or 32%, from $19.4 million in 2003 to $25.6 million in 2004. Gross margin increased from 81% in 2003 to 86% in 2004. This increase in gross margin resulted from the significant increase in revenue which grew at a higher rate than cost of revenue.
 
Operating Expenses
 
Sales and Marketing.  Sales and marketing expenses increased $2.5 million, or 19%, from $13.7 million in 2003 to $16.2 million in 2004. The increase was primarily attributable to an increase of $1.5 million in commission expense resulting from increased sales and an increase of $1.5 million in marketing expenses to promote brand awareness through print and web-based advertising and to customize our web site.
 
Research and Development.  Research and development expenses increased $2.3 million, or 37%, from $6.4 million in 2003 to $8.7 million in 2004. The increase was primarily due to an increase in employee compensation expenses of $2.3 million resulting from an increase in the number of our research and development personnel.
 
General and Administrative.  General and administrative expenses increased $0.4 million, or 8%, from $5.3 million in 2003 to $5.7 million in 2004. The increase was primarily attributable to an increase in employee compensation expenses of $0.3 million related to an increase in the number of general and administrative personnel.
 
Depreciation and Amortization.  Depreciation and amortization expense decreased $1.1 million, or 67%, from $1.6 million in 2003 to $0.5 million in 2004. The decrease reflects the full depreciation of some of the fixed assets in our development laboratory.


40

 

Legal Fees and Settlement Costs.  Legal fees and settlement costs increased $1.6 million, or 778%, from $0.2 million in 2003 to $1.8 million in 2004. This increase is due to an increase in legal fees and expenses incurred in 2004 in connection with the legal proceeding between us and a provider of information storage systems regarding certain intellectual property rights, which was settled in December 2005.
 
Interest Expense
 
Interest expense increased $0.5 million, from $0.3 million in 2003 to $0.8 million in 2004. The increase was primarily attributable to an interest charge of $0.5 million related to the conversion of $2.0 million of convertible notes to shares of our Series C convertible preferred stock in October 2004, which was offset in part by lower interest expense related to our line of credit.
 
Net Income (Loss)
 
Net loss decreased nominally from 2003 to 2004 and was $8.0 million in both periods. While revenue grew by 25% from 2003, operating expenses increased by 21% in the same period. Other expenses increased by $0.4 million as a result of interest expense associated with the issuance of our Series C Preferred stock resulting in a total increase of expenses of 25%. As our number of customers grew with our increase in revenue, we increased the number of support personnel as well as the number of research and development personnel to meet customer demands and to expedite product testing and releases.
 
Preferred Stock
 
Accretion on our Series B and Series C Preferred stock increased $0.4 million from $4.9 million in 2003 to $5.3 million in 2004. The accretion increases the carrying value of the preferred shares from their carrying value to their redemption value on a straight-line basis over the period from the investment date to the mandatory redemption date. The increase is a result of the full year accretion for the additional Series B issuance of $1.6 million in October 2003 and a nominal amount for the Series C Preferred Stock issued in October 2004.
 
Dividends on our Series B and Series C Preferred stock increased from $1.6 million in 2003 to $2.0 million in 2004. The increase is a result of the monthly compounding of the dividends pursuant to the terms of each issuance as well as the dividend accrual for the Series C Preferred stock, which was issued in October 2004.
 
Critical Accounting Policies
 
In presenting our financial statements in conformity with accounting principles generally accepted in the United States, we are required to make estimates and judgments that affect the amounts reported in our financial statements. Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We formulate these estimates and assumptions based on historical experience and on various other matters that we believe to be reasonable and appropriate. Actual results may differ significantly from these estimates. Of our significant accounting policies described in Note A to the historical financial statements included elsewhere in this prospectus, we believe that the following policies may involve a higher degree of judgment and complexity.
 
Revenue Recognition
 
We derive revenue from two primary sources or elements: software licenses and services. Services include customer support, consulting, installation services and training. A typical sales arrangement includes both of these elements. We apply the provisions of Statement of Position, or SOP, 97-2, “Software Revenue Recognition,” as amended by SOP 98-4 and SOP 98-9, and related interpretations to all transactions to determine the recognition of revenue.
 
For software arrangements involving multiple elements, we recognize revenue using the residual method as described in SOP 98-9. Under the residual method, we allocate and defer revenue for the undelivered elements based on relative fair value and recognize the difference between the total


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arrangement fee and the amount deferred for the undelivered elements as revenue. The determination of fair value of the undelivered elements in multiple element arrangements is based on the price charged when such elements are sold separately, which is commonly referred to as vendor-specific objective-evidence, or VSOE.
 
Our software licenses typically provide for a perpetual right to use our software and are sold on a per copy basis. We recognize software revenue through direct sales channels and resellers upon receipt of a purchase order and when all other basic revenue recognition criteria are met as described below. Revenue from software licenses sold through an original equipment manufacturer partner is recognized upon the receipt of a royalty report.
 
Services revenue includes revenue from customer support and other professional services. Customer support includes software updates (including unspecified product upgrades and enhancements) on a when-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. To determine the price for the customer support element when sold separately, we use stated renewal rates as established VSOE.
 
Other professional services such as consulting and installation services provided by our are not essential to the functionality of the software and can also be performed by the customer or a third party. Revenues from consulting and installation services are recognized when the services are completed. Training fees are recognized after the training course has been provided. Based on our analysis of such other professional services transactions sold on a stand-alone basis, we establish VSOE for such other professional services when sold in connection with a multiple-element software arrangement.
 
We have analyzed all of the undelivered elements included in our multiple-element arrangements and determined that VSOE of fair value exists to allocate revenues to services. Accordingly, assuming all basic revenue recognition criteria are met, software revenue is recognized upon delivery of the software license using the residual method in accordance with SOP 98-9.
 
We consider the four basic revenue recognition criteria for each of the elements as follows:
 
Persuasive evidence of an arrangement with the customer exists.  Our customary practice is to require a purchase order and, in some cases, a written contract signed by both the customer and us prior to recognizing revenue on an agreement.
 
Delivery or performance has occurred.  Our software applications are usually physically delivered to customers with standard transfer terms such as FOB shipping point. Software and/or software license keys for add-on orders or software updates are typically delivered via email. We recognize software revenue upon shipment to resellers and distributors because there is no right of return or refund and no price protection agreements. In situations where multiple copies of licenses are purchased, all copies are delivered to the customer in one shipment and revenue is recognized upon shipment. Occasionally, the Company enters into a site license with a customer that allows the customer to use a specified number of licenses within the organization. When a site license is sold, the Company delivers a master disk to the customer that allows the product to be installed on multiple servers. The Company has no further obligation to provide additional copies of the software or user manuals. Revenue on site licenses is recognized upon shipment of the master disk to the customer. Sales made by our OEM partners are recognized as revenue in the month the product is shipped to the end user. We estimate the revenue from a preliminary report received from the OEM shortly after the end of the month. Once the final report is received, the revenue is adjusted to that based on the final report, usually in the following month. Services revenue is 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 a 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.


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Collection is probable.  Probability of collection is assessed on a customer-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.
 
Our arrangements 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.
 
Stock-Based Compensation
 
Prior to January 1, 2006, we accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, compensation cost for stock options generally was measured as the excess, if any, of the estimated fair market value of our common stock over the amount an employee must pay to acquire the common stock on the date that both the exercise price and the number of shares to be acquired pursuant to the option are fixed. We had adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” which was released in December 2002 as an amendment to SFAS No. 123 and used the minimum value method of valuing stock options as allowed for non-public companies.
 
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123(R), Share-Based Payment. SFAS No. 123(R) is a revision of SFAS No. 123, Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guide. SFAS No. 123(R) requires the measurement of the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the measurement date of grant. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award. We adopted SFAS No. 123(R) on January 1, 2006, which requires compensation cost to be recognized as expense in 2006 and future periods for the portion of outstanding awards that were unvested at that date and awards that are subsequently granted, based on the fair value of those awards on the measurement date, calculated using an option pricing model. For more information regarding our accounting for stock option grants, see Note 15 to our financial statements, “Stock-Based Compensation.”
 
Prior to December 31, 2005, we granted our employees options to purchase our common stock at exercise prices equal to the fair market value of the underlying common stock at the date of each grant, as determined by our board of directors at the time. Our board of directors determined these values primarily based upon internal valuation estimates as well as arm’s-length transactions involving our preferred stock. Determining the fair market value of our common stock requires making complex and subjective judgments since there is no public trading market for our common stock. We did not obtain contemporaneous valuations by an unrelated valuation specialist in connection with these option grants because our board of directors, which includes representatives of the investors in our preferred stock financings, determined that it had the relevant expertise to reasonably estimate the fair market value of our common stock. These estimates were based on several factors, including the fair market value of preferred stock we issued from time to time with superior rights and preferences to our common stock, current market conditions and our financial and operating performance.
 
Based on this analysis, our board of directors estimated that the per share fair market value of the common stock underlying stock options granted in 2005 was $1.52 per share. In 2005, our board of directors considered numerous objective and subjective factors to determine the fair market value at each option grant date during this period, including the following:
 
  •  the sale of our Series C preferred stock at $0.98 per share in a private placement in 2004 to venture capital investors, which, taking into account the effect on the conversion rate of the Series C preferred stock of the reverse stock split of our common stock on November 3, 2006, is


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  equivalent to $4.80 per share, including the superior rights and preferences of the Series C preferred stock to our common stock;
 
  •  the superior rights and preferences of all classes of our preferred stock to our common stock, including the aggregate liquidation preference, accrued and unpaid dividends, conversion provisions and superior voting rights;
 
  •  our financial and operating performance in 2005;
 
  •  our stage of development and business strategy in 2005; and
 
  •  the likelihood of achieving a liquidity event for the shares of common stock underlying the stock options granted in 2005.
 
In particular, during 2005, we experienced significant changes in our senior management team and experienced delays in rolling out our products and services and uncertainties surrounding new development projects, all of which resulted in a high degree of uncertainty as to whether we could achieve our business goals. In addition, we were also involved in patent litigation, the outcome of which was uncertain. While mediation efforts surrounding this litigation failed in May 2005, our new senior management was able to settle this matter in December 2005. We did not grant any options in November or December 2005. As a result of these uncertainties and the timing of our option grants in 2005 and other factors described above, we have subsequently determined that no reassessment of this estimate is appropriate.
 
In January 2006, we determined that because of the settlement of the patent litigation in December 2005 and the achievement of several important business milestones in late 2005 and January 2006, such as a new product launch and two consecutive quarters of profitable operating results, the valuation of our common stock was more complex and required the assistance of an independent valuation specialist. As a result, we engaged The McLean Valuation Services Group, an unrelated valuation specialist, in February 2006 to prepare a valuation of our common stock as of December 31, 2005. The valuation specialist considered several methodologies in its analysis, including an analysis of guideline public companies, an analysis of comparable company transactions, and a discounted cash flow analysis. The results of the public company and comparable company transaction components of the analysis vary not only with factors such as our revenue, EBITDA, and income levels, but also with the performance of the public market valuation of the companies at the time and the selected transactions used in the analysis. Although the market-based analyses did not include companies directly comparable to us, the analysis provided useful benchmarks. The final valuation conclusion was based on the discounted cash flow analysis in light of the results of the market-based analysis. The discounted cash flow analysis, an income-based approach, involves applying appropriate discount rates to estimated future free cash flows, which were based on management’s forecasts of revenue and costs at the time. As with any valuation based on the discounted cash flow method, the underlying assumptions involve a significant degree of complexity and judgment. Once the enterprise value of the Company was determined, the result was reconciled to equity value after the consideration of any interest-bearing debt and excess working capital. The equity value was allocated between preferred and common classes of stock in accordance with the current value method. In determining the per share value of the common shares, management, without taking into account discounts for lack of marketability or lack of control, divided the equity value by the number of common stock equivalents. The discounted cash flow method resulted in an estimated fair market value of our common stock as of December 31, 2005 of $1.96 per share. We believe that this valuation also supports our determination for 2005. The valuation report was used as an aid to the board of directors in determining the fair market value of the common stock underlying the options granted with accounting measurement dates in April through May 2006. Based on the results of this valuation, which was completed in April 2006, the board of directors determined at that time that the fair market value per share of our common stock was $1.96 per share during this period. All stock options granted during this period have an exercise price equal to that fair market value determination of $1.96 per share. As described below, this determination was subsequently reassessed.
 
In August 2006, the same independent valuation specialist was engaged to perform a valuation of our common stock as of June 30, 2006. The valuation report was used as an aid by our board of directors in determining the fair market value of the common stock underlying the stock options granted through


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September 2006. The valuation specialist used substantially the same analysis and methodologies as it did for the previous valuation, except that The McLean Valuation Services Group also took into account the prospect of this offering and considered some of the assumptions from the preliminary valuation methodologies contemplated by the underwriters. The valuation specialist determined that the fair market value of our common stock was $7.06 per share as of June 30, 2006.
 
As a result of reviews of our stock option grants, we determined that reassessments of the fair market value estimate for grants made during the nine months ended September 30, 2006 were appropriate.
 
As an initial matter, we concluded that because our business had demonstrated continued growth and improvement during the six months ended June 30, 2006 and the fair market value of our common stock was in a period of sequential increases, a valuation report that estimated the fair market value of our common stock nearest to the end of the period, rather than the beginning of the period, would provide a more reliable and conservative estimate of the fair market value of our common stock underlying stock option grants whose measurement dates for accounting purposes occurred in the second quarter of 2006, which includes all options granted from April 1 through June 30, 2006. As a result of this reassessment, we have retrospectively estimated that the fair market value of our common stock for purposes of determining the appropriate compensation expense for our options granted with an accounting measurement date in the second quarter of 2006 was $7.06 per share. We did not grant any options having an accounting measurement date in the first quarter of 2006 so no reassessment of that period was necessary.
 
During the third quarter of 2006 and through the date of this prospectus, our business continued to demonstrate growth and improvement and we made substantial progress toward the possible consummation of this offering. To reflect this progress and to achieve consistency with the valuation methodologies used by our underwriters to establish the price range for this offering, we refined some of the assumptions relied upon in the valuation report to closer align the fair market value with the midpoint of the price range listed on the cover page of this prospectus. As a result of these adjustments, we have estimated that the fair market value of our common stock for purposes of determining the appropriate compensation expense for our options granted in the third quarter of 2006 was $9.02 per share.
 
As a result of the reassessment of the fair market value of our common stock underlying stock option grants to employees, we have recorded additional stock-based compensation for each stock option granted during the nine months ended September 30, 2006 based upon the difference between the retrospectively determined fair market value of our common stock at the relevant measurement date of the stock option grant and the exercise price of the stock option. We amortize the unearned stock-based compensation and record stock-based compensation expense ratably over the vesting periods of these stock options. For the nine months ended September 30, 2006, we recorded $1.2 million of stock-based compensation expense.
 
We cannot predict with certainty the impact to us of adoption of SFAS No. 123(R) at this time because it will depend significantly on the levels of share-based payments we grant in the future. However, based on invested options outstanding as of September 30, 2006 and applying the Black-Scholes option pricing model, we estimate the effect of adopting SFAS No. 123(R) will reduce our net income by approximately $0.5 million in 2006. This amount is not necessarily reflective of the actual amount that we will record in 2006 because it does not include the effect of any options we may grant after September 30, 2006.
 
Based on an assumed initial public offering price of $10.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus, the intrinsic value of our outstanding options at September 30, 2006 was $22.9 million, with $12.6 million attributable to vested options and $10.3 million attributable to unvested options.
 
We account for stock options grants to non-employees in accordance with SFAS No. 123 and EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” which require that the fair value of these instruments be recognized as an expense over the period in which the related services are rendered.


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Income Taxes
 
As part of the process of preparing our financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. We record this amount as a provision or benefit for taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. This process involves estimating our actual current tax exposure, including assessing the risks associated with tax audits, and assessing temporary differences resulting from different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. As of December 31, 2005, we had deferred tax assets of approximately $28 million, which were primarily related to federal and state net operating loss carryforwards and federal and state research tax credit carryforwards. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent that we believe recovery is not likely, we establish a valuation allowance. To the extent that we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in our consolidated statement of operations.
 
Due to the uncertainty of future profitability, we have recorded a valuation allowance equal to the $28 million of deferred tax assets. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. The valuation allowance is based on our estimates of taxable income by jurisdiction and the period over which our deferred tax assets will be recoverable. If our actual results differ from these estimates, our provision for income taxes could be materially impacted.
 
Software Development Costs
 
In accordance with SFAS No. 86, we capitalize certain costs associated with the development of our software. Such costs are amortized at the greater of (i) the percentage of sales to date compared to total estimated sales or (ii) amortized using the straight-line method over the software’s estimated useful lives. We periodically evaluate the recoverability of capitalized software development costs and write-downs are taken if required. Costs incurred to develop software programs prior to the achievement of technological feasibility are expensed as incurred. Our current process for developing software is essentially completed concurrently with the establishment of technological feasibility and therefore no software development costs have been capitalized for the years ended December 31, 2005, 2004 and the nine months ended September 30, 2006.
 
Liquidity and Capital Resources
 
Overview
 
During the development stages of our business, we incurred significant losses from operating activities. Since the three months ended June 30, 2005, however, our operations have generated sufficient cash flow to meet substantially all of the cash requirements of our business, including our operating, capital and other cash requirements. Our ability to sustain a level of positive cash flow from operations that is sufficient to continue to meet all of our future operating, capital and other cash requirements is subject to the risks associated with our business, including those described under “Risk Factors,” and to changes in our business plan, capital structure and other events.
 
From the start of our operations in 1991 until the three months ended June 30, 2005, we financed our operations primarily through the issuance of preferred stock and common stock. Since the three months ended June 30, 2005, we have primarily financed our operations through internally generated cash flows. As of September 30, 2006, we had cash and cash equivalents of $10.4 million and accounts receivable of $11.2 million.
 
In January 2006, in connection with the settlement of an intellectual property dispute reached in December 2005, we paid $3.8 million to another company. We also agreed to make future payments of $0.5 million in each of January 2007, 2008, 2009 and 2010, which we collateralised by a $2.0 million letter of credit to that company. The letter of credit will be drawn down automatically in increments of $0.5 million at the time of each payment requirement. Our future obligations under the settlement will be reduced on a dollar-for-dollar basis to the extent that we purchase or resell the other company’s products.


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In May 2006, we paid $1.1 million to the former stockholders of Double-Take EMEA, which was our primary distributor in Europe, the Middle East and Africa as the initial payment for the acquisition of that company. Subsequent payments totalling $1.5 million were made through September 30, 2006. The remaining portion of the total purchase price, which we estimate will range between $10.0 million and $12.0 million, will be payable in monthly increments based upon a specified percentage of the intercompany amounts paid by Double-Take EMEA to us each month in respect of purchases under our intercompany distribution agreement with Double-Take EMEA through December 31, 2007. A portion of our earn-out payments are held in escrow through December 31, 2007, to satisfy claims against the selling shareholders that we may have from time to time as a result of breaches of representations, warranties or covenants.
 
In May 2006, we entered into an amendment to our credit facility with Silicon Valley Bank that extended the term of the facility to April 30, 2007. Under the terms of the amended credit facility, our maximum borrowings are the lesser of 75% of eligible receivables or $4.75 million, including up to $2.5 million available for letters of credit, foreign exchange contracts and cash management services. At September 30, 2006, our maximum borrowings available under this facility were $4.75 million, including our $2.0 million letter of credit relating to our settled legal proceeding. We had no borrowings under this line of credit as of September 30, 2006. The rate of interest for this facility is 0.75% above the prime rate. The facility is collateralised by all of our assets, excluding our intellectual property.
 
Our credit facility contains a number of restrictions that will limit our ability, among other things, to do the following: borrow money; enter into transactions outside the ordinary course of business; pledge our accounts receivable, inventory, intellectual property and most of our other assets as security in other borrowings or transactions; pay dividends on stock, redeem or acquire any of our securities; sell certain assets; make certain investments; guaranty obligations of third-parties; undergo a merger or consolidation; or engage in any business other than the business in which we are currently engaged or business that is reasonably related to that business. In addition, all of our assets other than our intellectual property are pledged to collateralised borrowing under our credit facility, and our credit facility has financial covenants related to our earnings and cash balances. At the end of each calendar quarter our earnings for that quarter before interest, income tax expense and, to the extent deducted in the calculation of earnings, depreciation expense and amortization expense, must have exceeded our capital expenditures. We also must maintain a ratio of at least 1.5 to 1 for the sum of our cash, cash equivalents and domestic and Canadian receivables to the sum of our liabilities to Silicon Valley Bank and other liabilities due within one year. Failure to satisfy any of these financial covenants would constitute an event of default under the credit facility, without regard to whether we have the ability to meet our obligations.
 
Our preferred stock is redeemable on or after November 12, 2006 at the option of the holder in an amount that exceeds our available resources. As of September 30, 2006, we had cash and cash equivalents of $10.4 million. The redemption value of Series B and C preferred shares at November 12, 2006 will be approximately $57.7 million. On October 2, 2006, the holders of a majority of the Series B and Series C Preferred stock agreed to defer their right to redeem such shares until November 12, 2007. We do not presently have a plan in place to provide for the funding of the redemption of the preferred stock, which will be approximately $60.8 million, if requested by the holders subsequent to November 12, 2007 in the event that the proposed public offering does not take place.
 
Sources and Uses of Cash
 
For the nine months ended September 30, 2006, cash generated from operating activities was $5.4 million. We used cash in investing activities in the amount of $2.4 million. We used cash in financing activities in the amount of $0.9 million. Our net increase in cash and cash equivalents from December 31, 2005 to September 30, 2006 was $2.1 million. We currently expect to experience positive cash flow from operations in future periods.


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The following table sets forth cash flow data for the periods indicated:
 
                                         
          Nine Months
 		 
    Year ended December 31,     ended September 30,  
    2005     2004     2003     2006     2005  
    (in thousands)  
 
Cash flow data:
                                       
Net cash provided by (used in) operating activities
  $ 3,605     $ (464 )   $ (4,351 )   $ 5,397     $ 957  
Cash used by investing activities
    (1,096 )     (1,218 )     (497 )     (2,432 )     (889 )
Net cash provided by (used in) financing activities
    1       6,837       1,680       (880 )     1  
Effect of exchange rate changes on cash and cash equivalents
    —       —       —       12       —  
                                         
Net increase (decrease) in cash and equivalents
    2,510       5,155       (3,168 )     2,097       69  
Cash and cash equivalents, beginning of period
    5,831       676       3,844       8,341       5,831  
                                         
Cash and equivalents, end of period
  $ 8,341     $ 5,831     $ 676     $ 10,438     $ 5,900  
                                         
 
Cash Flows from Operating Activities
 
Cash provided by operating activities increased in the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005 primarily due to having $5.2 million of net income in the 2006 period as opposed to a net loss of $1.2 million in the 2005 period. Another contributing factor was our continued growth of deferred revenue, which was a result of our increase in software license sales and maintenance renewals. In addition, inventory decreased by $1.3 million. This decrease is due to Double-Take EMEA having sold through its existing Double Take product inventory that was on hand at the date of acquisition. As practically all of Double-Take EMEA’s inventory will be of Double Take products that will have no significant cost on a consolidated basis, we do not expect this cost or any fluctuation in inventory to continue or be material in future periods. The compensation expense of $0.3 million related to SFAS 123(R) and $0.9 million related to our former CEO’s options is another add-back to cash flow from operations. These increases in cash flow from operations have been partially offset by the change in accounts payable and accrued expenses. This change is primarily due to our payment of $3.8 million in the settlement of a proceeding with a provider of information storage systems in January 2006, as well as our payment of $0.9 million related to income taxes for Double-Take EMEA. The acquisition of Double-Take EMEA has contributed a nominal amount to our operating cash flow through September 30, 2006. We expect that the acquisition of Double-Take EMEA will not increase our operating cash flow significantly in the near term. We anticipate software license sales and maintenance renewals to continue to grow from the EMEA region resulting in growth of deferred revenue. We anticipate the growth in deferred revenue in the near term will be offset by growth in accounts receivable balances due to the growth in sales and historically slower collections from customers experienced by Double-Take EMEA.
 
Cash provided by operating activities increased in 2005 compared to a use of cash in operating activities in 2004 primarily due to having a lower net loss of $3.8 million compared to a net loss of $8.0 million in 2004. Another contributing factor was our continued growth of deferred revenue, which is a result of our increase in software license sales and maintenance renewals from 2004 to 2005. Also contributing to the increase in cash flow was the change in accounts payable and accrued expenses. This change is primarily due to our accrual of $3.8 million in the settlement of a proceeding with a provider of information storage systems which was subsequently paid in January 2006. These increases were partially offset by the change in accounts receivable in 2005 due to growth in bookings at the end of 2005, which resulted in higher accounts receivable balances from customers at the end of 2005.


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Cash used in operating activities decreased in 2004 compared to 2003 primarily due to an increase in deferred revenue as well as better cash collections from our customers. As our software license sales and maintenance renewals increased from 2003 to 2004, our deferred revenue grew by $4.2 million. We also increased our collection efforts and staff, which resulted in lower Days Sales Outstanding (DSO) on our receivables. Due to our stronger collection efforts, accounts receivable decreased by $0.2 million compared to an increase of $2.9 million in 2003 representing a change of $3.1 million in positive cash flow in 2004. These increases were partially offset by lower add-back for depreciation and amortization of $1.9 million in 2004 since we no longer capitalized or amortized software development costs.
 
Cash Flows from Investing Activities
 
Cash used in investing activities increased in the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005 primarily due to increased research and development lab equipment expenditures, and our acquisition of Double-Take EMEA on May 23, 2006. As we continue to make earn-out payments related to our acquisition of Double-Take EMEA, which will aggregate between $10 to $12 million, we expect that cash used in investing activities will continue to increase until the end of the earn-out period at the end of 2007.
 
Cash used in investing activities decreased slightly from 2005 to 2004 due to lower computer equipment purchases for new employees in 2005 as a result of lower headcount at the end of 2005 compared to 2004.
 
Cash used in investing activities increased in 2004 compared to 2003 due to investments in research and development lab equipment. In 2004, after receiving additional financing from our investors, we increased the headcount in our engineering department by over 10% in order to expedite product releases.
 
Cash Flows from Financing Activities
 
Cash used in financing activities increased $0.9 million in the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005 due to $0.9 million of costs incurred in connection with this public offering.
 
Cash provided by financing activities decreased from 2005 to 2004 due to the Series C preferred stock issuance in 2004 and only nominal cash provided by common stock issuances in 2005.
 
Cash provided by financing activities increased from 2004 to 2003 due to the significant Series C preferred stock issuance in 2004. In October 2004, we sold 5,102,041 shares of Series C preferred stock at $0.98 per share for gross proceeds of $5 million. In connection with this private placement, we issued an additional 2,615,357 shares of Series C preferred stock in exchange for outstanding 8% convertible notes in the amount of $2 million plus accrued interest. These notes were originally issued in June 2004. In October 2003, we sold 1,066,667 shares of Series B preferred stock for gross proceeds of $1.6 million.
 
Cash Requirements
 
We have various contractual obligations and commercial commitments. The following table sets forth our future contractual obligations and commercial commitments as of December 31, 2005:
 
                                         
    Payments Due by Period  
          Less Than
 		    1 to 3
 		    3 to 5
 		       
    Total     1 Year     Years     Years     5+ Years  
    (in thousands)  
 
Contractual obligations
                                       
As of December 31, 2005
                                       
Capital (finance) lease obligations
  $ 36     $ 36       —       —       —  
Operating lease obligations
    7,309       1,552     $ 2,940     $ 2,529     $ 288  
Purchase obligations
    2,000       500       1,000       500       —  
                                         
Total
  $ 9,345     $ 2,088     $ 3,940     $ 3,029     $ 288  


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We have entered into various non-cancelable operating lease agreements, with expiration dates through 2011, for office space and computer equipment. Some of these leases have free or escalating rent payment provisions. We recognize rent expense under these leases on a straight-line basis. Our purchase obligations as of December 31, 2005 represent non-cancelable contractual obligations for equipment and services. The foregoing table does not reflect any contractual obligations and commercial commitments that we entered into after December 31, 2005, including our obligations to make additional acquisition-related payments to Double-Take EMEA’s former stockholders on a monthly basis through December 31, 2007. The payments to the former Double-Take EMEA stockholders are based on purchases under our inter-company distribution agreement with that company, and we estimate that they will aggregate between $10.0 million and $12.0 million.
 
Pursuant to the terms of our Series B convertible preferred stock, we have a mandatory payment obligation of approximately $10.2 million to the holders of our Series B convertible preferred stock in connection with the conversion of the outstanding shares of our Series B convertible preferred stock immediately before the completion of this offering.
 
Given our current cash and cash equivalents, our accounts receivable, the expected net proceeds from this offering, available borrowings under our revolving loan agreement and our expectation of continued positive cash flow from operations, we believe that we will have sufficient liquidity to fund our business and meet our contractual obligations over a period beyond the next 12 months. We do not, however, have a plan to fund the redemption of our preferred stock should it be necessary to do so. We may need to raise additional funds in the future, including for acquisitions or investments in complementary businesses or technologies or if we experience operating losses that exceed our expectations. In the event that additional financing is required, we may not be able to obtain it on acceptable terms or at all. Additional sources may include equity and debt financing and other financing arrangements. If we raise additional funds through the issuance of equity or convertible securities, our stockholders may experience dilution. We may not be able to generate sufficient cash flow from operations according to our planned schedule, or to obtain any additional financing arrangements we may require or seek on terms acceptable to us. Any inability by us to generate or obtain the sufficient funds that we may require could limit our ability to increase our revenue or to enhance our profitability.
 
Off-Balance Sheet Arrangements
 
As of September 30, 2006, other than our operating leases described above under “— Liquidity and Capital Resources — Cash Requirements,” we do not have off-balance sheet financing arrangements, including any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.
 
Qualitative and Quantitative Disclosures About Market Risk
 
We do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
 
Historically, our exposure to foreign currency exchange rates was limited as our international sales were denominated in the United States dollar. As a result of our acquisition of Double-Take EMEA in May 2006, we now have international sales that are denominated in foreign currencies, and we face exposure to adverse movements in foreign currency exchange rates. Depending on the amount of our revenue generated from Double-Take EMEA, adverse movement in foreign currency exchange rates could have a material adverse impact on our financial results. Our primary exposures are to fluctuations in exchange rates for the United States dollar versus the Euro and to a lesser extent, the United States dollar versus the British Pound. Changes in currency exchange rates could adversely affect our reported revenue and could require us to reduce our prices to remain competitive in foreign markets, which could also materially adversely affect our results of operations. We have not historically hedged exposure to changes in foreign currency exchange rates and, as a result, we could incur unanticipated gains or losses.


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Exchange Rate Information
 
The consolidated financial statements of Double-Take EMEA that are set forth in this prospectus are denominated in Euros. The table below shows the average noon buying rate of a Euro from 2004 through September 30, 2006 and the actual noon buying rate as of December 31, 2004, December 31, 2005 and September 30, 2006. As used in this prospectus, the term “noon buying rate” refers to the rate of exchange for the Euro, expressed in U.S. dollars per Euro, as announced by the Federal Reserve Bank of New York for customs purposes as the rate in The City of New York for cable transfers in foreign currencies.
 
         
Period
  Average Rate(1)  
 
Year ended December 31, 2004
  $ 1.2478  
Year ended December 31, 2005
  $ 1.2400  
Three Months ended March 31, 2006
  $ 1.2033  
Six Months ended June 30, 2006
  $ 1.2309  
Nine Months ended September 30, 2006
  $ 1.2453  
January 1, 2006 through May 23, 2006
  $ 1.2206  
May 24, 2006 through June 30, 2006
  $ 1.2685  
July 1, 2006 through September 30, 2006
  $ 1.2741  
     
         
         
As of
 
Actual Rate
 
 
December 31, 2004
  $ 1.3538  
December 31, 2005
  $ 1.1842  
March 31, 2006
  $ 1.2139  
June 30, 2006
  $ 1.2779  
September 30, 2006
  $ 1.2687  
 
 
(1)  The average of the noon buying rate for a Euro on the last business day of each month during the period.


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BUSINESS
 
Overview
 
Double-Take Software develops, sells and supports affordable software that reduces downtime and protects data for business-critical systems. We believe that we are the leading supplier of replication software for Microsoft server environments and that our business is distinguished by our focus on software license sales, our productive distribution network and our efficient services infrastructure. Organizations of all sizes increasingly rely on application systems and stored electronic data to conduct business, new regulations have increased data protection requirements for businesses in many industries, and threats of business disruptions from events such as 9/11 and Hurricane Katrina are causing more organizations to re-examine their data and server recovery strategies. Our software responds to these needs by continuously replicating changes made to application data on a primary operating server to a duplicate server located on- or off-site. Because the duplicate server can commence operating in place of the primary server at almost any time, our software facilitates rapid failover and application recovery in the event of a disaster or other service interruption.
 
Our success has been driven in large part by our software technology, which was first released in 1995 and has been enhanced by years of customer feedback. Residing on the server operating system, our software continuously monitors and captures file system activity. Intercepting file system changes enables our software to replicate only those changes that are being written to files. Our hardware- and application-independent software efficiently protects data created by any application on almost any type or brand of disk storage on any brand of server running Windows file systems.
 
We sell our software through multiple channels, including a global distribution network that is supported by an experienced direct sales force. Our distribution partners include leading server manufacturers, such as Dell Computer Corporation and Hewlett-Packard Company, leading distributors, such as Bell Microproducts Inc. and Tech Data Corporation, and over 120 value-added resellers that we believe are generally well-connected with small- and medium-sized enterprises. Our direct sales force augments the revenue generated by our distribution partners and actively supports them in their third-party sales efforts.
 
Our broad distribution network, coupled with affordable price points, feature-rich proven software, modest implementation costs and dependable support, makes our software accessible and scalable from small enterprises of 20 people to Fortune 500 companies. As of September 30, 2006, our customer base of more than 10,000 organizations included over half of the Fortune 500 companies, as well as a large number of law firms, financial institutions, hospitals, school districts and government entities. We believe that we have a highly satisfied customer base. Many of our customers provide references that help us to generate new sales opportunities and to shorten sales cycles. Our sales personnel often enlist the assistance of satisfied customers to recommend our software to potential customers in similar industries or that have similar applications or server configurations. The breadth and diversity of our customers frequently allows us to refer to a similar configuration when making a new sale. The satisfaction of our customer base also contributes to reduced support costs.
 
Market Opportunity
 
The storage replication market is large and growing. In 2006, International Data Corp., or IDC, a market research firm, estimated that the worldwide storage replication software market would grow from $2.1 billion in sales in 2005 to $4.2 billion in 2010, representing a compound annual growth rate of approximately 15%. IDC further estimated in its Worldwide Storage Replication Software 2006-2010 Forecast, Mar 2006 Doc #200998, that sales in the Windows server sub-segment of this market, which our software currently addresses, would increase at a compound annual growth rate of approximately 25%, from $310 million in 2005 to $940 million in 2010. In addition, we believe that our software is particularly attractive to businesses in the small-and medium-sized enterprise information technology market, which we believe has been growing at a faster rate than the large enterprise information technology market.


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Critical Need for Data and Application Availability.  The importance of recovery solutions for files, data and applications has grown as organizations increase their reliance on digital data for their businesses and critical processes. For many organizations, it is no longer possible to conduct business without access to key applications, such as email and other enterprise applications, and the information they provide. As a result, server, storage or site failures have the capacity to bring business operations to a halt until the server, application and up-to-date data are recovered and made available to users. This downtime and any associated data loss can have a high, perhaps unacceptable, cost, including lost revenue, decreased productivity and unsatisfactory customer relations. Problems with information availability and reliability can be extremely visible and potentially a competitive differentiator for many businesses, particularly for those businesses that share information with their partners and customers. Recent disasters, including Hurricane Katrina and 9/11, created critical data availability problems for many businesses and increased the awareness of the need for prompt and reliable data and application recovery. We believe that these factors are causing organizations to re-evaluate the amount of downtime and data loss that they are willing or able to tolerate, as well as the type of disruptions they must anticipate.
 
Limitations of Traditional Data Protection Systems.  We believe that many organizations using traditional data protection systems continue to face critical data recovery problems. Recovery of data, files and applications historically has been a time-consuming and error-prone process in which data is stored to tape backup or other media and then retrieved in the event of a system failure. It can take hours or even days to resume operations. Before user access to applications and data can be restored, administrators must rebuild existing servers or acquire replacement servers, re-install and configure the operating systems, applications and the remainder of the network computing environment and, finally, reload the data from the backup tape or off-site servers. We believe that organizations can no longer afford to wait for days until off-site servers or backup tapes are made available. Even where a continuously updated, off-site backup is available, time delays in the recovery process keep organizations from functioning efficiently when the backup is needed.
 
Traditional solutions that protect data only on a scheduled or periodic basis leave critical data unprotected between cycles and put significant loads on servers when they are running. Other solutions designed to assure that sufficient backup of data occurs require organizations to procure expensive, proprietary hardware. Server and storage consolidation and infrastructure virtualization can save organizations money on acquisition and management costs but magnify these availability challenges, as a single failure can impact an even greater number of users and information technology services.
 
Limitations of More Recent Solutions.  To address the problems associated with traditional data protection systems, enterprises have looked to a number of potential solutions, such as server clustering and hardware disk mirroring. These solutions, in turn, have resulted in a number of their own limitations, including the following:
 
  •  Complexity.  The lack of complete, integrated solutions have forced some enterprises to try to develop specialized skills to integrate and manage piecemeal solutions. For example, some organizations have explored complex server clustering solutions to reduce downtime caused by application and server hardware failure, but have often found those solutions only provided redundancy for server hardware and did not protect against storage or site level disasters. These solutions generally are customized to a specific server environment and require complex alterations before they can be applied in other environments.
 
  •  Cost.  Many organizations have considered or tried existing solutions that are overly expensive as a result of their complexity or because of costly technologies. For example, some organizations have developed proprietary hardware disk mirroring solutions that require costly dedicated high speed links to provide off-site data redundancy, but have found that those solutions generally only protect the stored data and require them to recover servers’ operating systems and applications separately. This generally results in significant downtime in the event of a disaster or other service interruption, as well as additional expenditures to recover the affected operating systems and applications.


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  •  Inflexibility and Inability to Scale.  Many available solutions are not flexible, meaning they are designed to work with a limited number of applications or storage architectures. Similarly, many available solutions are not scalable, meaning that they cannot efficiently capture changes, optimize data transmissions or distinguish files and changes that need to be replicated from those that do not contain important information.
 
Although some of these recent solutions may be combined to address most or all of an organization’s requirements, the resulting architecture often is complex to manage, expensive and may still leave significant gaps in protection.
 
We believe that companies will continue to experience these problems while they also experience exponential growth in the volume of business-critical data. As a result, we expect that the market opportunity for a cost-effective, scalable and flexible solution for replicating this data is significant and will continue to expand.
 
Double-Take Advantages
 
By combining efficient, continuous, remote and local data replication with the ability to monitor and quickly switch critical applications to alternate servers, we believe that we have designed our software to provide an affordable, easy to implement and scalable approach to reduce downtime and enhance data recovery for business-critical applications.
 
Our software provides organizations ranging from small enterprises to Fortune 500 companies with data and system recovery solutions that we believe meet their needs by providing the following:
 
  •  Fast and Reliable Data Recovery.  Our software provides fast recovery for the server and application itself, creating a server ready to take over substantially on command and provide rapid access or failover to the replicated data to meet the new availability requirements of business-critical applications, such as Microsoft Exchange Server, SQL Server, SharePoint Server and Oracle Database. This avoids the time required to rebuild or mount a replicated disk data volume as required by some other approaches.
 
  •  Simple and Affordable Software.  Our software can be easily installed on new or existing file or application servers, can work with most existing storage and network infrastructure and is hardware and application independent. This makes it possible to install and begin protecting an existing server easily and quickly and makes the solution more cost effective than some other approaches. Once installed, our application recovery tools automate failover and user redirection. In addition to being easy to deploy, with a median selling price of approximately $4,000, our software is affordable for a wide variety of organizations.
 
  •  Flexible and Scalable Software.  Our software offers flexibility and scalability. Flexibility means software that is optimized to work with a variety of key applications within the Windows server environment and almost any type of storage architecture from almost any mix of vendors. Scalability means not only efficiently capturing changes and optimizing data transmission, but being able to control which files and which changes need to be replicated, rather than blindly copying disk block changes. Our software offers enterprise solutions that are easily deployed and centrally managed across any number of machines, including across “virtual machines” partitioned with software such as VMware.
 
  •  Continuous Backup of Data.  Our software minimizes or eliminates data loss by continuously and efficiently replicating data changes to one or more protected, local or remote locations. Even open applications and files can be mirrored and changes replicated, which enables our software to protect 24x7 applications, such as email and databases, without shutting down the application or affecting users.
 
  •  Efficient, Optimized Protection.  Software running on the server operating system has the advantage of capturing the exact changes an application is generating before those changes are abstracted into generic “disk blocks.” This allows for “intelligent protection” — our software can distinguish between a new email being sent to an Exchange mailbox that needs to be immediately


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  replicated versus a temporary file that does not need to be protected. Because the cost of network bandwidth to transmit changes to a remote site can be a measurable part of the ongoing solution cost, efficiently transmitting the minimum amount of data to maintain protection is a significant architectural advantage.
 
  •  Significant Expertise and Experience.  Our software incorporates our years of experience protecting critical Windows servers and applications like Exchange Server, SQL Server, SharePoint Server and Oracle Database. Although market dynamics have rewarded us for focusing on the Windows server environment to date, we anticipate that we can apply our technology in other server environments to the extent market dynamics shift.
 
Our Strategy
 
Our goal is to provide affordable software that will reduce our customers’ downtime for business-critical systems to as close to zero as possible and offer effective protection and recovery for less critical systems. In striving for this goal, we seek to be the leading provider of software for application availability and data protection. We are pursuing the following key initiatives:
 
  •  Expand our Customer Base within our Current Markets.  We plan to gain additional customers in the markets we currently serve by expanding our distribution network to reach more customers and by leveraging our existing customer base. We believe our customers are very satisfied and will continue to provide references across multiple industries, multiple configurations and multiple applications. In addition, we plan to continue to offer enhancements to our current software to broaden its appeal.
 
  •  Cross-sell Existing and New Software to our Customer Base.  We plan to sell software for additional applications to our current customers and believe that many of our existing customers will acquire more licenses to the software that they are already using. We also believe that a large majority of our customers will renew in the future because of their satisfaction with our software and customer support. We plan to offer new software that complements our existing software and applications and achieves additional customer objectives. For example, in February 2006, we introduced a new software line for virtual servers and have already sold it to some existing customers. We expect that our new offerings primarily will be developed internally, but we anticipate that we may in some instances hire third-party developers to develop software on our behalf or acquire new offerings through strategic transactions.
 
  •  Enter New Markets.  We plan to enter into new markets and grow our presence in markets where we currently have a small presence. We expect to do this through expansion of our channel by creating or expanding relationships with partners that serve different markets. We also plan to continue to grow our presence in the larger enterprise market by leveraging our supportive customer base. We believe that small- and medium-sized enterprises frequently lead in the adoption of cost effective technology solutions out of necessity and that large institutions follow by replacing more expensive solutions with cost effective solutions. We have seen organizations in the larger enterprise market adopt our software, and we expect this trend to continue.
 
  •  Expand Globally.  We believe that the market potential outside the United States is at least as large as the market within and offers us significant growth potential. We plan to extend our global reach though the expansion of our direct and channel sales efforts and through strategic acquisitions. For example, we recently acquired our main European distributor, Sunbelt System Software S.A.S., which is now known as Double-Take Software S.A.S., or Double-Take EMEA, with offices in France, the United Kingdom and Belgium. We also work closely with Hewlett-Packard, which has a strong international presence and is our largest OEM, and we plan to continue our increased focus and sales support on international sales.
 
  •  Continue to Innovate.  We plan to continue to focus on enhancing our existing software and to develop new, innovative software. For example, we recently released front-end application managers for Microsoft Exchange Server and Microsoft SQL server (Double-Take Application Manager) to facilitate the protection of Exchange and SQL servers, and we plan to offer additional front-end


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  managers for other applications in the future. We believe that software innovations will also help us to expand our addressable market, and we have software in the development pipeline that we expect will help us to scale up to serve larger entities and to scale down to serve even smaller enterprises. For example, we have recently released software for support of Microsoft’s Small Business Server and have announced a partnership with another company that will allow us to restore whole servers (so-called “Bare Metal Restore”). We also plan to continue to monitor market dynamics and to prepare to apply our technology to other server operating systems to the extent significant market opportunities exist.
 
Our Software and Services
 
Software.  Our software provides continuous protection of data to reduce or eliminate data loss, as well as the ability to recover rapidly the application and server needed to utilize that data through automatic or manually initiated failover. This combination of data protection with high availability failover provides significantly higher levels of availability than solutions that address only data protection or that provide local failover clustering but that do not provide data redundancy or protection across multiple locations.
 
Our software is easily installed on each protected “source” server as well as on each “target” server that will store copies of the protected data and be prepared to take over for the protected server and its applications. This software-based approach provides several important features and benefits:
 
  •  Real-time Byte Level Change Capture.  Our file system filtering technology monitors all file input and output (I/O) to files selected for protection and captures changes as they occur, without the overhead of additional disk reads to compare file content. This approach captures only the bytes written to the file system, rather than full files or disk blocks, and allows Double-Take to replicate any application data, including open files such as databases, messaging systems or other transactional applications. As a result, data can be protected continuously with very little system impact or overhead.
 
  •  Storage Architecture Independence.  Double-Take can replicate to or from almost any storage type supported by the host operating system. Not only can replication occur between storage types such as Fibre Channel or iSCSI Storage Area Networks and directly attached disks, but source and target disks that have completely different geometries or multiple source volumes can be consolidated onto a single large capacity target volume. As a result, customers can use their existing storage systems and even replicate between storage systems of different types. Only solutions that run along with the applications and replicate logical file system structures can provide this level of flexibility and performance.
 
  •  Integrated Application and Server Availability.  Software replicating between servers can easily monitor and failover other functions such as server name, IP addresses or integrated applications between servers. As a result, not only is data protected, but the applications that use that data to provide services to users can be activated quickly and automatically. Double-Take provides application managers for a variety of the business-critical applications that companies rely on to run their businesses.
 
  •  Standards-Based IP Networking Support.  Double-Take utilizes standard IP networking for data replication, monitoring and failover, allowing data to be protected and servers to be managed remotely over great distances. In addition to capturing the smallest byte level changes possible, our software is optimized for long-distance, wide-area network communications providing built-in data compression and flow control capabilities, as well as leveraging advanced functionality such as encryption, wide area network optimizations and quality of service controls provided by existing IP infrastructure.


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Double-Take Features and Benefits
 
         
Feature   Description   Customer Benefit
 
         
Continuous, Real-time Data Replication
  File system changes are captured as they are made on the source server(s) and transmitted immediately according to system policies.   Potential for data loss is reduced and sometimes eliminated.
         
Delta File Replication
  Only file changes or ‘‘deltas” (not whole files or disk blocks) are captured and transmitted across the network.   The amount of network bandwidth required to keep a secondary copy of data synchronized is minimized, and data can be replicated to a remote target server across any IP connection.
         
Replicates Open Files
  Even open files can be mirrored and changes replicated almost immediately.   Applications can be protected while they are in use providing increased availability and reducing potential for data loss.
         
Many to One Replication
  Data from many source servers may be replicated to a single target server.   Shares the cost of a target server among many source machines, and allows centralized data protection.
         
Automatic Failover
  Can stand in for multiple servers simultaneously; the target server assumes the IP addresses and names of failed servers and restarts applications.   Users can automatically access data on the target server, reducing down-time associated with a source (production) server failure.
         
File Selection
  Users can define which files are to be replicated at a volume, directory, file and wildcard level. The location of data on the target can also be specified.   Allows exact control of which files are replicated and where they are stored for maximum flexibility.
         
Flow Control
  Automatically queues transactions on the source server if network resources are not available or are restricted by policy.   Runs reliably in spite of network disruptions or peak loads, without severely affecting the performance of the source server.
         
Transmission Limiting
  The amount of bandwidth available for replication, as well as start and stop conditions, may be defined by the network administrator.   Allows replication to share a network link with other applications, preserving bandwidth for other applications.
         
Data Compression
  Data transmitted between the source and target may be compressed, using various industry-standard algorithms.   Allows user to minimize the amount of network bandwidth used to protect data, especially in wide area network configurations.


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Feature   Description   Customer Benefit
 
         
Centralized Enterprise Management
  A graphical management interface is provided which can be run from anywhere on the network and allows the user to control all of the servers running our software in their environment.   Allows user to monitor a large number of servers running our software from a single central location, minimizing management costs.
         
Extensive Reporting/
Verification
  An extensive collection of events, alerts and statistics are made available through standard mechanisms, including SNMP, Log Files and Windows NT/ 2000 Event Viewer/ Performance Monitor.   Prevents silent failures by confirming that your data protection systems are working properly.
 
Software Editions.  Our suite of software has the features and benefits that are described above and is offered in a variety of versions that are aligned to operating system capabilities. Additional versions include those that have been specifically crafted to run within virtual systems and to perform replication only, as well as versions designed to run within Microsoft Cluster Services called GeoCluster. Some versions are also available from OEM partners under different brand names.
 
     
Software Products   Supported Systems
 
Double-Take for Windows — Server Edition Windows Server 2003 Standard Edition, Windows Server 2003 Web Edition and Windows 2000 Server
 
Double-Take for Windows — Advanced Edition Windows Server 2003 Enterprise Edition, Windows 2000 Advanced Server and Windows Powered Appliances
 
Double-Take for Virtual Systems Supports up to five Windows guest operating systems running on a single virtual server host
 
Double-Take for Windows — Datacenter Edition Windows Server 2003 Datacenter Edition and Windows 2000 Datacenter Server
 
Double-Take for Windows — Storage Server Edition (SSE) Windows Storage Server 2003 and Windows Powered NAS devices
 
Double-Take for Windows — Small Business Server Edition Windows Small Business Server 2000 Edition and Windows Small Business Server 2003 Edition
 
GeoCluster for Windows — Advanced Edition Microsoft Cluster Service (MSCS) that runs on Windows Server 2003 Enterprise Edition and Windows 2000 Advanced Server
 
GeoCluster for Windows — Datacenter Edition MSCS that runs on Windows Server 2003 Datacenter Edition and Windows 2000 Datacenter Server
 
Customer Support Services.  We provide comprehensive customer support, which we consider to be both a critical asset and a source of competitive advantage. We have developed our support organization to be a key differentiator for our company and our customers. Unlike the increasing number of software companies that seek to cut costs attributable to customer support, we have chosen to invest in the customer support experience and take pride in our personal interaction with our customers. We view our customer support function as a means to drive renewals, increase licenses with existing customers and acquire new customers. As part of our focus on customer support, we staff our front line support team with senior technicians with the goal of solving customer issues within the first call. We aim to provide an

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exceptional post-sales product experience for each customer. We believe this support effort will be scalable as our customer base continues to grow.
 
Product support is offered on an annual basis and can be either purchased in advance or at annual renewal points based on the date of initial software purchase. We have support centers in London, Paris, Brugge and Indianapolis. In addition to our support organization, primary product support for channel and OEM customers is sometimes provided directly by our partners, and we provide escalated engineering support for those partners when needed.
 
Deployment Services.  We have a professional services organization to help our customers with large scale and complex deployments. These offerings give our customers access to our best-practices and knowledge of the surrounding infrastructure to ensure a clean implementation. However, we do not consider our professional services to be strategic to our overall direction, and we try to design and build our software with the idea that it should be simple to install and operate without the need for extensive training or associated services. For those clients that meet the scale and complexity requirements, our professional services offerings consist of assessment and design services and implementation and deployment services.
 
Training.  We provide a series of training courses. Training is provided both on-site and off-site to fit the wide variety of needs of our customers and partners. The training courses include both instructor-led as well as computer-based class formats.
 
Our Customers
 
As of September 30, 2006, we had more than 10,000 customers in a variety of industries. Our customers use our software for a variety of purposes in terms of the applications they protect and the configuration of their servers. Our customers deploy our software in installations ranging from two servers to several hundred servers. Our customers include Bank of Montreal, the Boston Celtics, Brattleboro Memorial Hospital, Hatch Mott MacDonald, Hershey Entertainment & Resorts Company, infoUSA Inc., McGuireWoods LLP, MidAmerica Bank, Morgan Stanley, Shorenstein Realty Services, L.P., Suffolk University, The E.W. Scripps Company, The Pentagon, The United States Securities and Exchange Commission, United States Department of Defense and the United States Department of State. Our customers include over half of the Fortune 500 companies, 20 of the 25 largest U.S. law firms in the 2006 The American Lawyer AmLaw 100, over 1,000 financial institutions, over 1,100 hospitals and healthcare service providers and over 1,000 school districts and educational institutions.
 
Our Technology
 
Our software is based on flexible and efficient file system replication technology and advanced server and application failover technology. Most client/server applications have not been designed to provide for data redundancy or application failover to a different server or a different geographic location. Consequently, we had to develop solutions outside of standard application frameworks, utilizing different approaches to ensure that business-critical applications can be moved and restarted in different locations in a way that is as fast and transparent to users as possible. Many years of experience across a large installed base have given us a mature base of data protection and availability technologies that we believe represent a significant competitive advantage.
 
We believe that our patented architecture allows our software to be easily adapted to almost any operating system. The software’s functionality is built into the user-mode components (source and target) of the software, which remain largely consistent across operating systems.
 
The driver component is responsible for intercepting file system modifications, determining if the modifications are selected for replication and passing this information to the source component. The driver has been optimized to produce high-throughput with minimal resource requirements and to minimize file system latency to the end user.
 
The source component packages these transactions and transmits them to one or more target machines. The source component queues transactions when the target server or network is either slow or


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unavailable and uses patented compression techniques to minimize the system overhead required for this queuing. The source component also controls transmission and initial mirroring, as well as verification, replication set maintenance and connection management.
 
File system transactions are transmitted to the target machine using standard networking mechanisms to provide interoperability between various operating systems and high-throughput. The target component then receives replication transactions from the source component and applies these transactions to the target file system. The target component is multi-threaded to handle efficiently simultaneous transactions from multiple source servers to multiple target files. The target component also monitors the source server’s health and performs server failover (via name, network address and share/mount point aliasing) when the source is unavailable.
 
Management of our software is supported through various client interfaces, including a Win32 graphical interface, a full-screen text client, and a command-line interface. All client platforms are based on the same set of common application interface commands, and these functions are available to all third-party developers.
 
Our GeoCluster software combines our core replication technology with the application failover capabilities of Microsoft Cluster Services (MSCS). GeoCluster eliminates the need for clustered nodes to share access to the same physical disk, providing data redundancy and allowing cluster nodes to be placed at different locations, providing geographic redundancy for the cluster nodes as well as the data. With GeoCluster, mission critical data is stored on each cluster node’s local drives and then replicated to the other nodes in the cluster using our patented real-time replication. GeoCluster can also provide quorum capability, acting as an arbitrator for the cluster in the event that the cluster nodes are running but cannot communicate.
 
Marketing and Sales
 
We market and sell our software primarily to or through distributors, value-added resellers and OEMs, supported by an inside and field-based direct sales force located in the United States and Europe. Our selling model is based on building a strong distribution network through which customers can purchase the software. To date, we believe that this selling model has created an advantage for us. We currently have more than 130 selling partners within our distribution and value-added reseller program, and we are adding more to this group to meet regional and technology related needs. To support our partners in our sales channels, our sales group has been organized in an overlay format so that our sales teams are working with our partners within any geography to pursue sales jointly.
 
In addition, our marketing partners complement our sales campaigns through seminars, trade shows and joint advertising. We leverage our customers and partners to provide references and recommendations that we use in our various promotional and sales activities. These partners include Dell Computer Corporation, IBM Corporation, Microsoft Corporation, Hewlett-Packard Company and VMware, Inc.
 
The goal of our marketing effort is to develop sales opportunities by increasing the awareness of our software’s functionality and business need within our target markets and segments. We plan to continue to invest in building greater Double-Take brand recognition in the United States and internationally through expansion of the use of our brand, public relations programs, interactions with industry analysts, trade shows, web search optimization, regional seminars and speaking engagements.
 
In 2005, we received approximately 19% of our total revenue from sales of software and services to Dell Computer Corporation, which is the largest reseller of our software and services, approximately 13% of our total revenue from sales of software and services through Sunbelt Software Distribution, Inc., which is a reseller of our software and services, and approximately 17% of our total revenue from sales to Double-Take EMEA, which we acquired in May 2006 and is a distributor of our software and services primarily in Europe, the Middle East and Africa. No other resellers or distributors and no customer accounted for 10% or more of our total revenue in 2005.


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Competition
 
The markets in which we compete are competitive and rapidly changing. Our primary competitors include EMC (Legato), Neverfail, Symantec (Veritas) and CA, Inc. (XOsoft). All of our competitors offer a variety of data protection and recovery solutions, some of which may offer features that we do not offer or have more attractive pricing.
 
The principal competitive factors in our industry include:
 
  •  technology;
 
  •  price;
 
  •  product functionality and effectiveness;
 
  •  product reliability;
 
  •  product integration;
 
  •  capacity for sales support;
 
  •  scope and quality of customer support;
 
  •  relationships with OEMs; and
 
  •  reputation.
 
In addition to these factors, we also compete with alternative approaches for data protection and recovery. Alternative approaches include the following technologies:
 
  •  Tape Backup.  Tape backup solutions run on a scheduled basis, usually nightly or weekly, backing up all files to tape or scanning for files that have changed since the last backup and copying those files to tape. Full recovery from tape usually requires that the operating system and recovery software first be re-installed and re-configured on identical hardware before the data recovery component can begin. Examples of companies and products in this category include Symantec NetBackup and Backup Exec, IBM Tivoli Storage Manager, CA Brightstor Enterprise Backup, Legato Networker and CommVault Galaxy.
 
  •  Snapshots.  Hardware array based and operating system provided snapshots are tools that can reduce the time for recovering data, applications and servers. Snapshots operate on a disk volume basis by copying disk blocks that are about to be overwritten by changes before allowing new blocks to be written to disk. Because many snapshots are just differences from one point in time to another and not full copies of the volume, they are dependent on the survival of the original volume and exist in the same geographic location as the original volume. Therefore snapshots alone do not provide a complete solution, but can be used in conjunction with continuous data replication solutions like Double-Take to address many of the above limitations. Snapshot functionality is usually specific to a particular operating system volume manager or disk storage array. Examples of companies and products in this category include Microsoft Volume Shadow Copy Service, EMC TimeFinder and Snapview.
 
  •  Clustering.  Server clustering can improve the availability of data by providing one or more additional servers to resume processing in the event of a hardware or software failure. These systems are expensive, requiring matched server hardware and certified shared disk subsystems. In addition, server clusters are generally restricted to very short distances, making offsite disaster protection difficult. Shared disk clustering systems continue to have a single point of failure in the shared disk subsystem. Examples of companies and products in this category include Microsoft Cluster Service, Symantec Cluster Server, Steeleye LifeKeeper and Legato AutoStart.
 
  •  Remote Disk Mirroring.  Disk mirroring is typically implemented as software within a proprietary storage array or as a software driver or appliance between the server and the primary data storage. Changes are captured at the disk block level, with entire blocks of data being mirrored for any size change and any physical changes to the disk such as temporary files or defragmentation causing


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  replication traffic. Typically, an operating system must boot and then “mount” the remotely mirrored drive in order to make the data accessible, which requires the operating system and applications to be installed and correctly configured to use the replicated volume, as well as extensive integrity checks. Examples of companies and products in this category include EMC SRDF and Mirrorview, Symantec Volume Replicator, FalconStorIPStor, DataCore SANmelody and Hitachi TrueCopy.
 
  •  Continuous Data Protection (CDP).  Although we have been providing continuous protection of data in our software for over 10 years, some new vendors have attempted to redefine this term to refer to solutions that capture and store a sequenced log of I/O changes or otherwise allow a data set to be recovered by “rolling back” to a previous point in time. These solutions typically focus exclusively on the data “rollback” aspects and do not consider the need to recover servers and applications as well as data in order to resume providing services to users. Examples of companies and products in this category include Revivio CPS, Mendocino Software RecoveryONE, TimeSpring TimeData, Kashya KBX5000 Data Protection Platform and Microsoft Data Protection Manager.
 
In addition, our software competes with companies that also use host-based asynchronous replication, which relies on software running on the host operating system to intercept small changes being made to files as those changes are made. In addition to our products, examples of products that use host-based asynchronous replication include Symantec Replication Exec, Legato Replistor, Neverfail and XOsoft WANSync.
 
Some of our competitors have greater financial, technical, sales, marketing and other resources than we do, as well as greater name recognition and a larger overall customer base for their products. Additionally, some of these competitors have research and development capabilities that may allow them to develop new or improved products that may compete with our software. As this market continues to develop, a number of companies with greater resources than ours could attempt to enter the market or increase their presence in this market by acquiring or forming strategic alliances with our competitors or business partners or by introducing their own competing products.
 
Our success will depend on our ability to adapt to these competing forces, to develop more advanced products more rapidly and less expensively than our competitors, to continue to develop a global sales and support network and to educate potential customers about the benefits of using our software rather than our competitors’ products. Our competitors could introduce products with superior features, scalability and functionality at lower prices than our software. In addition, some of our customers and potential customers may buy other software or services from our competitors, and to the extent that they prefer to consolidate their software purchasing from fewer vendors, may choose not to continue to purchase our software and support services.
 
We expect additional competition from other established and emerging companies. Increased competition could result in price reductions, reduced gross margins and loss of market share, any of which could harm our business.
 
Research and Development
 
Our successful software is a result of our significant investment in product development for over 10 years. Our development team has specific core competencies in Windows development including drivers, file systems, storage, clustering, networking and applications such as Exchange, SQL Server, Oracle Database and SharePoint server. Our developers average 10 years of experience and our testers average 81/2 years of experience. Our engineering organization, located in Indianapolis, Indiana, is responsible for product development, quality assurance, product management and documentation.
 
Intellectual Property
 
Our success as a company depends upon our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of intellectual property rights, including patents, trade secrets, copyrights and trademarks, as well as customary contractual protections.


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We have been granted two United States patents relating to our Real Time Backup System which is a component of all of our products. The granted United States patents will expire in October 2015. These patents and, to the extent any future patents are issued, may be contested, circumvented or invalidated over the course of our business, and we may not be able to prevent third-parties from infringing these patents. Therefore, the exact effect of having patents cannot be predicted with certainty.
 
Furthermore, we have registered the Double-Take® and GeoCluster® trademarks in the United States and have applied for registration for a variety of other trademarks including Balancetm, Double-Take for Virtual Systemstm and Double-Take for Virtual Serverstm. A third party may contest the registration of our trademark applications or may bring a claim for infringement of any of our registered or non-registered trademarks.
 
Employees
 
As of October 31, 2006, we had 296 employees in offices across the United States, Europe and Canada. None of our employees are represented by labor unions, and we consider our current employee relations to be good.
 
Facilities
 
We maintain office space in Southborough, Massachusetts, Hoboken, New Jersey, and Indianapolis, Indiana, where we have our development operations and principal call center. We have 45,429 square feet of office space in Indianapolis pursuant to a lease that expires in 2010. We also maintain sales offices in multiple locations worldwide. We believe that our current facilities are suitable and adequate to meet our current needs, and we intend to add new facilities or expand existing facilities as we add employees.
 
Legal Proceedings
 
From time to time, we have been and may be involved in various legal proceedings. We currently have no material legal proceedings pending.


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MANAGEMENT
 
Directors and Executive Officers
 
The table below shows information about our directors and executive officers as of October 31, 2006:
 
             
Name
 
Age
  Position
 
Dean Goodermote
  53   President, Chief Executive Officer and Chairman of the Board of Directors
Robert L. Beeler
  41   Vice President of Engineering
David J. Demlow
  39   Chief Technology Officer
S. Craig Huke
  44   Chief Financial Officer
Daniel M. Jones
  39   Vice President of Sales and Marketing
Michael Lesh
  62   Vice President of Professional Services and Support
Jo Murciano
  55   Vice President of EMEA and President of Double-Take EMEA
Paul Birch
  48   Director
Ashoke (Bobby) Goswami
  43   Director
John B. Landry
  58   Director
Laura L. Witt
  38   Director
John W. Young
  54   Director
 
Dean Goodermote joined Double-Take Software in March of 2005 as President, Chief Executive Officer and Chairman of the board of directors. Since July 2004 he has also served as Chief Executive Officer of Grid-Analytics LLC, a concept-stage company he founded focused on aggregated research. From September 2001 to March 2005, Mr. Goodermote served as a Venture Partner of ABS Capital Partners. From September 2000 to August 2001, Mr. Goodermote was Chairman and Chief Executive Officer of Clinsoft Corporation, a developer of software for clinical research. From 1997 to August 2001, Mr. Goodermote was Chairman and President of Domain Solutions Corporation, a software developer for enterprise applications and the parent of Clinsoft. From May 2000 until December 2001, Mr. Goodermote founded and was Chief Executive Officer and then the Chairman of IPWorks, Inc., a developer of internet address management software. From August 1996 to May 2000, Mr. Goodermote was Chief Executive Officer and President of Process Software Corporation, a developer of Internetworking software. From August 1986 to February 1997, Mr. Goodermote served in various positions, including eventually President and Chairman, of Project Software and Development Corporation, now known as MRO Software, Inc., a provider of software-based asset and service management solutions.
 
Robert L. Beeler joined Double-Take Software in July 1995 as Vice President of Engineering. From 1996 to 2001, Mr. Beeler served as a member of our board of directors. From July 1991 to July 1995, Mr. Beeler served as Project Manager, Project Engineer and System/Software Engineer at the Naval Air Warfare Center, where he supervised and provided technical leadership to a development team in support of the Navy Airborne Electronic Warfare Platform. From 1988 to 1991, Mr. Beeler served as a Software Developer for National Field Service Inc.
 
David J. Demlow joined Double-Take Software in 1997 as Vice President of Product Management and, since January 2005, has served as our Chief Technology Officer. From 1991 to 1997, Mr. Demlow held the following positions at Seagate Software: 1994 to 1997, Senior Product Manager, Enterprise Storage Management; 1993 to 1994, Systems Engineer, Sales and Channel Support; 1991 to 1993, Account Rep, Direct and Channel Sales. From 1990 to 1991, Mr. Demlow served as a Sales Manager at Business Technology Associates, Inc.
 
S. Craig Huke joined Double-Take Software in June 2003 as Chief Financial Officer. From May 2001 to May 2003, Mr. Huke served as Chief Financial Officer for Apogee Networks Systems and Consulting LLC, Inc., a privately held software company specializing in network cost visibility and containment. From April 1999 to May 2001, Mr. Huke served as Chief Financial Officer at Bluestone Software, Inc., an Internet infrastructure software company. From April 1998 to April 1999, Mr. Huke served as Vice President, Finance at Metronet Communications Corp., a communications company. From


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November 1994 to April 1998, Mr. Huke held the following positions at Seer Technologies, Inc., a software development company: September 1997 to April 1998, Vice President & Corporate Controller; November 1996 to September 1997, Corporate Controller; November 1995 to November 1996, Director of Financial Reporting and Analysis; and November 1994 to November 1995, Manager of Financial Reporting and Analysis.
 
Daniel M. Jones joined Double-Take Software in October 2001 as Eastern Region Sales Director and, since May 2005, has served as our Vice President of Sales and Marketing. From January 2000 to October 2001, Mr. Jones served as National Director of Sales at StorageNetworks, a provider of data storage software services to major and global businesses. From January 1998 to January 2000, Mr. Jones served as Vice President of North American Sales of Net-tel Inc., a provider of internet protocol data and voice services. From June 1996 to December 1997, Mr. Jones served as Director of Sales at MidCom Communications Inc., a facility-based telecommunications company. From February 1991 to June 1996, Mr. Jones held the following positions at ALLNET/Frontier Communications: May 1993 to June 1996, Area Manager, July 1992 to May 1993, District Manager; and July 1991 to July 1992, Sales Representative.
 
Michael Lesh joined Double-Take Software in June of 2001 as Vice President of Professional Services and Support. From October 2000 to June 2001, Mr. Lesh served as Director, Professional Services at Openpages, Inc., a provider of enterprise compliance management software. From February 1973 to October 2000, Mr. Lesh held the following positions at Data General, a division of EMC Corporation: January 1998 to October 2000, Director, Professional Services; February 1996 to January 1998, Director, Eastern Operations Professional Services; March 1995 to February 1996, Director, Technology Deployment Services; March 1990 to March 1995, Manager, Northeast Professional Services; and May 1984 to March 1990, Manager, Regional Systems Engineering.
 
Jo Murciano joined Double-Take Software in May 2006 as Vice President of EMEA and President of Double-Take EMEA. Mr. Murciano is also Chief Executive Officer and a director of Sunbelt Software Distribution, Inc., one of our resellers, which he joined in 1994. From October 1983 until May 2006, Mr. Murciano served as Chairman of Sunbelt System Software S.A.S., a software distributor that he founded in 1983 and which we acquired in May 2006. From September 1982 to October 2000, Mr. Murciano served as Chief Executive Officer of RMH Group, a provider of development and communication tools for the IBM AS/400 market that Mr. Murciano founded in 1982.
 
Paul Birch has served on the board of directors of Double-Take Software since September 2006. Mr. Birch has been a private investor and business owner since August 2003. From September 2000 to July 2003, Mr. Birch served in numerous capacities of GEAC, Inc., most recently as the President, Chief Executive Officer and a Director, and as the Chief Operating Officer, Chief Financial Officer and President, prior to that. From March 2000 to July 2001, Mr. Birch was the Chief Operating Officer, Chief Financial Officer, Treasurer and a Director of Escher Group, Ltd. From February 1991 to February 2000, Mr. Birch was the Chief Financial Officer, Treasurer and a Director of MRO Software, Inc. From November 1985 to February 1991 Mr. Birch served as a Tax Manager at PriceWaterhouseCoopers LLP, and as a Tax Manager with Arthur Anderson & Co. from 1980 to October 1985.
 
Ashoke (Bobby) Goswami has served on the board of directors of Double-Take Software since 2002. Mr. Goswami is a general partner of ABS Capital Partners, a private equity firm that he joined in 2001. Prior to joining ABS Capital Partners, Mr. Goswami served as an investment banker with Alex. Brown, Merrill Lynch and Goldman Sachs. Previously, Mr. Goswami spent four years in the systems practice at Andersen Consulting.
 
John B. Landry has served on the board of directors of Double-Take Software since September 2006. Mr. Landry has been Chief Technology Officer and Chairman of the Board of Directors of Adesso Systems, Inc., a provider of mobile enterprise software and services, since January 2001. From January 2002 to July 2003, Mr. Landry served as the founder, Chairman and Chief Technology Officer of Adjoin Solutions, Inc. From February 1999 to June 2000, he was Chief Technology Officer and Chairman of the Board of Directors of AnyDay.com, Inc. From August 1995 to December 2000, Mr. Landry served as Vice President of Technology Strategy of International Business Machines Corporation. Prior to joining International Business Machines Corporation, Mr. Landry served as Senior Vice President, Development and Chief Technology Officer of Lotus and as a Senior Vice President and Chief Technology Officer at Dun &


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Bradstreet, Cullinet Software, Distribution Management Systems, and McCormack & Dodge. Mr. Landry currently serves as a Trustee of Babson College and on the board of directors of Unica Corporation.
 
Laura L. Witt has served on the board of directors of Double-Take Software since 2002. Ms. Witt is a general partner of ABS Capital Partners, a private equity firm that she joined in 1997. Prior to joining ABS Capital Partners, Ms. Witt served as a consultant with Monitor Company Group LP and with Oliver Wyman & Company, both strategy consulting firms. She currently serves as a director of Familymeds Group, Inc.
 
John W. Young has served on the board of directors of Double-Take Software since June 2003. Mr. Young served as Executive Vice President, Products & Technology for MRO Software, Inc. from 1998 until it was acquired by International Business Machines Corporation in October 2006 and has since served as Vice President of Tivoli Maximo Products & Technology, a division of International Business Machines Corporation. From 1995 to 1998 he served as Vice President of Research and Development at MRO Software and from 1992 to 1995 he was Director of Product Management at MRO Software. From 1988 to 1992, Mr. Young served as Vice President of Sales for Comac Systems Corporation, an application software company.
 
Membership of the Board of Directors
 
Our board of directors currently consists of four directors. Nominees for director are elected for a term of one year. Each of our directors was appointed to our board of directors pursuant to a stockholders’ agreement. For additional information concerning the stockholders’ agreement, which will terminate upon the closing of this offering, see “Certain Relationships and Related Transactions — Series B Convertible Preferred Stock and Series C Convertible Preferred Stock — Amended and Restated Stockholders’ Agreement.”
 
Board Committees
 
The board of directors has a standing audit committee, a standing compensation committee and a standing nominating and corporate governance committee.
 
Audit Committee.  The audit committee is responsible, among its other duties and responsibilities, for engaging, overseeing, evaluating and replacing our independent registered public accounting firm, pre-approving all audit and non-audit services by that firm, reviewing the scope of the audit plan and the results of each audit with management and our independent registered public accounting firm, reviewing the internal audit function, reviewing the adequacy of our system of internal accounting controls and disclosure controls and procedures, reviewing the financial statements and related financial information we will include in our SEC filings, and exercising oversight with respect to our code of conduct and other policies and procedures regarding adherence with legal requirements. The members of our audit committee are Mr. Birch, who serves as chair of the committee, and Messrs. Goswami, Landry and Young. Both Mr. Birch and Mr. Goswami are “audit committee financial experts,” as that term is currently defined under the SEC rules implementing Section 407 of the Sarbanes-Oxley Act of 2002. Subject to The NASDAQ Stock Market’s transition rules, we believe that the composition of our audit committee will meet the requirements for independence under the listing standards of The NASDAQ Stock Market and SEC rules within a year following this offering.
 
Compensation Committee.  The compensation committee is responsible, among its other duties and responsibilities, for establishing the compensation and benefits of our executive officers and other key employees, monitoring compensation arrangements applicable to management employees for consistency with corporate objectives and stockholders’ interests, and administering our stock incentive plans. The members of our compensation committee are Ms. Witt, who serves as chair of the committee, and Messrs. Landry and Young.
 
Nominating and Corporate Governance Committee.  The nominating and corporate governance committee is responsible for recommending candidates for election to the board of directors. The committee is also responsible, among its other duties and responsibilities, for making recommendations to the board of directors or otherwise acting with respect to corporate governance matters, including board size and membership qualifications, recommendations with respect to director resignations tendered in the event a director fails to achieve a majority of votes cast in favor of his or her election, new director orientation, committee structure and membership, non-employee director compensation, succession


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planning for officers and key executives, and communications with stockholders. The members of our nominating and corporate governance committee are Mr. Goswami, who serves as chair of the committee, Mr. Birch and Ms. Witt.
 
Director Compensation
 
Directors who are not our employees receive annual fees of $14,000, fees of $2,000 for each board or committee meeting attended in person and fees of $1,000 for each board or committee meeting attended by conference telephone. The chair of the audit committee will receive an additional annual fee of $5,000.  All such fees will be paid in cash. Directors who are our employees will receive no fees for their services on the board of directors. All directors are entitled to reimbursement for their reasonable out-of-pocket travel expenditures.
 
Each non-employee director who joins our board will be entitled to receive 25,000 options to purchase shares of common stock upon that director’s initial election or appointment to the board of directors. In addition, each non-employee director will be entitled to receive annual grants of options to purchase 12,500 shares of common stock. All options granted as fees to our non-employee directors will be issued under our 2006 Incentive Plan.
 
Mr. Goswami and Ms. Witt, who are general partners of ABS Capital Partners, have waived receipt of compensation for board service.
 
Executive Compensation
 
The following summary compensation table shows the compensation paid for 2005 to our chief executive officer, one other individual who served as our chief executive officer during a portion of 2005, and to each of our other four most highly compensated executive officers for 2005. We sometimes refer to these executive officers in this prospectus as the “named executive officers.”
 
                                         
                      Long Term
 		       
    Annual
 		    Compensation        
    Compensation     Securities
 		       
                Other Annual
 		    Underlying
 		    All Other
 		 
    Salary
 		    Bonus
 		    Compensation
 		    Options
 		    Compensation
 		 
Name and Principal Position
  ($)     ($)     ($)     (#)     ($)  
 
Dean Goodermote(1)
  $ 249,771     $ 15,000       —       380,182       —  
President, Chief Executive Officer and Chairman of the Board of Directors
                                       
Donald E. Beeler, Jr.(2)
  $ 78,352     $ 41,498 (3)     —       6,637       —  
Former Chief Executive Officer
                                       
S. Craig Huke
  $ 197,917     $ 165,573 (4)   $ 73,852 (5)     122,070       —  
Chief Financial Officer
                                       
Daniel M. Jones
  $ 150,000     $ 95,963 (6)   $ 257,520 (7)     164,915       —  
Vice President of Sales and Marketing
                                       
David Demlow
  $ 160,000     $ 112,458 (8)     —       3,975       —  
Chief Technology Officer
                                       
Robert Beeler
  $ 160,000     $ 110,778 (9)     —       4,839       —  
Vice President of Engineering
                                       
 
 
(1)  Mr. Goodermote was appointed as our President, Chief Executive Officer and Chairman effective March 22, 2005.
 
(2)  Mr. Beeler ceased to serve as our Chief Executive Officer effective March 21, 2005. Pursuant to a consulting agreement entered into by us and Mr. Beeler at that time, we paid him $206,250 in 2005.
 
(3)  $13,833 of the amount shown represents amounts payable in shares of our Series C convertible preferred stock, valued at $0.98 per share, pursuant to our executive bonus program. After withholding to satisfy tax obligations of the executive, 8,166 shares of Series C convertible preferred stock were issued.


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(4)  $46,858 of the amount shown represents amounts payable in shares of our Series C convertible preferred stock, valued at $0.98 per share, pursuant to our executive bonus program. After withholding to satisfy tax obligations of the executive, 28,407 shares of Series C convertible preferred stock were issued.
 
(5)  Including amounts reimbursed as moving expenses.
 
(6)  $34,789 of the amount shown represents amounts payable in shares of our Series C convertible preferred stock, valued at $0.98 per share, pursuant to our executive bonus program. After withholding to satisfy tax obligations of the executive, 20,147 shares of Series C convertible preferred stock were issued.
 
(7)  Represents commissions of $257,520 paid to Mr. Jones pursuant to our sales compensation plan.
 
(8)  $37,486 of the amount shown represents amounts payable in shares of our Series C convertible preferred stock, valued at $0.98 per share, pursuant to our executive bonus program. After withholding to satisfy tax obligations of the executive, 22,732 shares of Series C convertible preferred stock were issued.
 
(9)  Of the amount shown, $36,926 represents amounts payable in shares of our Series C convertible preferred stock, valued at $0.98 per share, pursuant to our executive bonus program. After withholding to satisfy tax obligations of the executive, 22,288 shares of Series C convertible preferred stock were issued.
 
Stock Option Grants in Last Fiscal Year
 
The following table sets forth information concerning all stock options granted during 2005 to the named executive officers:
 
                                                 
                            Potential Realizable
 		 
    Individual Grants           Value at Assumed
 		 
          Percent of Total
 		                Annual Rates of
 		 
    Number of
 		    Options Granted
 		    Exercise
 		          Stock Price Appreciation for
 		 
    Shares Underlying
 		    to Employees in
 		    Price
 		    Expiration
 		    Option Term(2)  
    Options Granted (#)(1)     Fiscal Year     ($/Share)     Date     5%     10%  
 
Dean Goodermote
    380,182       46.0 %   $ 1.52       3/22/2015     $ 159,552     $ 352,568  
Donald E. Beeler, Jr. 
    6,636       0.8 %   $ 1.52       1/1/2015     $ 2,785     $ 6,155  
S. Craig Huke
    122,070       14.8 %   $ 1.52       2/2/2015     $ 51,230     $ 113,204  
Daniel M. Jones
    164,914       19.9 %   $ 1.52       2/2/2015     $ 69,210     $ 152,936  
David Demlow
    3,975       0.5 %   $ 1.52       1/1/2015     $ 1,668     $ 3,687  
Robert Beeler
    4,839       0.6 %   $ 1.52       1/1/2015     $ 2,031     $ 4,488  
 
 
(1)  These options were granted pursuant to our 2003 Employee Stock Option Plan. Upon the consummation of this offering, 100% of Mr. Goodermote’s option to purchase 380,182 shares and 25% of all other options Mr. Goodermote holds will vest in full. Each of the awards for the other named executive officers vests in equal quarterly amounts over four years from the date of grant.
 
(2)  Pursuant to SEC rules, these columns show gains that might exist for the options over the term of the options at 5% and 10% annual compounded appreciation in the stock price. These are assumed rates of appreciation prescribed the SEC rules and are not intended to forecast future appreciation of our common stock. The potential realizable values at 5% and 10% appreciation are calculated by using the fair value at the date of grant, in each case as determined by our board of directors as of the date of grant, and assuming that the per share price appreciates at the indicated rate for the entire term of the option and that the option is exercised at the exercise price and sold on the last day of its term at the appreciated price. Actual gains, if any, on option exercises and share holdings are dependent on the future performance of our stock price. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Stock-Based Compensation” for a discussion of additional information on the calculation of the fair market value of stock-based compensation.


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Aggregated Option Exercises in the Last Fiscal Year and Fiscal Year-End Option Values
 
The following table sets forth information regarding exercises of options to purchase common stock by the named executive officers during 2005 and the value of all unexercised options held at December 31, 2005:
                                                 
                Number of
 		             
    Number of
 		          Shares Underlying
 		    Value of Unexercised
 		 
    Shares Acquired
 		          Unexercised Options at
 		    In-the-Money Options at
 		 
    on
 		    Value
 		    December 31, 2005     December 31, 2005 ($)(1)  
Name
  Exercise (#)     Realized ($)     Exercisable     Unexercisable     Exercisable     Unexercisable  
 
Dean Goodermote
    —       —       —       380,182       —     $ 167,661  
Donald E. Beeler, Jr. 
    —       —       322,152       169,042     $ 215,257     $ 170,774  
S. Craig Huke
    —       —       58,321       176,931     $ 46,554     $ 123,743  
Daniel M. Jones
    —       —       54,665       138,778     $ 28,934     $ 64,014  
David Demlow
    —       —       59,962       121,371     $ 56,234     $ 122,991  
Robert Beeler
    —       —       82,638       122,558     $ 56,695     $ 123,801  
 
 
(1)  Represents the difference between the exercise price and the fair market value of our common stock on December 31, 2005, as determined by our board of directors based in part on an appraisal by an independent third party. For additional information on the calculation of the fair market value of stock-based compensation, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Stock-Based Compensation.”
 
Employment, Severance and Related Agreements
 
Employment Terms for Dean Goodermote.  In August 2006, we entered into an employment agreement with Mr. Goodermote setting forth the terms of his employment, which employment agreement amended and restated an agreement dated March 22, 2005, entered into in connection with the commencement of his employment. Pursuant to the current employment agreement, upon the consummation of this offering, Mr. Goodermote is entitled to receive a grant of shares of our common stock equivalent to 1.45% of the fully diluted shares of our common stock outstanding immediately prior to this offering, which assuming the grant was made on October 31, 2006 would be a grant of 266,871 shares in the aggregate. These shares will be fully vested upon grant and will be granted under our 2006 Omnibus Incentive Plan. In order to satisfy certain tax withholding obligations, 73,393 of these shares are expected to be withheld from the grant and returned to the status of authorized but unissued shares.
 
On March 22, 2005 Mr. Goodermote was granted stock options to acquire 380,182 shares of our common stock with 25% vesting on the one year anniversary of the start of his employment and with the remainder vesting in equal quarterly installments over the following three years, and he received a grant of stock options on the first anniversary of the start of his employment to acquire 152,073 shares of our common stock with 25% vesting on the one year anniversary of the grant date and the remainder vesting in equal quarterly installments over the following three years. In addition, on January 4, 2006, Mr. Goodermote was granted stock options to acquire 38,018 shares of our common stock with 25% vesting on the one year anniversary of the grant date and the remainder vesting in equal quarterly installments over the following three years. Pursuant to his employment agreement, upon the consummation of this offering all of the options granted on March 22, 2005 will vest in full and an additional 25% of the other stock options held by Mr. Goodermote will vest in full, which, assuming the offering occurred on October 31, 2006, would have represented the acceleration of options to acquire 308,898 shares in the aggregate. In addition, in the event of a change of control as a result of the closing of a merger, acquisition or the purchase of all or substantially all of our assets, all stock options held by Mr. Goodermote will accelerate in full.
 
Mr. Goodermote’s employment agreement also provides for the following: a base salary of at least $340,000 per year; five weeks of vacation per year; major medical insurance for his family; and life, long-


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term disability and other insurance in accordance with our current benefits policies. Mr. Goodermote has also entered into the form of non-disclosure and non-solicitation agreement described below.
 
Employment Terms for S. Craig Huke.  In October, 2006, we entered into an employment agreement with S. Craig Huke setting forth the terms of his employment, which employment agreement amended and restated an agreement originally entered into in May 2003, upon the commencement of his employment as our Chief Financial Officer. Mr. Huke’s employment agreement provides for a base salary of at least $200,000 per year, and major medical insurance for his family. Pursuant to the terms of Mr. Huke’s employment agreement, in the event his employment is terminated without cause in connection with a change of control transaction, Mr. Huke will continue to receive his base salary for a period of twelve months from the date of termination of his employment. Pursuant to his employment agreement, in the event of a change of control as a result of the closing of a merger, acquisition or the purchase of all or substantially all of our assets, all of Mr. Huke’s stock options will immediately vest. Mr. Huke also entered into the form of non-disclosure and non-solicitation agreement described below.
 
Employment Terms for Daniel M. Jones.  In October, 2006, we entered into an employment agreement with Daniel M. Jones setting forth the terms of his employment as our Vice President of Sales and Marketing, which employment agreement amended and restated an agreement originally entered into in connection with the commencement of his employment in February 2005. Mr. Jones’ employment agreement provides for the following: a base salary of at least $157,500 per year; major medical insurance for his family; and participation in our commission plan for sales employees and bonus plan for executives. Pursuant to his employment agreement, in the event of a change of control as a result of the closing of a merger, acquisition, the purchase of all or substantially all of our assets, 50% of Mr. Jones’ stock options will immediately vest.
 
Mr. Jones’ employment agreement provides that in the event his employment is terminated without cause, as defined below, he will continue to receive his base salary for a period of twelve months from the date of termination of his employment. Mr. Jones will also be eligible for these severance payments if he is required to relocate outside of a 100 mile radius from his current home. For purposes of Mr. Jones’ employment agreement, “cause” means (i) willful disobedience of a material and lawful instruction of the Chief Executive Officer or our Board of Directors, (ii) conviction for any misdemeanor involving fraud or embezzlement or similar crime, or any felony, (iii) conduct amounting to fraud, dishonesty, willful misconduct or recurring insubordination, (iv) inattention to his duties, or (v) excessive absences from work for any reason. Mr. Jones also entered into the form of non-disclosure and non-solicitation agreement described below.
 
Non-Disclosure and Non-Solicitation Agreement.  It was a condition to the terms of employment for each of Messrs. Goodermote, Huke, Jones and Lesh, that the executive sign a standard form of non-disclosure and non-solicitation agreement. This agreement provides that in the event of the expiration or termination of the executive’s employment he will not use our information to develop, or participate with any other party that is developing, products based on our confidential information. In addition, the agreement provides that for a period of two years after the end of his employment that he will not solicit our existing or proposed customers for competing products, services and/or solutions, and during that period he will not encourage or induce any of our employees to leave our employ.
 
Noncompetition and Severance Agreements.  In October 2006, we entered into noncompetition and severance agreements with two of our executive officers, Robert L. Beeler and David J. Demlow, which agreements amended and restated prior agreements. These agreements provide that, for a period of one year after the termination of employment, each executive officer will not enter into or become associated with any business in direct competition with us, and for a period of two years after the termination of employment, each executive officer will not solicit any customer or employee who was our customer or employee during his term of employment. Assuming continued compliance by Messrs. Beeler and Demlow with the noncompetition and nonsolicitation covenants, these agreements provide for the payment of a cash payment equal to twelve months base salary calculated at the highest annualized rate of the executive officer’s base compensation in effect at any time during the ninety day period prior to his termination. The executive officer will not be entitled to any portion of this severance package if the termination is for cause. If the executive officer is terminated for cause or if he violates the


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noncompetition and nonsolicitation covenants, his employment stock options, whether vested or unvested, will immediately terminate, and he will not be entitled to exercise such options. For purposes of these noncompetition and severance agreements, “cause” means (i) willful disobedience of a material and lawful instruction of the Chief Executive Officer or our Board of Directors, (ii) conviction for any misdemeanor involving fraud or embezzlement or similar crime, or any felony, (iii) breach of any material provisions of the agreements, (iv) conduct amounting to fraud, dishonesty, willful misconduct or recurring insubordination, or (v) excessive absences from work for any reason.
 
Agreement with Jo Murciano.  The share purchase agreement we entered into in connection with our acquisition of Double-Take EMEA in May 2006 also contained terms relating to Mr. Murciano’s employment. As a result of the acquisition, Mr. Murciano became our Vice President of EMEA and remained President of Double-Take EMEA. Pursuant to the share purchase agreement, Mr. Murciano will remain as President of Double-Take EMEA and through December 31, 2007 will continue to be entitled to the same compensation plan after the acquisition as before, including an annual salary of €49,048, payment of 7% of the operating profits of Double-Take EMEA, pension plan contributions equivalent to approximately €350 per month, the full-time use of an automobile, the use of a fuel credit card and the payment of certain club memberships.
 
The share purchase agreement also provides that for three years from the date of the share purchase agreement, Mr. Murciano will not compete with us, solicit or take away the business of our clients, customers or suppliers, or induce our clients, customers, vendors or employees to reduce or cease doing business with us. These non-solicitation and non-competition provisions do not prevent Mr. Murciano from continuing to serve as a director or chief executive officer of Sunbelt Software Distribution, Inc., which is one of our resellers. For more information on the terms of the share purchase agreement, see “Certain Relationships and Related Party Transactions — Double-Take EMEA Acquisition and Relationships with Jo Murciano” below.
 
Executive Bonus Plan.
 
We have adopted an executive bonus plan for purposes of rewarding our senior executives. The plan sets forth quarterly and annual bonus payments based on the achievement of targets related to our quarterly and annual operating income and revenue, and it is subject to change at the discretion of our board of directors. Target bonus amounts are equivalent to 75% of an executive’s base salary, with the exception of the chief executive officer, whose target bonus amount is $160,000. At achievement of 87.5% of target goals, 60% of the applicable bonus is paid, which is increased proportionately to a full payout of bonuses at 100% of target goals. Executives are also entitled to receive an additional amount equal to up to 20% of their bonus awards in the event that we exceed our targets by an equivalent amount. In the event that there is a sale of substantially all of the assets or stock of Double-Take Software, the targets for the quarterly and annual period in which the sale occurs will be deemed to be met. No bonus is due if an executive terminates employment with Double-Take Software prior to the end of a quarter.
 
Compensation Committee Interlocks and Insider Participation
 
None of the members of our compensation committee has ever served as an officer or employee of Double-Take Software or any of our subsidiaries, or serves as a member of the board of directors or compensation committee of any company that has one of its executive officers serving on our board of directors or compensation committee. In addition, none of our executive officers serves or has served as a member of the board of directors, compensation committee or other board committee performing equivalent functions of any company that has one or more executive officers serving on our board of directors or compensation committee.
 
2003 Employee Stock Option Plan
 
Our board of directors adopted the 2003 Employees Stock Option Plan on February 5, 2003 and our stockholders approved it on June 19, 2003. Our board of directors adopted an amendment to the plan on March 15, 2006 to increase the number of shares available for awards under the plan and our stockholders


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approved the amendment on March 28, 2006. Our board of directors approved a reduction in the number of shares available for awards under the plan on September 14, 2006.
 
Purpose and Eligibility.  The plan is intended as a performance incentive for officers, employees, consultants and other key persons of Double-Take Software or its subsidiaries to enable the persons to whom options are granted to acquire or increase a proprietary interest in the success of the Company.
 
Awards may be granted under the plan to officers, directors, including non-employee directors, and employees of Double-Take Software or any of our subsidiaries; to any consultant or other key person who provides services to Double-Take Software and our subsidiaries; and members of any scientific or other advisory board of Double-Take Software or otherwise. Only employees of Double-Take Software or any of our subsidiaries are eligible to receive incentive stock options.
 
Term.  The plan will expire on February 5, 2013 unless earlier terminated by our board of directors.
 
Administration, Amendment and Termination.  The plan is administered by the compensation committee of the board of directors. The compensation committee has the authority to interpret the plan, determine the terms and conditions of awards and make all other determinations necessary or expedient to promote the best interests of Double-Take Software with respect to the plan.
 
The board of directors may amend or discontinue the plan at any time with respect to any shares of common stock as to which awards have not been made. No such action may amend the plan without the approval of our stockholders, in accordance with applicable law and regulations, including rules of The NASDAQ Stock Market, if the amendment increases the number of shares of common stock issuable under the plan, changes the eligibility provision, changes the minimum option exercise price, increases the maximum term of an option or otherwise materially increases benefits accruing to plan participants.
 
Awards.  Awards under the plan may be made in the form of stock options, which may be either incentive stock options or non-qualified stock options. An “incentive stock option” is an option that meets the requirements of Section 422 of the Internal Revenue Code, and a “non-qualified stock option” is an option that does not meet those requirements.
 
Shares Subject to the Plan.  Subject to adjustment as described below, a total of 3,142,857 shares of common stock are available for issuance under the plan. Shares issued under the plan may be authorized but unissued shares. Whenever any outstanding option under the plan expires, is canceled or is otherwise terminated (other than by exercise), the shares of common stock allocable to the unexercised portion of such option may again be the subject of options under the plan.
 
Terms and Conditions of Options.  An option granted under the plan is exercisable only to the extent that it is vested on the date of exercise. No option may be exercisable more than ten years from the option grant date, or five years in the case of an incentive stock option granted to a ten percent stockholder, which is a person who owns more than ten percent of the total combined voting power of all classes of stock of Double-Take Software or our subsidiaries.
 
The exercise price per share under each incentive stock option granted under the plan may not be less than 100%, or 110% in the case of a ten percent stockholder, of the fair market value of the common stock on the option grant date. The exercise price per share under each non-qualified stock option granted under the plan shall be determined by the compensation committee. For so long as the common stock remains listed on The NASDAQ Stock Market, the fair market value of the common stock will be the closing price of the common stock as reported on The NASDAQ Stock Market on the option grant date. If there is no closing price reported on the option grant date, the fair market value will be deemed equal to the closing price as reported on The NASDAQ Stock Market for the last preceding date on which sales of the common stock were reported. If the common stock is not at the time listed on The NASDAQ Stock Market or otherwise admitted to trading on a stock exchange, fair market value will be the closing bid price, as provided by either The NASDAQ Stock Market or a broker-dealer which regularly furnishes price quotations, as applicable, of the common stock on the date in question in the over-the-counter market. If the common stock is not listed or admitted to trading on any stock exchange or traded in the over-the-counter market, fair market value will be as determined in good faith by the board of directors.


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Payment of the option price for shares purchased pursuant to the exercise of an option may be made in cash, by certified check or other form of payment acceptable to us, by broker assisted cashless exercise or, to the extent permitted by law and provided in an award agreement, through the tender to us of shares of common stock held for a period of at least six months.
 
Each option will become vested and exercisable at such times and under such conditions as the compensation committee may approve consistent with the terms of the plan.
 
In the case of incentive stock options, the aggregate fair market value of the common stock determined on the option grant date, with respect to which such options are exercisable for the first time during any calendar year may not exceed $100,000.
 
Incentive stock options are non-transferable during the optionee’s lifetime. The compensation committee may authorize transfers of non-qualified stock options.
 
Adjustment of Shares Subject to Plan.  If the shares of common stock as a whole are increased, decreased, changed into or exchanged for a different number of kind of shares or securities, whether through merger, consolidation, reorganization, recapitalization, reclassification, stock dividend, stock split, combination of shares, exchange of shares, change in corporate structure or the like, an appropriate and proportionate adjustment shall be made in the number and kind of shares subject to the plan, and in the number, kind and per share exercise price of shares subject to unexercised options or portions thereof granted prior to any such change. In the event of any such adjustment in an outstanding option, the optionee thereafter shall have the right to purchase the number of shares under such option at the per share price, as so adjusted, which optionee could purchase at the total purchase price applicable to the option immediately prior to such adjustment. Adjustments shall be determined by the compensation committee. In conjunction with an adjustment, the compensation committee shall also have the discretion to accelerate the time or times at which any option or portion thereof shall become exercisable.
 
Effect of Mergers and Other Transactions.  Upon the occurrence of transactions specified in the plan, unless otherwise provided in an award agreement, outstanding options will vest unconditionally on the first day following the occurrence of the specified transaction.
 
1996 Employees Stock Option Plan
 
Our board of directors adopted the 1996 Employees Stock Option Plan on October 30, 1996 and our stockholders approved it on November 4, 1996. Our board of directors adopted an amendment and restatement of the plan on January 14, 2000 that was approved by our stockholders on January 28, 2000.
 
Purpose and Eligibility.  The plan is intended to provide an incentive to employees whose present and potential contributions to Double-Take Software and its subsidiaries are or will be important to our success by affording them an opportunity to acquire a proprietary interest in Double-Take Software.
 
Awards may be granted under the plan to employees and officers of Double-Take Software or any of our subsidiaries.
 
Term.  The plan expired on October 30, 2006.
 
Administration, Amendment and Termination.  The plan is administered by the compensation committee of the board of directors. The compensation committee has the authority to interpret the plan, determine the terms and conditions of awards and make all other determinations necessary or advisable for the administration of the plan.
 
The board of directors may amend, alter, suspend or discontinue the plan at any time with respect to any shares of common stock as to which awards have not been made. No such action may amend the plan without the approval of our stockholders if the amendment increases the number of shares of common stock issuable under the plan, changes the eligibility categories of the plan, extends the duration of the plan or otherwise materially increases benefits accruing to plan participants.
 
Awards.  Awards under the plan may be made in the form of stock options, which may be either incentive stock options or non-qualified stock options. An “incentive stock option” is an option that meets


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the requirements of Section 422 of the Internal Revenue Code, and a “non-qualified stock option” is an option that does not meet those requirements.
 
Shares Subject to the Plan.  Subject to adjustment as described below, a total of 1,020,408 shares of common stock are available for issuance under the plan. Shares issued under the plan may be authorized but unissued shares or treasury shares. Whenever any outstanding option under the plan expires or is terminated without being exercised, the shares of common stock allocable to the unexercised portion of such option may again be the subject of options under the plan.
 
Terms and Conditions of Options.  An option granted under the plan is exercisable only to the extent that it is vested on the date of exercise. No option may be exercisable more than ten years from the option grant date, or five years in the case of an incentive stock option granted to a ten percent stockholder, which is a person who owns more than ten percent of the total combined voting power of all classes of stock of Double-Take Software or our subsidiaries.
 
The exercise price per share under each incentive stock option granted under the plan may not be less than 100%, or 110% in the case of a ten percent stockholder, of the fair market value of the common stock on the option grant date. The exercise price per share under each non-qualified stock option granted under the plan may not be less than 85% of the fair market value of the common stock on the option grant date. For so long as the common stock remains listed on The NASDAQ Stock Market, the fair market value of the common stock will be the closing price of the common stock as reported on The NASDAQ Stock Market on the option grant date. If there is no closing price reported on the option grant date, the fair market value will be deemed equal to the closing price as reported on The NASDAQ Stock Market for the last preceding date on which sales of the common stock were reported. If the common stock is not at the time listed or admitted to trading on a stock exchange, fair market value will be the closing bid price, as provided by either The NASDAQ Stock Market or a broker-dealer which regularly furnishes price quotations, as applicable, of the common stock on the date in question in the over-the-counter market. If the common stock is not listed on The NASDAQ Stock Market or otherwise admitted to trading on any stock exchange or traded in the over-the-counter market, fair market value will be as determined in good faith by the board of directors.
 
Payment of the option price for shares purchased pursuant to the exercise of an option may be made in cash, by certified check or, at the discretion of compensation committee, in a combination of cash and a promissory note, through delivery of shares of common stock or a combination of any of the above.
 
Each option will become vested and exercisable at such times and under such conditions as the compensation committee may approve consistent with the terms of the plan.
 
In the case of incentive stock options, the aggregate fair market value of the common stock determined on the option grant date, with respect to which such options are exercisable for the first time during any calendar year may not exceed $100,000.
 
Options are non-transferable during the optionee’s lifetime.
 
Adjustment of Shares Subject to Plan.  In the event that dividends are payable in common stock or in the event there are splits, subdivisions or combinations of shares of common stock, the number of shares available under the plan shall be increased or decreased proportionately, as the case may be, and the number of shares delivered upon the exercise thereafter of any option theretofore granted or issued shall be increased or decreased proportionately, as the case may be, without change in the aggregate purchase price.
 
Effect of Mergers and Other Transactions.  Upon the occurrence of transactions specified in the plan, unless otherwise provided in an award agreement, outstanding options will vest unconditionally on the first day following the occurrence of the specified transaction.


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Non-Executive Director Stock Option Plan
 
Our board of directors adopted the Non-Executive Director Stock Option Plan on October 30, 1996 and our stockholders approved it on November 4, 1996. Our board of director adopted an amendment and restatement of the plan on June 24, 2003 that was approved by our stockholders on July 23, 2003.
 
Purpose and Eligibility.  The plan is intended to provide a means by which each director who is not otherwise a full-time employee of Double-Take Software or any of our subsidiaries will be given an opportunity to purchase common stock. Double-Take Software, by means of the plan, seeks to attract and retain the services of qualified independent persons to serve as non-executive directors and to provide incentives for such persons to exert maximum efforts for our success.
 
Awards may be granted solely to non-executive directors of Double-Take Software.
 
Term.  The plan expired on June 1, 2006.
 
Administration, Amendment and Termination.  The plan is administered by the compensation committee of the board of directors. The compensation committee has the authority to interpret the plan.
 
The board of directors may amend, alter, suspend or terminate the plan at any time, but not more frequently than every six months, with respect to any shares of common stock as to which awards have not been made. No such action may amend the plan without the approval of our stockholders, if the amendment materially increases the number of shares of common stock issuable under the plan, extends the term of the Plan, materially increases eligibility requirements or materially increases benefits accruing to plan participants.
 
Awards.  Awards under the plan may be made in the form of non-qualified stock options. A “non-qualified stock option” is an option that does not meet the requirements of Section 422 of the Internal Revenue Code.
 
Shares Subject to the Plan.  Subject to adjustment as described below, a total of 61,224 shares of common stock are available for issuance under the plan. Shares issued under the plan may be authorized but unissued shares or treasury shares. Whenever any outstanding option under the plan expires or terminates (other than by exercise), the shares of common stock allocable to the unexercised portion of such option may again be the subject of options under the plan.
 
Terms and Conditions of Options.  An option granted under the plan is exercisable only to the extent that it is vested on the date of exercise. No option may be exercisable more than five years from the option grant date. The term of each option may terminate sooner than five years if the optionee’s service as a non-executive director terminates for any reason or for no reason. In the event of such termination of service, the option shall terminate on the earlier of five years or the date seven months following the date of termination of service as a director or if termination of service is due to the optionee’s death, the earlier of five years or twelve months following the date of the optionee’s death.
 
The exercise price per share under each option granted under the plan may not be less than 100% of the fair market value of the common stock on the option grant date. For so long as the common stock remains listed on The NASDAQ Stock Market, the fair market value of the common stock will be the closing price of the common stock as reported on The NASDAQ Stock Market on the option grant date. If there is no closing price reported on the option grant date, the fair market value will be deemed equal to the closing price as reported on The NASDAQ Stock Market for the last preceding date on which sales of the common stock were reported. If the common stock is not at the time listed or admitted to trading on a stock exchange, fair market value will be the closing bid price, as provided by either The NASDAQ Stock Market or a broker-dealer which regularly furnishes price quotations, as applicable, of the common stock on the date in question in the over-the-counter market. If the common stock is not listed on The NASDAQ Stock Market or otherwise admitted to trading on any stock exchange or traded in the over-the-counter market, fair market value will be as determined in good faith by the board of directors.
 
Payment of the option price for shares purchased pursuant to the exercise of an option may be made in cash, through the tender to us of shares of common stock held for a period of at least six months, or a combination of both.


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Each option will become vested and exercisable at such times and under such conditions as the compensation committee may approve consistent with the terms of the plan.
 
Adjustment of Shares Subject to Plan.  The award agreements evidencing options may contain such provisions as the compensation committee shall determine to be appropriate for the adjustment of the number and class of shares subject to all outstanding options and the option prices thereof in the event of changes in the outstanding common stock by reason of any stock dividend, distribution, split-up, recapitalization, combination or exchange of shares, merger, consolidation or liquidation and the like, and, in the event of any such change in the outstanding common stock, the aggregate number and class of shares available under the plan and the number of shares subject to grants pursuant to the plan shall be appropriately adjusted by the compensation committee.
 
2006 Omnibus Incentive Plan
 
Our board of directors adopted the Double-Take Software 2006 Omnibus Incentive Plan on September 14, 2006 and our stockholders approved it on September 14, 2006. Our board of directors amended the plan on November 2, 2006 to increase the number of shares available for awards under the plan, and our shareholders approved the amendment on that date, as well.
 
Purpose and Eligibility.  The purpose of the plan is to enhance our ability to attract, retain and motivate highly qualified officers, key employees, outside directors and other persons to serve Double-Take Software and our affiliates and to expend maximum effort to improve our business results and earnings, by providing to such officers, key employees, outside directors and other persons an opportunity to acquire or increase a direct proprietary interest in our operations and future success through ownership of common stock.
 
Awards may be granted under the plan to officers, directors, including non-employee directors, and other employees of Double-Take Software or any of our subsidiaries, to any adviser, consultant or other provider of services to us and any employee of those providers, and to any other individuals who are approved by the board of directors as eligible to participate in the plan. Only employees of Double-Take Software or any of our subsidiaries are eligible to receive incentive stock options.
 
Term.  The plan will expire on September 14, 2016 unless earlier terminated by our board of directors.
 
Administration, Amendment and Termination.  The plan is administered by the compensation committee of the board of directors. The compensation committee has the authority to interpret the plan, determine the terms and conditions of awards and make all other determinations necessary or advisable for the administration of the plan.
 
The board of directors may amend, suspend or terminate the plan at any time with respect to any shares of common stock as to which awards have not been made. No such action may amend the plan without the approval of our stockholders if the amendment would materially increase the benefits under the plan or if the amendment is required to be submitted for stockholder approval by applicable law, rule or regulation, including rules of The NASDAQ Stock Market.
 
Awards.  Awards under the plan may be made in the form of:
 
  •  stock options, which may be either incentive stock options or non-qualified stock options;
 
  •  restricted stock;
 
  •  restricted stock units;
 
  •  stock appreciation rights;
 
  •  unrestricted stock;
 
  •  cash-based awards; or
 
  •  any combination of the foregoing.


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Any of the foregoing awards may be made subject to attainment of performance goals over a performance period of up to one or more years. We refer to the one-year awards as “annual incentive awards” and to the other awards as “performance awards.”
 
An “incentive stock option” is an option that meets the requirements of Section 422 of the Internal Revenue Code, and a “non-qualified stock option” is an option that does not meet those requirements. “Restricted stock” is an award of common stock on which are imposed restricted periods and restrictions that subject the shares to a substantial risk of forfeiture, as defined in Section 83 of the Internal Revenue Code. “Restricted stock units” are awards that represent a conditional right to receive shares of common stock in the future and that are subject to the same types of restrictions and risk of forfeiture as restricted stock. A “stock appreciation right,” or “SAR,” is a right to receive upon exercise, in the form of common stock, cash or a combination of common stock and cash, the excess of the fair market value of one share of common stock on the exercise date over the grant price of the SAR. “Unrestricted stock” is an award of common stock that is free of restrictions other than those imposed under federal or state securities laws.
 
Shares Subject to the Plan.  Subject to adjustment as described below, a total of 2,653,061 shares of common stock are available for issuance under the plan. Shares issued under the plan may be authorized but unissued shares, treasury shares, or issued and outstanding shares that are purchased in the open market.
 
Any shares granted under the plan that are forfeited to us because of the failure to meet an award contingency or condition will again be available for issuance pursuant to new awards. Any shares covered by an award, or portion of an award, granted under the plan that expires or is forfeited, canceled or settled in cash will not be deemed to have been issued for purposes of determining the maximum number of shares available for issuance under the plan.
 
If any stock option is exercised by tendering shares to us, or if we withhold shares to satisfy tax withholding obligations in connection with an exercise, as full or partial payment in connection with the exercise of a stock option under the plan or our prior plans, only the number of shares issued net of the shares tendered will be deemed issued for purposes of determining the maximum number of shares available for issuance under the plan. Shares issued under the plan through the settlement, assumption or substitution of outstanding awards or obligations to grant future awards resulting from the acquisition of another entity will not reduce the maximum number of shares available for issuance under the plan. In the case of an SAR, only the actual number of shares issued upon exercise of the SAR will be deemed issued for purposes of determining the maximum number of shares available for issuance.
 
The number of shares reserved for issuance will be increased by the number of any shares that we repurchase with option proceeds in respect of the exercise of a stock option. The number of shares contributed to the reserved shares in connection with an option exercise, however, may not be greater than the number obtained by dividing the amount of option exercise proceeds by the fair market value of the common stock on the date of exercise. For this purpose, “option exercise proceeds” means, with respect to an option, the sum of the option price paid in cash, if any, to purchase shares under such option, plus the value of all federal, state and local tax deductions to which we are entitled with respect to the exercise of such option, determined using the highest federal tax rate applicable to corporations and a blended tax rate for state and local taxes based on the jurisdictions in which we do business and giving effect to the deduction of state and local taxes for federal tax purposes.
 
The plan includes a number of additional limitations on the number of shares reserved for issuance. A maximum of 2,653,061 shares may be issued pursuant to incentive stock options. No participant may be awarded options or SARs for more than 1,061,224 shares in any calendar year. A maximum of 1,061,224 shares of restricted stock, or shares represented by restricted stock units, that vest based on the achievement of performance objectives may be awarded to any participant in any calendar year. The foregoing share limitations are subject to adjustment as described below.
 
The maximum annual incentive award is $3 million per grantee. The maximum performance award is $6 million per grantee for each performance period.


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Terms and Conditions of Options.  An option granted under the plan is exercisable only to the extent that it is vested on the date of exercise. No option may be exercisable more than ten years from the option grant date or 11 years if the optionee terminates employment or other service due to death in the tenth year of the option term, or five years in the case of an incentive stock option granted to a ten percent stockholder, which is a person who owns more than ten percent of the total combined voting power of all classes of stock of Double-Take Software or our subsidiaries.
 
The exercise price per share under each option granted under the plan may not be less than 100%, or 110% in the case of an incentive stock option granted to a ten percent stockholder, of the fair market value of the common stock on the option grant date. For so long as the common stock remains listed on The NASDAQ Stock Market, the fair market value of the common stock will be the closing price of the common stock as reported on The NASDAQ Stock Market on the option grant date. If there is no closing price reported on the option grant date, the fair market value will be deemed equal to the closing price as reported on The NASDAQ Stock Market for the last preceding date on which sales of the common stock were reported. If the shares of common stock are listed on more than one established stock exchange, the fair market value will be the closing price of a share of common stock reported on the exchange that trades the largest volume of shares on the option grant date. If the common stock is not at the time listed or admitted to trading on a stock exchange, fair market value will be the mean between the lowest reported bid price and highest reported asked price of the common stock on the date in question in the over-the-counter market, as such prices are reported in a publication of general circulation selected by the board of directors and regularly reporting the market price of common stock in such market. If the common stock is not listed or admitted to trading on any stock exchange or traded in the over-the-counter market, fair market value will be as determined in good faith by the board of directors.
 
Except upon the occurrence of a merger or other transaction described below, no amendment or modification may be made to an outstanding option which reduces the option price, either by lowering the option price or by canceling the outstanding option and granting a replacement option with a lower option price.
 
Payment of the option price for shares purchased pursuant to the exercise of an option may be made in cash or in cash equivalents acceptable to us or, to the extent permitted by law and at the discretion of the compensation committee, either through the tender to us of shares of common stock, including shares issuable on exercise of the option or by a combination of cash payment and tender of shares.
 
Each option will become vested and exercisable at such times and under such conditions as the compensation committee may approve consistent with the terms of the plan.
 
In the case of incentive stock options, the aggregate fair market value of the common stock determined on the option grant date, with respect to which such options are exercisable for the first time during any calendar year may not exceed $100,000.
 
Incentive stock options are non-transferable during the optionee’s lifetime. The compensation committee may authorize transfers of non-qualified stock options in limited circumstances specified in the plan.
 
Terms and Conditions of Restricted Stock and Restricted Stock Units.  Subject to the provisions of the plan, the compensation committee will determine the terms and conditions of each award of restricted stock and restricted stock units, including the restricted period for all or a portion of the award, the restrictions applicable to the award, the purchase price, if any, for the common stock subject to the award, and, with respect to restricted stock units, whether the participant will receive the dividends and other distributions paid with respect to the award as declared and paid to the holders of the common stock during the restricted period. Awards of restricted stock and restricted stock units may be subject to satisfaction of individual performance objectives or one or more of the performance objectives that are described below under “Corporate Performance Objectives.”
 
The restrictions and the restricted period, which generally will be a minimum of three years, may differ with respect to each participant. An award will be subject to forfeiture if certain events specified by the compensation committee occur prior to the lapse of the restrictions.


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Awards of restricted stock and restricted stock units are nontransferable.
 
Terms and Conditions of Stock Appreciation Rights.  SARs may be granted in conjunction with all or a part of any option granted under the plan. The compensation committee will determine at the SAR grant date or thereafter the time or times at which and the circumstances under which an SAR may be exercised in whole or in part, the time or times at which and the circumstances under which an SAR will cease to be exercisable, the method of exercise, the method of settlement, the form of consideration payable in settlement, whether or not an SAR will be in tandem or in combination with any other grant, and any other terms and conditions of any SAR. Exercisability of SARs may be subject to future service requirements or to the achievement of one or more of the performance objectives that are described below under “Corporate Performance Objectives.”
 
Upon exercise of an SAR, the holder will be entitled to receive, in the specified form of consideration, the excess of the fair market value of one share of common stock on the exercise date over the grant price of such SAR, as determined by the compensation committee. The grant price of an SAR may not be less than the fair market value of a share of common stock on the grant date. Except upon the occurrence of a merger or other transaction described below, no amendment or modification may be made to an outstanding SAR which reduces the SAR grant price, either by lowering the SAR grant price or by canceling the outstanding SAR and granting a replacement SAR with a lower SAR grant price.
 
An SAR granted under the plan will terminate upon the expiration of ten years from the grant date, or 11 years if the holder terminates employment or other service due to death in the tenth year of the SAR term, or under such circumstances and on such earlier date as may be fixed by the compensation committee.
 
Awards of SARs are transferable only to the same extent as the related options.
 
Terms and Conditions of Unrestricted Stock.  The compensation committee may award unrestricted stock, or sell unrestricted stock at par value or such other higher purchase price determined by the compensation committee, free of restrictions other than those required under federal or state securities laws. Awards of unrestricted stock may be made in respect of past services or other valid consideration, in lieu of any cash compensation due to eligible persons, or in satisfaction of a performance share award payable in common stock granted to the participant.
 
Dividend Equivalents.  The compensation committee is authorized to grant dividend equivalents to a participant in connection with an award under the plan. Dividend equivalents will entitle the participant to receive cash, common stock or other property equal in value to dividends paid, or other periodic payments made, with respect to a specified number of shares of common stock. Dividend equivalents may be paid or distributed when accrued or will be deemed to have been reinvested in additional common stock, in awards under the plan or in other investment vehicles, and will be subject to such restrictions on transferability and risks of forfeiture as the compensation committee may specify.
 
Adjustment of Shares Subject to Plan.  If any dividend or other distribution, recapitalization, stock split, stock combination or other change in our corporate structure affects the common stock in such a manner that an adjustment is required to prevent dilution or enlargement of the rights of participants, the compensation committee shall adjust, among other award terms, the number and kind of shares that may be delivered in connection with awards and the exercise price, grant price or purchase price relating to any award. In such circumstances, the compensation committee also may make provision for the payment of cash or other property in respect of any outstanding award.
 
Effect of Mergers and Other Transactions.  Upon the occurrence of transactions specified in the plan, except as described below, all outstanding options and SARs will become immediately exercisable for a period of 15 days immediately before completion of the applicable transaction, and all outstanding awards of restricted stock and restricted stock units will be deemed to have vested, and all restrictions and conditions applicable to such awards will be deemed to have lapsed, immediately before the scheduled completion of the applicable transaction. The foregoing effects will result upon the dissolution or liquidation of Double-Take Software, upon a merger, consolidation or reorganization of Double-Take Software with one or more other entities in which Double-Take Software is not the surviving entity, upon


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a sale of substantially all of the assets of Double-Take Software to another entity, or upon any transaction (including a merger or reorganization in which Double-Take Software is the surviving entity) approved by the board of directors that results in any person or entity (or person or entities acting as a group or otherwise in concert) owning 80% or more of the combined voting power of all classes of securities of Double-Take Software. The foregoing provisions will not apply to outstanding awards in respect of any transaction if the awards are assumed in the transaction, or new awards made in substitution for outstanding awards, with appropriate adjustments to the exercise prices and other terms of such awards, or if the board of directors determines that the foregoing provisions will not apply to such transaction.
 
The compensation committee may provide in any agreement under the plan for accelerated vesting or exercisability of an award upon the occurrence of specified events, including a change of control of Double-Take Software, as defined in any such agreement.
 
Corporate Performance Objectives.  Section 162(m) of the Internal Revenue Code limits publicly-held companies to an annual deduction for federal income tax purposes of $1,000,000 for compensation paid to their chief executive officer and the four most highly compensated executive officers determined at the end of each year. Performance-based compensation is excluded from this limitation. Although the plan is currently not subject to Section 162(m), because Section 162(m) provides for a grace period following an initial public offering, the plan is designed to permit the compensation committee to grant awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m) at such time as the plan becomes subject to Section 162(m).
 
Section 162(m) requires that, to qualify as performance-based, the compensation must be paid solely on account of the attainment of one or more pre-established, objective performance goals. In the case of compensation attributable to plan awards other than options, the performance goal requirement is deemed satisfied if the vesting of such awards is subject to the achievement of performance goals based on objective business criteria. To establish performance objectives for these awards, the compensation committee exclusively uses business criteria specified in the plan. The performance objectives may be stated either on an absolute or relative basis and may be based on one or more of such business criteria. The business criteria are total stockholder return, total stockholder return as compared to total return of a publicly available index, earnings per share, net income, operating earnings, pretax earnings, earnings before interest, taxes, depreciation and amortization, operating margin, growth in assets, return on equity, return on capital, market share, stock price, cash flow, sales growth (in general, by type of product and by type of customer), retained earnings, completion of acquisitions, completion of divestitures and asset sales, cost or expense reductions, working capital, ratio of indebtedness to stockholders’ equity, introduction or conversion of product brands, achievement of specified management information systems objectives, and any combination of any of the foregoing. Achievement of these criteria will be determined on a consolidated basis or, to the extent appropriate, with respect to specified subsidiaries or business units.
 
401(k) Plan
 
We maintain a 401(k) retirement and savings plan for all of our employees. The 401(k) plan is intended to qualify under section 401(k) of the Internal Revenue Code, so that contributions and the income earned on those contributions are not taxable to our employees until they make withdrawals from the plan. Subject to statutory limits, participants of the 401(k) plan may elect to contribute up to 15% of their current compensation and we may make a matching contribution as determined in our discretion each year. Contributions to the 401(k) plan made by our employees, as well as any matching and discretionary company contributions, are subject to vesting criteria set forth in the 401(k) plan that are based on the employee’s position and years of service with Double-Take Software. Benefits under the 401(k) plan are paid upon a participant’s retirement, death, disability or termination of employment, and they are based on the amount of a participant’s vested contributions plus vested employer contributions, as adjusted for gains, losses and earnings.


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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
Other than compensation agreements and other arrangements which are described in the “Management” section of this prospectus and the transactions described below, during our last fiscal year, there has not been, and there is not currently proposed, any transaction or series of similar transactions to which we were or will be a party in which the amount involved exceeded or will exceed $60,000 and in which any of our directors, executive officers, holders of more than five percent of any class of our voting securities or any member of the immediate family of the foregoing persons had or will have a direct or indirect material interest.
 
We believe that all of the transactions set forth below are on terms no less favorable to us than we could have obtained from unaffiliated third-parties. It is our intention to ensure that all future transactions between us and our directors, officers, principal shareholders and their affiliates are approved by a majority of our board of directors, including a majority of the independent and disinterested members of our board of directors, and are on terms no less favorable to us than those that we could obtain from unaffiliated third-parties.
 
Series B Convertible Preferred Stock and Series C Convertible Preferred Stock
 
Since January 1, 2003, we have issued preferred stock and other securities to ABS Capital Partners IV, L.P., ABS Capital Partners IV-A, L.P., ABS Capital Partners IV Offshore L.P. and ABS Capital Partners IV Special Offshore L.P., which we refer to collectively as the ABS Entities. As of October 31, 2006, the ABS Entities beneficially owned stock having approximately 55.9% of our outstanding voting power and, after completion of this offering, assuming that affiliates of ABS Capital Partners sell the number of shares indicated in the “Principal and Selling Stockholders” section of this prospectus, will beneficially own stock having approximately 34.4% of our outstanding voting power, or approximately 29.5% if the underwriters exercise their over-allotment option in full. In addition, two general partners of the ABS Entities, Ashoke Goswami and Laura Witt, are members of our board of directors.
 
In October 2003, we sold 1,066,667 shares of our Series B convertible preferred stock, at a purchase price of $1.50 per share, or $1,600,000 in the aggregate, to the ABS Entities. The ABS Entities had previously acquired 8,666,667 shares of our Series B convertible preferred stock in connection with the first sales of our Series B convertible preferred stock in November 2002. At that time we had entered into a registration rights agreement and a stockholders’ agreement with the purchasers of the Series B convertible preferred stock.
 
In June 2004, we issued 8% subordinated convertible promissory notes to the ABS Entities in an aggregate amount of $2,000,000. In October 2004, we sold 7,717,398 shares of Series C convertible preferred stock to the ABS Entities at a purchase price of $0.98 per share, or $7.6 million in the aggregate. The ABS Entities paid a portion of the purchase price for the Series C convertible preferred stock through the conversion of the June 2004 promissory notes.
 
In connection with the sale of the Series C convertible preferred stock to the ABS Entities, we amended and restated the registration rights agreement and stockholders’ agreement that we had entered into in November 2002, with the holders of our Series B convertible preferred stock, as further described below. All of the shares of Series B and Series C convertible preferred stock will convert into common stock immediately before the completion of this offering.
 
Amended and Restated Registration Rights Agreement.  The amended and restated registration rights agreement that was entered into in October 2004 in connection with the sale of our Series C convertible preferred stock grants registration rights to the ABS Entities and holders of our Series B convertible preferred stock, including Donald E. Beeler, Jr., our former chief executive officer, LSC Fund II LP and the Seligman Group, which includes Seligman Communications & Information Fund Inc., Seligman Investment Opportunities (Master) Fund NTV II Portfolio, Seligman Investment Opportunities (Master) Fund NTV Portfolio and Seligman New Technologies Fund Inc. As of October 31, 2006, the Seligman Group and LSC Fund II LP each beneficially owned stock having approximately 5.8% of our outstanding voting power, and, after completion of this offering, the Seligman Group will beneficially own stock having approximately 3.6% of our outstanding voting power, or approximately 3.1% if the underwriters exercise


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their over-allotment option in full, and LSC Fund II LP will beneficially own stock having approximately 4.3% of our voting power. Pursuant to the registration rights agreement, after this offering, the former holders of our Series B convertible preferred stock and Series C convertible preferred stock will have the right to require us to register for public resale under the Securities Act an aggregate of 9,225,428 shares of common stock that we will issue upon conversion of the Series B convertible preferred stock and Series C convertible preferred stock upon completion of this offering. This “demand” registration right is exercisable six months after this offering by holders of at least 20% of the then outstanding shares of common stock issued on conversion of the preferred stock. If this demand registration is exercised, all other holders of registrable shares may join in the registration statement, provided that if the registration is an underwritten offering and the managing underwriters advise in writing that the number of converted shares of common stock to be included in the registration exceeds the number that can be sold in such offering, the number of shares that may be included in the offering may be limited by a formula set forth in the rights agreement. The number of the demand registrations is limited to three if the registrations cover the full amount of the shares that holders requested be registered.
 
If we propose to file a registration statement for the sale of our common stock by us or by our other security holders, other than a registration statement in connection with a demand registration or in connection with employee benefit or acquisition related matters, then these stockholders are entitled to require us to include their shares of common stock in that registration statement. Pursuant to a formula set forth in the registration rights agreement, we can limit the number of shares that these holders are entitled to include in this type of “piggyback” registration or in a demand registration if the offering is an underwritten offering and the managing underwriters advise in writing that the number of shares of common stock to be included in the registration exceeds the number that can be sold in such offering.
 
In addition, in the event that we become eligible to register securities by means of a registration statement on Form S-3 under the Securities Act, any holder of these shares of common stock may require us to register the sale of the shares provided that the reasonably anticipated aggregate price to the public of such securities is at least $1 million.
 
We are required to bear all registration fees and expenses related to the registrations under the registration rights agreement, excluding any transfer taxes relating to the sale of the shares held by the stockholders entitled to registration rights, any underwriting discounts or selling commissions and certain expenses that may be necessary to enable the stockholders entitled to registration rights to consummate the disposition of shares in certain jurisdictions. In addition, we will indemnify the selling stockholders in such transactions.
 
Amended and Restated Stockholders’ Agreement.  In October 2004, in connection with the sale of our Series C convertible preferred stock, we entered into an amended and restated stockholders’ agreement with the holders of our Series C and Series B convertible preferred stock, including the ABS Entities, Donald L. Beeler, Jr., the Seligman Group and LSC Fund II LP. The agreement sets forth agreements to appoint directors to our board, including the right of the ABS Entities to appoint two members to our board, transfer restrictions regarding our common stock, rights of first refusal regarding sales of our common stock, and preemptive rights, among other requirements. The agreement terminates by its terms upon the completion of this offering.
 
Double-Take EMEA Acquisition and Relationships with Jo Murciano
 
In May 2006, we entered into a share purchase agreement for the acquisition of all of the outstanding shares of Sunbelt System Software S.A.S., from its shareholders, Jo Murciano and Sunbelt International S.A.R.L., of which Mr. Murciano is the Managing Director. Sunbelt Systems Software is now known as Double-Take Software S.A.S., or Double-Take EMEA, which was our primary distributor in Europe, the Middle East and Africa. As a result of his former shareholdings in Double-Take EMEA and his interest in Sunbelt International, Mr. Murciano is entitled to receive 62.5% of the amounts we paid and will pay in connection with the acquisition of Double-Take EMEA. In addition, in connection with the acquisition, Mr. Murciano became our Vice President of EMEA and remains President of Double-Take EMEA.
 
Pursuant to the share purchase agreement, we paid $1.1 million to the former shareholders of Double-Take EMEA as the initial payment for the acquisition. The remaining portion of the total purchase price, which we estimate will range between $10.0 million and $12.0 million, will be payable in


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monthly payments based upon a percentage of the intercompany amounts paid by Double-Take EMEA to us each month in respect of purchases under our intercompany distribution agreement with Double-Take EMEA from the date of the share purchase agreement through December 31, 2007, which we refer to as the earn-out period. The base percentage for the calculation of the earn-out payments is 50% of the intercompany amounts for the month, although this percentage is decreased to 15% once the aggregate payments total $10 million.
 
An escrow account was established to hold 20% of our initial $1.1 million payment and 20% of each of our earn-out payments through December 31, 2007 to satisfy claims against the selling shareholders that we may have from time to time as a result of breaches of representations, warranties or covenants through December 31, 2007. The share purchase agreement provides that Double-Take EMEA may obtain short-term loans out of the escrow fund for the amount of any shortfall in Double-Take EMEA’s monthly sales, up to an aggregate amount of $532,000, and subject to certain other conditions specified in the agreement. In the event that there is a change of control of our company prior to the end of the earn-out period, we are obligated to make a mandatory payment to the former shareholders of Double-Take EMEA, including Mr. Murciano, equal to the lesser of $2.5 million or the difference between the aggregate earn-out payments made prior to the change of control and the target amount, which is $10.0 million.
 
The share purchase agreement provides that during the earn-out period we will continue to operate Double-Take EMEA in accordance with its past practices and the intercompany distribution agreement. Double-Take EMEA will also serve as our exclusive distributor in Europe and the United Kingdom, subject to exceptions for worldwide licenses that we may grant and certain agreements with our OEMs. In addition, during the earn-out period we have agreed that Mr. Murciano will remain as President of Double-Take EMEA and that he will continue to receive the same compensation that he received prior to the acquisition. Should we terminate Mr. Murciano’s employment without cause during the term of the earn-out period, the former shareholders of Double-Take EMEA will continue to receive the earn-out payments, or they can elect to receive a lump-sum payment equal to the average monthly earn-out payment prior to the termination multiplied by the number of months remaining in the earn-out period. See “Management — Employment, Severance and Related Agreements — Agreement with Jo Murciano” for more information on Mr. Murciano’s compensation and employment.
 
Mr. Murciano is also a director and chief executive officer of Sunbelt Software Distribution, Inc., or Sunbelt Distribution, which is a reseller of our software and services. Mr. Murciano is the beneficial owner of approximately 31% of Sunbelt Distribution, which is also partly owned by Sunbelt International S.A.R.L. In 2005, our sales to Sunbelt Distribution totaled $6.4 million. Sunbelt Distribution continues to serve as a reseller of our software and services. Since the acquisition of Sunbelt EMEA, our sales to Sunbelt Distribution have been $2.8 million.
 
Agreements with Former Chief Executive Officer
 
In November 2006 we entered into a settlement agreement and mutual release with Donald E. Beeler, Jr., our former chief executive officer and director who resigned in March 2005, relating to the reimbursement of expenses incurred by Mr. Beeler while he was our employee. As part of the settlement agreement, Mr. Beeler agreed to reimburse us $300,000, which amount was offset by a credit in an equal amount that was made available to him at the time of his resignation in March 2005. The settlement agreement contained customary releases and terminated prior agreements including a memorandum agreement and an independent contractor agreement we had entered into with Mr. Beeler at the time of his resignation. The settlement agreement also provided that all outstanding stock options held by Mr. Beeler would vest in full and he would have the right to exercise those options until the later of their expiration dates or June 30, 2008.
 
In connection with his resignation, Mr. Beeler had also entered into a non-disclosure confidentiality agreement, which remains in effect. The non-disclosure confidentiality agreement contains provisions for the protection of our confidential information and also contains Mr. Beeler’s agreement that he will not compete with us or solicit our employees to leave for a period of one year after the termination of the independent contractor agreement.


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PRINCIPAL AND SELLING STOCKHOLDERS
 
The table presented below shows information regarding the beneficial ownership of our common stock as of October 31, 2006, before and after giving effect to the offering, by:
 
  •  each person or entity known by us to own beneficially more than 5% of the outstanding shares of our common stock;
 
  •  each of our directors;
 
  •  each of our named executive officers;
 
  •  all of our directors and executive officers as a group; and
 
  •  the selling stockholders.
 
For purposes of calculating beneficial ownership, we have assumed that:
 
  •  the outstanding shares of our Series B convertible preferred stock are converted into 9,536,790 shares of common stock, which we have assumed for this purpose occurred on October 31, 2006;
 
  •  the outstanding shares of our Series C convertible preferred stock are converted into 1,889,049 shares of common stock, which we have assumed for this purpose occurred on October 31, 2006;
 
  •  we will issue 266,871 shares of common stock upon the consummation of the offering to our chief executive officer pursuant to an employment agreement;
 
  •  we will issue 5,000,000 shares of common stock in the offering; and
 
  •  the selling stockholders will sell 2,500,000 shares of our common stock, assuming the underwriters do not exercise their over-allotment option, or 3,625,000 shares of our common stock, assuming the underwriters exercise their over-allotment option in full.
 
The information in the following table is based on the assumptions set forth above and 3,797,549 shares of common stock actually outstanding as of October 31, 2006, and has been presented in accordance with the rules of the SEC and is not necessarily indicative of beneficial ownership for any other purpose. Under SEC rules, beneficial ownership of a class of capital stock includes any shares of such class as to which a person, directly or indirectly, has or shares voting power or investment power and also any shares as to which a person has the right to acquire such voting or investment power within 60 days through the exercise of any stock option, warrant or other right. If two or more persons share voting power or investment power with respect to specific securities, all of such persons may be deemed to be the beneficial owners of such securities. Except as we otherwise indicate in the footnotes to the table and under applicable community property laws, we believe that the beneficial owners of the common stock listed below, based on information they have furnished to us, have sole voting and investment power with respect to the shares shown.
 
                                                                 
                Number of
 		    Number of
 		                Shares Beneficially
 		 
                Shares Being
 		    Shares Being
 		    Shares Beneficially
 		    Owned After
 		 
                Offered
 		    Offered
 		    Owned After Offering
 		    Offering Assuming
 		 
    Shares Beneficially
 		    Assuming No
 		    Assuming Full
 		    Assuming No Exercise
 		    Full Exercise of
 		 
    Owned Before Offering     Exercise of
 		    Exercise of
 		    of Over-Allotment Option     Over-Allotment Option  
    Number
 		          Over-Allotment
 		    Over-Allotment
 		    Number
 		          Number
 		       
Name of Beneficial Owner
  of Shares     %(1)     Option     Option     of Shares     %(1)     of Shares     %(1)  
 
5% Stockholders
                                                               
Entities affiliated with ABS Capital Partners(2)
    8,656,127       55.9 %     1,611,141       2,601,705       7,044,986       34.4 %     6,054,422       29.5 %
Entities affiliated with J. & W. Seligman & Co. Inc.(3)
    902,882       5.8 %     165,802       267,741       737,080       3.6 %     635,141       3.1 %


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                Number of
 		    Number of
 		                Shares Beneficially
 		 
                Shares Being
 		    Shares Being
 		    Shares Beneficially
 		    Owned After
 		 
                Offered
 		    Offered
 		    Owned After Offering
 		    Offering Assuming
 		 
    Shares Beneficially
 		    Assuming No
 		    Assuming Full
 		    Assuming No Exercise
 		    Full Exercise of
 		 
    Owned Before Offering     Exercise of
 		    Exercise of
 		    of Over-Allotment Option     Over-Allotment Option  
    Number
 		          Over-Allotment
 		    Over-Allotment
 		    Number
 		          Number
 		       
Name of Beneficial Owner
  of Shares     %(1)     Option     Option     of Shares     %(1)     of Shares     %(1)  
 
LSC Fund II LP(4)
    890,800       5.8 %     —       —       890,800       4.3 %     890,800       4.3 %
Directors and Named Executive Officers:
                                                               
Paul Birch
    —       —       —       —       —       —       —       —  
Dean Goodermote(5)
    720,764       4.5 %     —       —       720,764       3.4 %     720,764       3.4 %
Ashoke (Bobby) Goswami(2)
    8,656,127       55.9 %     1,611,141       2,601,705       7,044,986       34.4 %     6,054,422       29.5 %
John B. Landry
    —       —       —       —       —       —       —       —  
Laura L. Witt(2)
    8,656,127       55.9 %     1,611,141       2,601,705       7,044,986       34.4 %     6,054,422       29.5 %
John W. Young(6)
    25,510       *       —       —       25,510       *       25,510       *  
Robert L. Beeler(7)
    185,311       1.2 %     —       —       185,311       *       185,311       *  
Donald E. Beeler, Jr.(8)
    779,485       4.9 %     142,857       142,857       636,628       3.0 %     636,628       3.0 %
David J. Demlow(9)
    151,820       1.0 %     —       —       151,820       *       151,820       *  
S. Craig Huke(10)
    152,425       1.0 %     —       —       152,425       *       152,425       *  
Daniel M. Jones(11)
    96,880       *       —       —       96,880       *       96,880       *  
All executive officers and directors as a group (12 persons)(12)
    10,108,566       62.1 %     1,611,141       2,601,705       8,497,425       39.3 %     7,506,861       34.7 %
Other Selling Stockholders:
                                                               
Richard E. Feldman(13)
    180,295       1.2 %     69,313       72,826       110,982       *       107,469       *  
Paul F. Folino(14)
    126,787       *       17,371       28,051       109,416       *       98,736       *  
Richard Friedman(15)
    518,316       3.3 %     170,423       179,060       347,893       1.7 %     339,256       1.7 %
Jeffrey Markowitz(16)
    551,878       3.6 %     170,423       179,060       381,455       1.9 %     372,818       1.8 %
Scott Meyers(17)
    150,999       *       150,999       150,999       0       —       0       —  
Stuart W. Sanderson(18)
    27,905       *       1,673       2,702       26,232       *       25,203       *  
 
 
*  Represents beneficial ownership of less than 1%.
 
(1) The percentage of beneficial ownership as to any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days after such date, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person has the right to acquire voting or investment power within 60 days after such date. Consequently, the denominator for calculating beneficial ownership percentages may be different for each beneficial owner.
 
(2) Includes:
 
(i) 6,012,063 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock and 1,647,726 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock held of record by ABS Capital Partners IV, L.P.;
 
(ii) 201,290 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock and 55,167 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock held of record by ABS Capital Partners IV-A, L.P.;
 
(iii) 345,295 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock and 94,634 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock held of record by ABS Capital Partners IV Offshore, L.P.; and
 
(iv) 235,428 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock and 64,524 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock held of record by ABS Capital Partners IV Special

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Offshore, L.P. (together with ABS Capital Partners IV, L.P., ABS Capital Partners IV-A, L.P. and ABS Capital Partners IV Offshore, L.P., the “ABS Entities”).
 
ABS Partners IV, L.L.C. is the general partner of the ABS Entities and has voting and dispositive power over these shares, which is shared by the managing members of ABS Partners IV, L.L.C., including Mr. Goswami and Ms. Witt. Each of Mr. Goswami and Ms. Witt disclaims beneficial ownership of these shares except to the extent of his or her respective pecuniary interests. None of the ABS Entities are obligated to sell the number of shares indicated, and the ABS Entities may elect to sell a lower number of shares or no shares at all. The address for these entities is 400 East Pratt Street, Suite 910, Baltimore, Maryland 21202.
 
(3) Includes (i) 178,159 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock and 2,417 shares of common stock held of record by Seligman Communications and Information Fund, Inc., (ii) 35,631 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock and 483 shares of common stock held of record by Seligman Investment Opportunities (Master) Fund-NTV Portfolio, (iii) 520,226 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock and 7,058 shares of common stock held of record by Seligman Investment Opportunities (Master) Fund-NTV II Portfolio, and (iv) 156,781 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock and 2,127 shares of common stock held of record by Seligman New Technologies Fund, Inc. These shares may be deemed to be beneficially owned by J. & W. Seligman & Co. Inc., the investment manager of these entities. The address for the Seligman entities is 100 Park Avenue, New York, New York 10017.
 
(4) Represents shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock. These shares may be deemed to be beneficially owned by LSC II, LLC, the general partner of LSC Fund II, L.P. The address for LSC Fund II, L.P. and LSC II, LLC is 100 Pine Street, Suite 1850, San Francisco, California 94111.
 
(5) Includes 266,871 shares of common stock representing 1.45% of the fully diluted shares outstanding immediately prior to this offering that are to be granted to Mr. Goodermote upon completion of this offering, assuming the grant was made on October 31, 2006 and including 73,389 shares that are expected to be withheld to satisfy certain tax obligations, and 453,893 shares issuable upon exercise of options that are exercisable within 60 days of October 31, 2006, which includes 285,137 shares issuable upon exercise of options that have accelerated vesting upon completion of this offering.
 
(6) Includes 25,510 shares of common stock issuable upon exercise of options that are exercisable within 60 days of October 31, 2006.
 
(7) Includes 4,882 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock, 10,204 shares of common stock and 170,224 shares of common stock issuable upon exercise of options that are exercisable within 60 days of October 31, 2006.
 
(8) Includes 1,804 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock, 1,891 shares of common stock issuable upon the conversion of shares of Series C convertible stock, 358,901 shares of common stock and 416,888 shares of common stock issuable upon exercise of options that are exercisable within 60 days of October 31, 2006.
 
(9) Includes 4,985 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock and 146,836 shares of common stock issuable upon exercise of options that are exercisable within 60 days of October 31, 2006.
 
(10) Includes 6,231 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock and 146,195 shares of common stock issuable upon exercise of options that are exercisable within 60 days of October 31, 2006.
 
(11) Includes 4,415 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock and 92,465 shares of common stock issuable upon exercise of options that are exercisable within 60 days of October 31, 2006.
 
(12) The shares of common stock shown as beneficially owned by all directors and executive officers as a group include (i) options to purchase 1,150,208 shares of common stock exercisable within 60 days


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of October 31, 2006, and (ii) as further described in footnote 5 to this table, 266,871 shares of common stock issuable to Dean Goodermote upon the completion of this offering, assuming the grant was made on October 31, 2006 and including 73,389 shares that are expected to be withheld to satisfy certain tax obligations, and 285,137 shares of common stock issuable upon exercises of options held by Dean Goodermote that have accelerated vesting upon the completion of this offering.
 
(13) Includes 111,831 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock.
 
(14) Includes 93,768 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock. All of the shares of common stock shown as beneficially owned by Mr. Folino are held by the Folino Revocable Living Trust for which Mr. Folino serves as trustee and exercises sole voting and investment power.
 
(15) Includes 274,966 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock.
 
(16) Includes 274,966 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock.
 
(17) Includes 1,083 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock.
 
(18) Includes 9,031 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock.


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DESCRIPTION OF CAPITAL STOCK
 
The following description of our capital stock summarizes provisions of our amended and restated certificate of incorporation and bylaws as they will be in effect upon completion of the offering. As of the date of this prospectus, our authorized capital stock consists of 100,000,000 shares of common stock, $0.001 par value per share, and 22,833,773 shares of preferred stock, $0.001 par value per share, of which 14,451,572 shares are designated as Series B convertible preferred stock and 8,382,201 shares are designated as Series C convertible preferred stock. Immediately after completion of this offering, after giving effect to the conversion of our outstanding preferred stock and the effectiveness of our amended and restated certificate of incorporation, our authorized capital stock will consist of 130,000,000 shares of common stock, $0.001 par value per share, and 20,000,000 shares of undesignated preferred stock, $0.01 par value per share. Immediately after completion of the offering, 20,490,259 shares of common stock and no shares of preferred stock will be outstanding.
 
Common Stock
 
Holders of common stock are entitled:
 
  •  to cast one vote for each share held of record on all matters submitted to a vote of the stockholders;
 
  •  to receive, on a pro rata basis, dividends and distributions, if any, that the board of directors may declare out of legally available funds; and
 
  •  upon our liquidation, dissolution or winding up, to share equally and ratably in any assets remaining after the payment of all debt and other liabilities, subject to the prior rights, if any, of holders of any outstanding shares of preferred stock.
 
The holders of our common stock are entitled to receive dividends as they may be lawfully declared from time to time by our board of directors, subject to any preferential rights of holders of any outstanding shares of preferred stock. Any dividends declared on the common stock will not be cumulative.
 
The holders of our common stock do not have any preemptive, cumulative voting, subscription, conversion, redemption or sinking fund rights. The common stock is not subject to future calls or assessments by us.
 
Except as otherwise required by law, holders of the common stock, as such, are not entitled to vote on any amendment to our certificate of incorporation, including the certificate of designation of any series of preferred stock, that relates solely to the terms of one or more outstanding series of preferred stock, if the holders of the affected series are entitled, either voting separately or together with the holders of one or more other affected series, to vote on such amendment under the certificate of incorporation, including the certificate of designation of any series of preferred stock, or under the Delaware General Corporation Law.
 
Before the date of this prospectus, there has been no public market for the common stock. We expect that the shares of our common stock will be approved for quotation on The NASDAQ Stock Market, subject to notice of issuance, under the symbol “DBTK.”
 
Continental Stock Transfer & Trust will serve as the transfer agent and registrar for the common stock.
 
Preferred Stock
 
Under our certificate of incorporation, the board of directors has the authority, without further action by our stockholders, except as described below, to issue up to 20,000,000 shares of preferred stock in one or more series and to fix the voting powers, designations, preferences and the relative participating, optional or other special rights and qualifications, limitations and restrictions of each series, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and the number of shares constituting any series. Upon completion of the offering, no shares of our authorized preferred stock will be outstanding. Because the board of directors has the power to establish the


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preferences and rights of the shares of any additional series of preferred stock, it may afford holders of any preferred stock preferences, powers and rights, including voting and dividend rights, senior to the rights of holders of the common stock, which could adversely affect the holders of the common stock and could discourage a takeover of us even if a change of control of our company would be beneficial to the interests of our stockholders.
 
Warrants
 
Upon completion of this offering, we will have outstanding warrants to purchase:
 
  •  117,347 shares of our common stock at an exercise price of $1.84 per share; and
 
  •  45,918 shares of our common stock at an exercise price of $2.94 per share.
 
The warrants expire on dates ranging from March 19, 2007 to October 16, 2013 and provide for adjustments in the exercise price and number of shares issuable upon exercise in the event of stock splits, reclassifications, exchanges, substitutions or other changes in our capital structure as well as some types of consolidations, mergers or asset sales. The exercise price of these warrants is also subject to adjustment if we issue or sell shares of our common stock, or securities convertible into our common stock, for consideration per share less than the exercise price of the warrants immediately prior to that issuance or sale.
 
Anti-Takeover Effect of Our Charter and Bylaw Provisions
 
Our certificate of incorporation and bylaws will contain provisions that could make it more difficult to complete an acquisition of Double-Take Software by means of a tender offer, a proxy contest or otherwise.
 
No Stockholder Action by Written Consent.  The certificate of incorporation provides that, subject to the rights of any holders of preferred stock to act by written consent instead of a meeting, stockholder action may be taken only at an annual meeting or special meeting of stockholders and may not be taken by written consent instead of a meeting, unless the action to be taken by written consent of stockholders and the taking of this action by written consent has been expressly approved in advance by the board of directors. Failure to satisfy any of the requirements for a stockholder meeting could delay, prevent or invalidate stockholder action.
 
Stockholder Advance Notice Procedure.  Our bylaws establish an advance notice procedure for stockholders to make nominations of candidates for election as directors or to bring other business before an annual meeting of our stockholders. The bylaws provide that any stockholder wishing to nominate persons for election as directors at, or bring other business before, an annual meeting must deliver to our secretary a written notice of the stockholder’s intention to do so. To be timely, the stockholder’s notice must be delivered to or mailed and received by us not less than 60 days before the meeting, except that if we provide stockholders with less than 75 days’ notice or prior public disclosure of the date of the meeting, we must receive the notice not later than the close of business on the tenth day following the day on which we provide the notice or public disclosure. The notice must include the following information:
 
  •  the name and address of the stockholder who intends to make the nomination and the name and address of the person or persons to be nominated or the nature of the business to be proposed;
 
  •  a representation that the stockholder is a holder of record of our capital stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons or to introduce the business specified in the notice;
 
  •  if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons, naming such person or persons, pursuant to which the nomination is to be made by the stockholder;
 
  •  such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed under the SEC’s proxy rules if the nominee had been nominated, or intended to be nominated, or the matter had been proposed, or intended to be proposed, by the board of directors; and


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  •  if applicable, the consent of each nominee to serve as a director if elected.
 
We may require any proposed nominee to furnish such other information as we may reasonably require to determine the eligibility of such proposed nominee to serve as one of our directors.
 
Section 203 of the Delaware General Corporation Law.  We are subject to Section 203 of the Delaware General Corporation Law, which, with specified exceptions, prohibits a Delaware corporation from engaging in any “business combination” with any “interested stockholder” for a period of three years following the time that the stockholder became an interested stockholder unless:
 
  •  before that time, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
 
  •  upon consummation of the transaction that 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, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
 
  •  at or after that time, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 662/3% of the outstanding voting stock that is not owned by the interested stockholder.
 
Section 203 defines “business combination” to include the following:
 
  •  any merger or consolidation of the corporation with the interested stockholder;
 
  •  any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
 
  •  subject to specified exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
 
  •  any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or
 
  •  any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
 
In general, Section 203 defines an “interested stockholder” as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by that entity or person. Because the ABS Entities acquired their shares prior to this offering, Section 203 is currently inapplicable to any business combination or transaction with the ABS Entities or their affiliates.
 
The application of Section 203 may make it difficult and expensive for a third party to pursue a takeover attempt we approve even if a change in control of us would be beneficial to the interests of our stockholders.
 
Majority Voting Provisions for Director Elections
 
Under our bylaws, election of directors will be by a majority of votes cast, or a plurality in the case where there are more director candidates for election than seats to be filled. A director who fails to achieve a majority of votes cast in an uncontested election will be required to offer irrevocably to resign from the board of directors, and the remaining directors will determine whether to accept the resignation. Vacancies created by resignations or otherwise may be filled by vote of the remaining directors.


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Limitation of Liability and Indemnification
 
Our certificate of incorporation limits the personal liability of our board members for breaches by them of their fiduciary duties. Our bylaws also require us to indemnify our directors and officers to the fullest extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for any of the following acts:
 
  •  any breach of their duty of loyalty to us or our stockholders;
 
  •  acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
 
  •  unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions; and
 
  •  any transaction from which the director derived an improper personal benefit.
 
Such a limitation of liability may not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission.
 
In accordance with Delaware law, our bylaws permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether indemnification would be permitted under Delaware law. We currently maintain liability insurance for our directors and officers.
 
We intend to enter into agreements to indemnify our directors and executive officers, in addition to the indemnification provided for in our certificate of incorporation and bylaws. These agreements, among other things, will provide for indemnification of our directors and executive officers for some expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by us or in our right, arising out of such person’s services as a director or executive officer of ours, any subsidiary of ours or any other company or enterprise to which the person provided services at our request. We believe that these provisions and agreements will help us to attract and retain qualified persons as directors and executive officers.


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SHARES ELIGIBLE FOR FUTURE SALE
 
Upon completion of the offering, we will have outstanding 20,490,259 shares of common stock. Of these shares, the 7,500,000 shares to be sold in the offering, plus any shares issued upon exercise of the underwriters’ over-allotment option, will be freely tradable in the public market without restriction under the Securities Act, unless the shares are held by “affiliates” of Double-Take Software, as that term is defined in Rule 144 under the Securities Act.
 
The remaining 12,990,259 shares of common stock outstanding upon completion of the offering will be “restricted securities,” as that term is defined in Rule 144. Restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration, such as the exemption afforded by Rule 144.
 
The following table sets forth the approximate number of shares becoming eligible for future sale and when they will be available for sale under Rule 144 or after the expiration of the lockup agreements described below:
 
         
    Approximate Additional
 		 
    Number of Shares Becoming
 		 
Days after Date of this Prospectus
  Eligible for Future Sale  
 
On Effectiveness
    1,284,831  
90 days
    10,462  
180 days*
    11,428,095  
After 180 days*
    266,871  
 
 
*  180 days corresponds to the lockup period described below in “— Lockup Agreements.” This lockup period may be shortened or lengthened under certain circumstances as described in that section.
 
Lockup Agreements.  Under lockup agreements with the underwriters, all of our executive officers and directors and some of our other existing stockholders have agreed not to sell or transfer any shares of common stock for a period of 180 days after the date of this prospectus. Under these lockup agreements, 11,694,977 shares of our common stock, including shares of common stock issued upon conversion of the Series B and C convertible preferred stock immediately before completion of the offering, are subject to lockup agreements. These shares represent approximately 57.1% of our common shares outstanding upon completion of the offering and 90.0% of the common shares outstanding that were not sold in the offering. We have entered into a similar lockup agreement with the underwriters. Cowen and Company, LLC and Thomas Weisel Partners LLC, as the representative of the underwriters, may consent to the release of all or any portion of the shares subject to lockup agreements at any time without notice to our other stockholders or to any public market in which our common stock trades. The representatives of the underwriters have advised us that they do not have a current intention to consent to the release of any of the shares subject to lockup agreements.
 
We and these stockholders have agreed in the lockup agreements not directly or indirectly to:
 
  •  offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of, or announce the intention to otherwise dispose of, any shares of our common stock or securities convertible into or exercisable or exchangeable into our common stock;
 
  •  enter into any swap, hedge or similar agreement or arrangement that transfers in whole or in part, the economic risk of ownership of our common stock or securities convertible into or exercisable or exchangeable into our common stock;
 
  •  engage in any short selling of our common stock; and
 
  •  request or demand that we file a registration statement related to the common stock.
 
Notwithstanding the foregoing, if the 180th day after the date of this prospectus occurs within 17 days following an earnings release by us or the occurrence of material news or a material event related to us, or if we intend to issue an earnings release within 16 days following the 180th day, the 180-day period will be


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extended to the 18th day following such earnings release or the occurrence of the material news or material event unless such extension is waived by the underwriters
 
These lockup provisions generally apply to common stock owned now or acquired later by the persons executing the agreement.
 
The restrictions in the foregoing lockup agreements will not apply to transfers by stockholders of common stock to immediate family members, partners, limited liability company members, affiliates, family trusts, charities or educational institutions in dispositions other than for value, or to transfers by gift, will or intestate succession. Each transferee of our common stock subject to the lockup provisions will be required to execute and deliver a lockup agreement containing substantially the terms described above.
 
Each transferee of our common stock subject to the lockup provisions will be required to execute and deliver a lockup agreement containing substantially the terms described above.
 
In addition, the lockup agreement we have signed provides that we may take specified actions without restriction under the agreement, including the following:
 
  •  issuing common stock or options pursuant to employee benefit plans;
 
  •  issuing common stock upon exercise of outstanding options or warrants; and
 
  •  filing registration statements on Form S-8.
 
Sales Under Rule 144.  The following shares will be eligible for sale in the public market at the following times:
 
  •  as of the date of this prospectus, approximately 6,520,003 shares of common stock are eligible for sale in the public market without restriction pursuant to Rule 144(k), of which 1,284,831 are not subject to a lockup agreement described above;
 
  •  ninety days after the date of this prospectus, approximately 47,256 shares of common stock will be eligible for sale in the public market, of which 10,462 are not subject to a lockup agreement described above; and
 
  •  the remaining 266,871 shares of common stock will be eligible for sale under Rule 144 from time to time upon the expiration of Rule 144’s one-year holding period.
 
Of the 12,990,259 shares of common stock that will be outstanding after the offering in addition to the shares being sold, 11,694,977 shares are subject to the lockup agreements described above and will only become eligible for sale upon the expiration or termination of such agreements.
 
In general, under Rule 144, a person who has beneficially owned restricted shares of common stock for at least one year would be entitled to sell, within any three-month period, a number of shares of common stock that does not exceed the greater of:
 
  •  1% of the then-outstanding shares of common stock, which will total approximately 204,903 shares immediately after completion of the offering; or
 
  •  the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice with the SEC with respect to the sale.
 
Sales under Rule 144 are also subject to manner of sale and notice requirements and to the availability of current public information about Double-Take Software. Under Rule 144(k), a person that has not been our affiliate at any time during the three months before a sale and that has beneficially owned the shares proposed to be sold for at least two years may sell these shares without complying with the volume, manner of sale and other conditions of Rule 144.
 
Sales Under Rule 701.  In general, under Rule 701 of the Securities Act as currently in effect, each of our directors, officers, employees, consultants or advisors who purchased shares from us before the date of this prospectus in connection with a compensatory stock plan or other written compensatory agreement is eligible to resell such shares 90 days after the date of this prospectus in reliance on Rule 144, but without compliance with restrictions, including the holding period, contained in Rule 144.


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Registration Rights.  We have granted some of our stockholders registration rights with respect to their shares of common stock. Upon completion of this offering, 9,225,428 shares of our common stock, representing 45.0% of our outstanding common stock immediately after completion of the offering, are entitled to the benefits of these registration rights. These registration rights include:
 
  •  demand registration rights, in which these stockholders are entitled to require us to register the sale of their shares under the Securities Act on up to three occasions on SEC Form S-1 and on an unlimited number of occasions on SEC Form S-3 beginning six months after this offering; and
 
  •  piggyback registration rights, in which the stockholders with the registration rights are entitled to require us to include their shares in a registration of our securities for sale by us or by other security holders.
 
These registration rights may not be exercised during the 180-day lockup period under the lockup agreements. In addition, these registration rights are subject to various conditions, including notice requirements, timing restrictions and volume limitations that may be imposed by the underwriters of an offering. We generally are required to bear all fees and expenses of these registrations, except for underwriting discounts and commissions. In addition, we will indemnify the selling stockholders in such transactions. For additional information about the registration rights granted to our shareholders, see “Certain Relationships and Related Transactions — Amended and Restated Registration Rights Agreement.”
 
Registration Statement on Form S-8.  As soon as practicable after this offering, we intend to file a registration statement on Form S-8 under the Securities Act to cover shares of our common stock subject to options outstanding or reserved for issuance under our equity incentive plans and shares of our common stock issued upon the exercise of options by employees. None of the shares registered on Form S-8 that are subject to lockup agreements will be eligible for resale until expiration or termination of the lockup agreements. Those shares not subject to lockup agreements would be eligible for sale immediately following effectiveness of the Form S-8, regardless of Rule 144 holding periods.


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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
 
The following is a summary of some U.S. federal income and estate tax consequences of the acquisition, ownership and disposition of shares of our common stock purchased pursuant to this offering by a holder that, for U.S. federal income tax purposes, is not a “U.S. person,” as we define that term below. A beneficial owner of our common stock who is not a U.S. person is referred to below as a “non-U.S. holder.” This summary is based upon current provisions of the Internal Revenue Code of 1986, as amended, Treasury regulations promulgated thereunder, judicial opinions, administrative pronouncements and published rulings of the U.S. Internal Revenue Service, or IRS, all as in effect as of the date hereof. These authorities may be changed, possibly retroactively, resulting in U.S. federal tax consequences different from those set forth below. We have not sought, and will not seek, any ruling from the IRS or opinion of counsel with respect to the statements made in the following summary, and there can be no complete assurance that the IRS will not take a position contrary to such statements or that any such contrary position taken by the IRS would not be sustained.
 
This summary is limited to non-U.S. holders who purchase shares of our common stock issued pursuant to this offering and who hold our common stock as a capital asset, which is generally property held for investment. This summary also does not address the tax considerations arising under the laws of any state, local or non-U.S. jurisdiction, or under U.S. federal estate or gift tax laws, except as specifically described below. In addition, this summary does not address tax considerations that may be applicable to an investor’s particular circumstances nor does it address the special tax rules applicable to special classes of non-U.S. holders, including, without limitation:
 
  •  banks, insurance companies or other financial institutions;
 
  •  partnerships or other entities treated as partnerships for U.S. federal income tax purposes;
 
  •  U.S. expatriates;
 
  •  tax-exempt organizations;
 
  •  tax-qualified retirement plans;
 
  •  brokers or dealers in securities or currencies;
 
  •  traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; or
 
  •  persons that will hold common stock as a position in a hedging transaction, “straddle” or “conversion transaction” for tax purposes.
 
If a partnership, including any entity treated as a partnership for U.S. federal income tax purposes, is a holder, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A holder that is a partnership, and partners in such partnership, should consult their own tax advisors regarding the tax consequences of the purchase, ownership and disposition of shares of our common stock.
 
For purposes of this discussion, a U.S. person means a person who is for U.S. federal income tax purposes:
 
  •  a citizen or resident of the United States;
 
  •  a corporation, including any entity treated as a corporation for U.S. federal income tax purposes, or partnership, including any entity treated as a partnership for U.S. federal income tax purposes, created or organized under the laws of the United States, any state within the United States, or the District of Columbia;
 
  •  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, if its administration is subject to the primary supervision of a U.S. court and one or more U.S. persons have the authority to control all of its substantial decisions, or other trusts considered U.S. persons for U.S. federal income tax purposes.
 
THE FOREGOING SUMMARY DOES NOT CONSTITUTE TAX ADVICE, AND, UNDER APPLICABLE U.S. TREASURY REGULATIONS, WE ARE REQUIRED TO INFORM YOU THAT THE INFORMATION CONTAINED HEREIN IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED TO AVOID PENALTIES IMPOSED UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, YOU ARE URGED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL, NON-U.S. OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
 
Dividends
 
If distributions are paid on shares of our common stock, the distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent a distribution exceeds our current and accumulated earnings and profits, it will constitute a return of capital that is applied against and reduces, but not below zero, the adjusted tax basis of your shares in our common stock. Any remainder will constitute gain on the common stock. Dividends paid to a non-U.S. holder generally will be subject to withholding of U.S. federal income tax at the rate of 30% or such lower rate as may be specified by an applicable income tax treaty. If the dividend is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States or, if a tax treaty applies, attributable to a U.S. permanent establishment maintained by such non-U.S. holder, the dividend will not be subject to any withholding tax, provided certification requirements are met, as described below, but will be subject to U.S. federal income tax imposed on net income on the same basis that applies to U.S. persons generally. A corporate holder under certain circumstances also may be subject to a branch profits tax equal to 30%, or such lower rate as may be specified by an applicable income tax treaty, of a portion of its effectively connected earnings and profits for the taxable year.
 
To claim the benefit of a tax treaty or to claim exemption from withholding because the income is effectively connected with the conduct of a trade or business in the United States, a non-U.S. holder must provide a properly executed IRS Form W-8BEN for treaty benefits or W-8ECI for effectively connected income, or such successor forms as the IRS designates, prior to the payment of dividends. These forms must be periodically updated. Non-U.S. holders may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund.
 
Gain on Disposition
 
A non-U.S. holder generally will not be subject to U.S. federal income tax, including by way of withholding, on gain recognized on a sale or other disposition of shares of our common stock unless any one of the following is true:
 
  •  the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States or, if a tax treaty applies, attributable to a U.S. permanent establishment or a fixed base maintained by such non-U.S. holder;
 
  •  the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more in the taxable year of the disposition and certain other requirements are met; or
 
  •  our common stock constitutes a United States real property interest by reason of our status as a “United States real property holding corporation,” or USRPHC, for U.S. federal income tax purposes at any time during the shorter of (1) the period during which the non-U.S. holder held our common stock or (2) the 5-year period ending on the date such holder disposes of our common stock.


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We believe that we are not currently and will not become a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our United States real property interests relative to the fair market value of our other business assets, we cannot assure you that we will not become a USRPHC in the future. As long as our common stock is regularly traded on an established securities market, however, it will not be treated as a United States real property interest, in general, with respect to any non-U.S. holder that holds no more than 5% of such regularly traded common stock. If we are determined to be a USRPHC and the foregoing exception does not apply, a purchaser may be required to withhold 10% of the proceeds payable to a non-U.S. holder from a disposition of our common stock and the non-U.S. holder generally will be taxed on its net gain derived from the disposition at the graduated U.S. federal income tax rates applicable to U.S. persons.
 
Unless an applicable treaty provides otherwise, gain described in the first bullet point above will be subject to the U.S. federal income tax imposed on net income on the same basis that applies to U.S. persons generally but will generally not be subject to withholding. Corporate holders also may be subject to a branch profits tax on such gain. Gain described in the second bullet point above will be subject to a flat 30% U.S. federal income tax, which may be offset by U.S. source capital losses. Non-U.S. holders should consult any applicable income tax treaties that may provide for different rules.
 
U.S. Federal Estate Taxes
 
Shares of our common stock owned or treated as owned by an individual who at the time of death is a non-U.S. holder are considered U.S. situs assets and will be included in the individual’s estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.
 
Information Reporting and Backup Withholding
 
Under U.S. Treasury regulations, we must report annually to the IRS and to each non-U.S. holder the gross amount of distributions on our common stock paid to such non-U.S. holder and the tax withheld with respect to those distributions. These information reporting requirements apply even if withholding was not required because the dividends were effectively connected dividends or withholding was reduced or eliminated by an applicable tax treaty. Pursuant to an applicable tax treaty, that information may also be made available to the tax authorities in the country in which the non-U.S. holder resides.
 
Backup withholding generally will not apply to payments of dividends made by us or our paying agents, in their capacities as such, to a non-U.S. holder of our common stock if the holder has provided the required certification that it is not a U.S. person, or if other requirements are met. Dividends paid to a non-U.S. holder who fails to certify status as a non-U.S. person in accordance with the applicable U.S. Treasury regulations generally will be subject to backup withholding at the applicable rate, which is currently 28%. Dividends paid to non-U.S. holders subject to the 30% withholding tax described above under “Dividends,” generally will be exempt from backup withholding.
 
Payments of the proceeds from a disposition or a redemption effected outside the United States by a non-U.S. holder of our common stock made by or through a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, information reporting, but not backup withholding, generally will apply to such a payment if the broker has specified types of connections with the U.S. unless the broker has documentary evidence in its records that the beneficial owner is a non-U.S. holder and specified conditions are met or an exemption is otherwise established.
 
Payment of the proceeds from a disposition by a non-U.S. holder of common stock made by or through the U.S. office of a broker is generally subject to information reporting and backup withholding unless the non-U.S. holder certifies under penalties of perjury that it is not a U.S. person and satisfies other requirements, or otherwise establishes an exemption from information reporting and backup withholding.
 
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against the non-U.S. holder’s U.S. federal income tax liability if required information is furnished to the IRS. Non-U.S. holders should consult their own tax advisors regarding application of backup withholding to them and the availability of, and procedure for obtaining an exemption from, backup withholding.


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UNDERWRITING
 
We, the selling stockholders and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to the terms and conditions of the underwriting agreement, the underwriters named below have severally agreed to purchase from us and the selling stockholders the number of shares of our common stock set forth opposite their names on the table below at the public offering price, less the underwriting discounts and commissions set forth on the cover page of this prospectus. Cowen and Company, LLC, Thomas Weisel Partners LLC, CIBC World Markets Corp. and Pacific Crest Securities Inc. are the representatives of the underwriters.
 
         
    Number of
 		 
Name
  Shares  
 
Cowen and Company, LLC
       
Thomas Weisel Partners LLC
       
CIBC World Markets Corp.
       
Pacific Crest Securities Inc.
                 
         
Total
       
         
 
Cowen and Company, LLC and Thomas Weisel Partners LLC are acting as joint bookrunning managers for the underwriting syndicate. As joint bookrunning managers, both Cowen and Company, LLC and Thomas Weisel Partners LLC are responsible for recording a list of potential investors that have expressed an interest in purchasing shares of our common stock.
 
The underwriting agreement provides that the obligations of the underwriters to purchase the shares of common stock offered hereby on a firm commitment basis may be terminated in the event of a material adverse change in economic, political or financial conditions. The obligations of the underwriters may also be terminated upon the occurrence of other events specified in the underwriting agreement. The underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased, other than those shares covered by the overallotment option described below. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated. The underwriting agreement provides that decisions of the underwriters regarding various matters will be made jointly by Cowen and Company, LLC and Thomas Weisel Partners LLC as joint bookrunning managers. The most significant of these matters include procedures regarding the closing of the offering, whether or not to exercise the overallotment option, whether to grant a waiver to us or certain of our shareholders from lock-up agreements, and whether or not to terminate the underwriters’ obligation to purchase the shares from us and the selling stockholders.
 
We and the selling stockholders have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act of 1933, and to contribute to payments the underwriters may be required to make in respect thereof. The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
 
Overallotment Option to Purchase Additional Shares.  The selling stockholders have granted an option to the underwriters to purchase up to 1,125,000 additional shares of common stock at the public offering price, less the underwriting discount. This option is exercisable for a period of 30 days. The underwriters may exercise this option solely for the purpose of covering overallotments, if any, made in connection with the sale of common stock offered hereby. To the extent that the underwriters exercise this option, the underwriters will purchase additional shares from the selling stockholders in approximately the same proportion as shown in the table above.


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Discounts and Commissions.  The following table shows the public offering price, underwriting discount and proceeds, before expenses to us and the selling stockholders. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares.
 
                         
          Total  
          Without
 		    With
 		 
    Per Share     Over-Allotment     Over-Allotment  
 
Public offering price
  $           $           $        
Underwriting discounts and commissions payable to us
                       
                         
Proceeds, before expenses, to us
                       
                         
Proceeds, before expenses, to selling stockholders
                       
                         
 
We estimate that the total expenses of this offering, excluding underwriting discounts and commissions, will be approximately $      million and are payable by us.
 
We have agreed to indemnify the underwriters against certain civil liabilities, including liabilities under the Securities Act of 1933, and to contribute to payments the underwriters may be required to make in respect of any such liabilities.
 
The underwriters propose to offer the shares of common stock to the public at the public offering price set forth on the cover of this prospectus. The underwriters may offer the shares of common stock to securities dealers at the public offering price less a concession not in excess of $     per share. The underwriters may allow, and the dealers may reallow, a discount not in excess of $      per share to other dealers. If all of the shares are not sold at the public offering price, the underwriters may change the offering price and other selling terms.
 
Discretionary Accounts.  The underwriters do not intend to confirm sales of the shares to any accounts over which they have discretionary authority.
 
Market Information.  Prior to this offering, there has been no public market for shares of our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters.
 
An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price.
 
We have applied for the quotation of our common stock on The NASDAQ Stock Market under the symbol “DBTK.”
 
Stabilization.  In connection with this offering, the underwriters may engage in stabilizing transactions, overallotment transactions, syndicate covering transactions, penalty bids and purchases to cover positions created by short sales.
 
  •  Stabilizing transactions permit bids to purchase shares of common stock so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the common stock while the offering is in progress.
 
  •  Overallotment transactions involve sales by the underwriters of shares of common stock in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position which 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 overallotment option. In a naked short position, the number of shares involved is greater than the number of shares in the overallotment option. The underwriters may close out any short position by exercising their overallotment option and/or purchasing shares in the open market.


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  •  Syndicate covering transactions involve purchases of 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 with the price at which they may purchase shares through exercise of the overallotment option. If the underwriters sell more shares than could be covered by exercise of the overallotment option and, therefore, have a naked short position, the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the offering.
 
  •  Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by that syndicate member is purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.
 
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 our common stock. As a result, the price of our common stock in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our common stock. These transactions may be effected on The NASDAQ Stock Market, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
 
Passive Market Making.  In connection with this offering, underwriters and selling group members may engage in passive market making transactions in our common stock on The NASDAQ Stock Market in accordance with Rule 103 of Regulation M under the Securities Exchange Act of 1934, as amended, during a period before the commencement of offers or sales of common stock and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, that bid must then be lowered when specified purchase limits are exceeded.
 
Lockup Agreements.  Pursuant to certain “lockup” agreements, we and our executive officers, directors and certain of our other stockholders have agreed, subject to certain exceptions, not to offer, sell, contract to sell, announce any intention to sell, pledge or otherwise dispose of, enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any common stock or securities convertible into or exchangeable or exercisable for any common stock without the prior written consent of Cowen and Company, LLC and Thomas Weisel Partners LLC, for a period of 180 days after the date of the pricing of the offering. The 180-day restricted period will be automatically extended if (i) during the last 17 days of the 180-day restricted period we issue an earnings release or material news or a material event relating to us occurs or (ii) prior to the expiration the 180-day restricted period, we announce that we will release earnings results or become aware that material news or a material event will occur during the 16-day period beginning on the last day of the 180-day restricted period, in either of which case the restrictions described above will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. Cowen and Company, LLC and Thomas Weisel Partners LLC may, in their sole discretion, at any time without prior notice, release all or any portion of the shares from the restrictions in any such agreements.
 
There are no agreements between Cowen and Company, LLC, Thomas Weisel Partners LLC and any of our shareholders, optionholders or affiliates releasing them from these lockup agreements prior to the expiration of the 180-day lockup period. In considering any request to release shares subject to a lockup agreement, Cowen and Company, LLC and Thomas Weisel Partners LLC will consider the facts and circumstances relating to a request at the time of the request, which may include, among other factors, the shareholder’s reason for requesting the release, the number of shares for which the release is being requested and market conditions at that time.


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This lockup provision generally applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition. The exceptions permit us, among other things and subject to restrictions, to: (a) issue common stock or options pursuant to employee benefit plans, (b) issue common stock upon exercise of outstanding options or warrants, or (c) file registration statements on Form S-8. The exceptions permit parties to the “lockup” agreements, among other things and subject to restrictions, to: (a) participate in transfers or exchanges involving common stock or securities convertible into common stock or (b) make certain gifts. In addition, the lockup provision will not restrict broker-dealers from engaging in market making and similar activities conducted in the ordinary course of their business.
 
Electronic Offer, Sale and Distribution of Shares.  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. Other than the prospectus in electronic format, the information on these websites is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.
 
Other Relationships.  Certain of the underwriters and their affiliates may in the future provide, various investment banking, commercial banking and other financial services for us and our affiliates in the ordinary course of business for which they may in the future receive customary fees.


101

 

 
LEGAL MATTERS
 
The legal validity of the shares of common stock offered by this prospectus will be passed upon for Double-Take Software by Hogan & Hartson L.L.P., Baltimore, Maryland. Hogan & Hartson L.L.P. has in the past provided, and may continue to provide, legal services to ABS Capital Partners and its affiliates. Hogan & Hartson L.L.P. owns a limited partnership interest of less than 1% in ABS Capital Partners IV, L.P., which is a principal stockholder of Double-Take Software. Selected legal matters will be passed upon for the underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, New York, New York.
 
EXPERTS
 
The financial statements of Double-Take Software, Inc. at December 31, 2005 and 2004 and for each of the years in the three year period ended December 31, 2005, and the financial statement schedules included in this prospectus have been so included in reliance on the report of Eisner LLP, independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
 
The consolidated financial statements of Sunbelt System Software (which was renamed Double-Take Software S.A.S.) as of December 31, 2005 and 2004 and for the two years in the period ended December 31, 2005 included in this prospectus are included in reliance upon the report of Ernst & Young Audit, independent auditors, given on the authority of said firm as experts in auditing and accounting.
 
WHERE YOU CAN FIND ADDITIONAL INFORMATION
 
We have filed with the SEC a registration statement on Form S-1, including exhibits, schedules and amendments filed with the registration statement, under the Securities Act with respect to the common stock to be sold in the offering. This prospectus does not contain all of the information contained in the registration statement. For further information about us and our common stock, we refer you to the registration statement. For additional information, please refer to the exhibits and schedules that have been filed with our registration statement on Form S-1. Statements in this prospectus concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, we refer you to that exhibit. Each statement in this prospectus relating to a contract or document filed as an exhibit to the registration statement is qualified by the filed exhibit.
 
Upon completion of the offering, we will become subject to the reporting and information requirements of the Exchange Act and, as a result, will file periodic and current reports, proxy statements and other information with the SEC. You may read and copy, at prescribed rates, all or any portion of the registration statement or any other information that we file with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information concerning the operation of the SEC’s public reference room by calling the SEC at 1-800-SEC-0330. Our SEC filings, including the registration statement, will also be available to the public on the SEC’s Internet site at http://www.sec.gov.


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INDEX TO FINANCIAL STATEMENTS
 
         
    Page
 
Double-Take Software, Inc.:
   
Consolidated Historical Financial Statements:
   
Report of Independent Registered Public Accounting Firm
  F-2
Balance Sheets as of December 31, 2005 and 2004 and as of September 30, 2006 (unaudited)
  F-3
Statements of Operations for the years ended December 31, 2005, 2004 and 2003 and for the nine months ended September 30, 2006 and 2005 (unaudited)
  F-4
Statement of Changes in Stockholders’ Deficit for the years ended December 31, 2005, 2004 and 2003 and the nine months ended September 30, 2006 (unaudited)
  F-5
Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003 and the nine months ended September 30, 2006 and 2005 (unaudited)
  F-6
Notes to Consolidated Financial Statements
  F-7
Schedule II — Valuation and Qualifying Accounts
  F-36
       
Sunbelt System Software (subsequently renamed Double-Take Software S.A.S.):
   
Consolidated Financial Statements (denominated in Euros):
   
Report of independent auditors
  F-38
Consolidated Balance sheets as of December 31, 2005 and 2004 and as of March 31, 2006 (unaudited)
  F-39
Consolidated Statements of Operations for the years ended December 31, 2005 and 2004 and for the three months ended March 31, 2006 (unaudited) and March 31, 2005 (unaudited)
  F-40
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2005 and 2004 and for the three months ended March 31, 2006 (unaudited)
  F-41
Consolidated Statements of Cash Flows for the years ended December 31, 2005 and 2004 and for the three months ended March 31, 2006 (unaudited) and March 31, 2005 (unaudited)
  F-42
Notes to the Consolidated Financial Statements
  F-43


F-1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Board of Directors and Stockholders of
Double-Take Software, Inc. (formerly NSI Software, Inc.)
 
We have audited the accompanying balance sheets of Double-Take Software, Inc. (formerly NSI Software, Inc., the “Company”) as of December 31, 2005 and 2004 and the related statements of operations, changes in stockholders’ deficit and cash flows for each of the years in the three-year period ended December 31, 2005. Our audits also include the financial statement schedule — Valuation and Qualifying Accounts (Schedule II). 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 and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedules. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Double-Take Software, Inc. (formerly NSI Software, Inc.) as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
 
/s/ Eisner LLP
 
New York, New York
March 27, 2006,
with respect to Note N(1), May 23, 2006, the seventh paragraph of Note I, August 7, 2006, and the third paragraph of Note A(1), November 3, 2006


F-2

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Consolidated Balance Sheets
 
(in thousands, except share and per share amounts)
 
                                 
                      Pro Forma
 		 
    December 31,     September 30,
 		    September 30,
 		 
    2005     2004     2006     2006  
                (unaudited)     (unaudited)  
 
ASSETS (Note B)
Current assets:
                               
Cash and cash equivalents
  $ 8,341     $ 5,831     $ 10,438     $ 213  
Accounts receivable, net of allowance for doubtful accounts of $274, $200 and $486 at December 31, 2005, 2004 and September 30, 2006, respectively
    7,982       5,493       11,244       11,244  
Inventory
    —       —       12       12  
Prepaid expenses and other current assets
    345       348       1,103       1,103  
                                 
Total current assets
    16,668       11,672       22,797       12,572  
Property and equipment — at cost, net of accumulated depreciation of $1,400, $1,954 and $2,533 in 2005, 2004 and September 30, 2006, respectively
    1,864       1,573       2,520       2,520  
Customer relationships, net of accumulated amortization of $161 at September 30, 2006
    —       —       1,831       1,831  
Marketing relationships, net of accumulated amortization of $88 at September 30, 2006
    —       —       2,179       2,179  
Other assets
    58       73       1,584       1,584  
                                 
Total assets
  $ 18,590     $ 13,318     $ 30,911     $ 20,686  
                                 
LIABILITIES, REDEEMABLE SHARES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
                               
Accounts payable
  $ 1,537     $ 2,111     $ 1,414     $ 1,414  
Accrued expenses
    6,825       1,760       5,151       5,151  
Accrued purchase price
    —       —       3,026       3,026  
Other liabilities
    —       —       152       152  
Deferred revenue
    10,562       7,304       14,658       14,658  
                                 
Total current liabilities
    18,924       11,175       24,401       24,401  
                                 
Long-term deferred revenue
    2,887       1,607       3,778       3,778  
Long-term deferred rent
    518       610       434       434  
Long-term capital lease obligations
    7       38       22       22  
                                 
Total long-term liabilities
    3,412       2,255       4,234       4,234  
                                 
Total liabilities
    22,336       13,430       28,635       28,635  
                                 
Redeemable shares:
                               
Redeemable convertible Series B preferred stock; 14,451,572 shares authorized; 13,633,334 shares issued and outstanding at December 31, 2005, 2004 and September 30, 2006; redemption value of $46,663, $44,627, and $48,296 at December 31, 2005 and 2004 and September 30, 2006, respectively
    42,184       34,839       47,802       —  
Redeemable convertible Series C preferred stock; 8,382,201 shares authorized; 7,772,094, 7,717,398 and 7,840,092 shares issued and outstanding at December 31, 2005, 2004 and September 30, 2006, respectively, redemption value of $8,361, $7,764, and $9,045 at December 31, 2005, 2004 and September 30, 2006, respectively.
    8,377       7,650       9,025       —  
                                 
Total redemption value
    50,561       42,489       56,827       —  
                                 
Stockholders’ deficit
                               
Common stock, $.001 par value; 100,000,000 shares authorized; 3,789,292, 3,787,808, and 3,795,478 shares issued and outstanding at December 31, 2005, 2004 and September 30, 2006, respectively.
    4       4       4       15  
Additional paid-in capital
    42,931       48,168       39,826       86,417  
Accumulated deficit
    (97,242 )     (90,773 )     (94,358 )     (94,358 )
Cumulative translation adjustment
    —       —       (23 )     (23 )
                                 
Total stockholders’ deficit
    (54,307 )     (42,601 )     (54,551 )     (7,949 )
                                 
Total liabilities, redeemable shares and stockholders’ deficit
  $ 18,590     $ 13,318     $ 30,911       20,686  
                                 
 
See notes to financial statements


F-3

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)

Consolidated Statements of Operations
 
(in thousands, except share and per share amounts)
 
                                         
          Nine Months Ended
 		 
    Year Ended December 31,     September 30,  
    2005     2004     2003     2006     2005  
                      (unaudited)     (unaudited)  
 
Revenue:
                                       
Software licenses
  $ 26,222     $ 19,943     $ 16,283     $ 26,240     $ 18,341  
Maintenance and professional services
    14,488       9,895       7,650       15,547       10,540  
                                         
Total revenue
    40,710       29,838       23,933       41,787       28,881  
                                         
Cost of revenue:
                                       
Software licenses
    38       559       1,426       1,329       31  
Maintenance and professional services
    4,357       3,694       3,103       4,426       3,214  
                                         
Total cost of revenue
    4,395       4,253       4,529       5,755       3,245  
                                         
Gross profit
    36,315       25,585       19,404       36,032       25,636  
                                         
Operating expenses:
                                       
Sales and marketing
    17,191       16,188       13,654       15,591       12,645  
Research and development
    9,748       8,717       6,373       7,749       7,292  
General and administrative
    6,730       5,666       5,253       6,371       5,268  
Depreciation and amortization
    805       527       1,617       1,094       570  
Legal fees and settlement costs
    5,671       1,755       200       —       1,040  
                                         
Total operating expenses
    40,145       32,853       27,097       30,805       26,815  
                                         
Operating income (loss)
    (3,830 )     (7,268 )     (7,693 )     5,227       (1,179 )
Interest income
    83       7       19       213       35  
Interest expense
    (36 )     (765 )     (341 )     (69 )     (21 )
Foreign exchange gains
    —       —       —       79       —  
                                         
Income (loss) before income taxes
    (3,783 )     (8,026 )     (8,015 )     5,450       (1,165 )
Income tax expense
    —       —       —       403       —  
                                         
Net income (loss)
    (3,783 )     (8,026 )     (8,015 )     5,047       (1,165 )
Accretion on redeemable shares:
                                       
Series B
    (5,310 )     (5,310 )     (4,928 )     (3,983 )     (3,983 )
Series C
    (22 )     (4 )             (17 )     (17 )
Beneficial conversion feature-Series B
    —       —       (1,194 )                
Dividends on Series B
    (2,035 )     (1,882 )     (1,637 )     (1,636 )     (1,507 )
Dividends on Series C
    (651 )     (147 )     —       (527 )     (481 )
                                         
Net loss attributable to common stockholders
  $ (11,801 )   $ (15,369 )   $ (15,774 )   $ (1,116 )   $ (7,153 )
                                         
Net loss per share attributable to common stockholders:
                                       
Basic and diluted
  $ (3.11 )   $ (4.06 )   $ (4.17 )   $ (0.29 )   $ (1.89 )
                                         
Weighted-average number of shares used in per share amounts:
                                       
Basic and diluted
    3,789       3,786       3,786       3,794       3,788  
                                         
Unaudited pro forma net income (loss) attributable to common stockholders per share:
                                       
Basic
  $ (0.26 )                   $ 0.33          
                                         
Diluted
  $ (0.26 )                   $ 0.29          
                                         
Unaudited pro forma weighted average shares used in computing per share amounts:
                                       
Basic
    14,457                       15,141          
                                         
Diluted
    14,457                       17,568          
                                         
 
See notes to financial statements


F-4

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)

Consolidated Statements of Changes in Stockholders’ Deficit
 
(in thousands, except share and per share amounts)
 
                                                         
                                  Accumulated
 		       
                Additional
 		                Other
 		       
    Common Stock     Paid-in
 		    Accumulated
 		    Deferred
 		    Comprehensive
 		       
    Shares     Amount     Capital     Deficit     Compensation     Loss     Total  
 
Balance — January 1, 2003
    3,785,610     $ 4     $ 57,109     $ (69,872 )   $ (322 )   $       $ (13,081 )
Beneficial conversion feature upon reduction in conversion price — Series B
    —       —       1,194       (1,194 )     —               0  
Accretion of difference between carrying amount and redemption price — Series B
    —       —       (4,928 )     —       —               (4,928 )
Redeemable convertible preferred stock dividends — Series B
    —       —       —       (1,637 )     —               (1,637 )
Amortization of deferred compensation
    —       —       —       —       168               168  
Issuance of warrants in connection with line of credit
    —       —       105       —       —               105  
Net loss for the year
    —       —       —       (8,015 )     —               (8,015 )
                                                         
Balance — December 31, 2003
    3,785,610       4       53,480       (80,718 )     (154 )     —       (27,388 )
Accretion of difference between carrying amount and redemption price — Series B
    —       —       (5,310 )     —       —               (5,310 )
Redeemable convertible preferred stock dividends — Series B
    —       —       —       (1,882 )     —               (1,882 )
Accretion of difference between carrying amount and redemption price — Series C
    —       —       (4 )     —       —               (4 )
Redeemable convertible preferred stock dividends — Series C
    —       —       —       (147 )     —               (147 )
Exercise of stock options
    2,198       —       2       —       —               2  
Amortization of deferred compensation
    —       —       —       —       154               154  
Net loss for the year
    —       —       —       (8,026 )     —               (8,026 )
                                                         
Balance — December 31, 2004
    3,787,808       4       48,168       (90,773 )     —       —       (42,601 )
Accretion of difference between carrying amount and redemption price — Series B
    —       —       (5,310 )     —       —               (5,310 )
Redeemable convertible preferred stock dividends — Series B
    —       —       —       (2,035 )     —               (2,035 )
Accretion of difference between carrying amount and redemption price — Series C
    —       —       (22 )     —       —               (22 )
Redeemable convertible preferred stock dividends — Series C
    —       —       —       (651 )     —               (651 )
Options issued for services
    —       —       94       —       —               94  
Exercise of stock options
    1,484       —       1       —       —               1  
Net loss for the year
    —       —       —       (3,783 )     —               (3,783 )
                                                         
Balance — December 31, 2005
    3,789,292       4       42,931       (97,242 )     —       —       (54,307 )
Accretion of difference between carrying amount and redemption price — Series B
    —       —       (3,983 )     —       —               (3,983 )
Redeemable convertible preferred stock dividends — Series B
    —       —       —       (1,636 )     —               (1,636 )
Accretion of difference between carrying amount and redemption price — Series C
    —       —       (17 )     —       —               (17 )
Redeemable convertible preferred stock dividends — Series C
    —       —       —       (527 )     —               (527 )
Options issued for services
    —       —       889       —       —               889  
Exercise of stock options
    6,186       —       6       —       —               6  
Net income for the period
    —       —       —       5,047       —               5,047  
Foreign currency translation adjustment
    —       —       —       —       —       (23 )     (23 )
                                                         
Balance — September 30, 2006 (unaudited)
    3,795,478     $ 4     $ 39,826     $ (94,358 )   $ —     $ (23 )   $ (54,551 )
                                                         
 
See notes to financial statements


F-5

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)

Consolidated Statements of Cash Flows
 
(in thousands, except share and per share amounts)
 
                                         
          Nine Months Ended
 		 
    Year Ended December 31,     September 30,  
    2005     2004     2003     2006     2005  
                      (unaudited)     (unaudited)  
 
Cash flows from operating activities:
                                       
Net income (loss)
  $ (3,783 )   $ (8,026 )   $ (8,015 )   $ 5,047     $ (1,165 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                                       
Depreciation and amortization
    805       1,042       2,907       848       571  
Amortization of intangible assets
    —       —       —       249       —  
Amortization of debt discount and financing costs
    —       83       22       —       —  
Amortization of deferred compensation
    —       154       168       —       —  
Provision for doubtful accounts
    100       116       (103 )     150       100  
Issuance of options for services
    94       —       —       1,185       —  
Issuance of redeemable convertible Series C preferred to management
    54       —       —       102       54  
Issuance of redeemable convertible Series C preferred stock as additional interest
    —       513       —       —       —  
Changes in:
                                       
Accounts receivable
    (2,590 )     232       (2,923 )     (315 )     (1,699 )
Prepaid expenses and other assets
    4       (176 )     558       37       111  
Inventory
    —       —       —       1,257       —  
Capitalized software development costs
    —       —       (739 )     —       —  
Other assets
    15       —       22       (3 )     15  
Accounts payable and accrued expenses
    4,368       838       1,087       (5,961 )     (43 )
Accrued interest payable
    —       50       —       —       —  
Due to or from factor
    —       —       227       —       —  
Other liabilities
    —       —       —       (208 )     —  
Deferred revenue
    4,538       4,181       2,438       3,009       3,013  
Restricted cash
    —       529       —       —       —  
                                         
Net cash provided by (used in) operating activities
    3,605       (464 )     (4,351 )     5,397       957  
                                         
Cash flows from investing activities:
                                       
Purchase of property and equipment
    (1,096 )     (1,218 )     (497 )     (1,232 )     (889 )
Acquisition of Double-Take EMEA, net of cash acquired
    —       —       —       (1,200 )     —  
                                         
Net cash used in investing activities
    (1,096 )     (1,218 )     (497 )     (2,432 )     (889 )
Cash flows from financing activities:
                                       
Proceeds (repayments) from revolving line of credit, net
    —       (100 )     100       —       —  
Borrowing under bridge financing
    —       2,000       —       —       —  
Issuance of redeemable convertible preferred stock — Series B
    —       —       1,600       —       —  
Costs incurred in issuance of redeemable convertible preferred stock — Series B
    —       —       (20 )     —       —  
Issuance of redeemable convertible preferred stock — Series C
    —       5,000       —       —       —  
Costs incurred in issuance of redeemable convertible preferred stock — Series C
    —       (65 )     —       —       —  
Costs incurred for public offering
    —       —       —       (880 )     —  
Proceeds from exercise of stock options
    1       2       —       6       —  
Payment on capital lease obligation
    —       —       —       (6 )     1  
                                         
Net cash provided by (used in) financing activities
    1       6,837       1,680       (880 )     1  
                                         
Effect of exchange rate changes on cash
    —       —       —       12       —  
Net increase (decrease) in cash and cash equivalents
    2,510       5,155       (3,168 )     2,097       69  
Cash and cash equivalents — beginning of period
    5,831       676       3,844       8,341       5,831  
                                         
Cash and cash equivalents — end of period
  $ 8,341     $ 5,831     $ 676     $ 10,438     $ 5,900  
                                         
Supplemental disclosures of cash flow information:
                                       
Cash paid during the period for:
                                       
Interest
  $ 51     $ 119     $ 319     $ 17     $ 18  
Income taxes
  $ 3     $ 14       —     $ 934     $ 2  
Supplemental disclosures of noncash investing and financing activities:
                                       
Issuance of preferred stock upon conversion of bridge financing including interest of $50
    —     $ 2,050       —       —       —  
Issuance of warrants in connection with revolving line of credit
    —       —     $ 105       —       —  
Accrued purchase price payments
    —       —       —     $ 3,026       —  
Accrued costs for public offering
    —       —       —     $ 589       —  
 
See notes to financial statements


F-6

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)
 
Note A — Organization and Significant Accounting Policies
 
[1]  The Company:
 
Double-Take Software, Inc. (formerly NSI Software, Inc.) (the “Company”), a Delaware corporation, is engaged in developing, marketing and supporting data protection software solutions for high availability, disaster recovery and centralized backup. The Company operates in one reportable segment and its revenues are mainly derived from sales of software and related services. Software is licensed by the Company primarily to Distributors, Value Added Resellers (“VARS”) and Original Equipment Manufacturers (“OEMS”), located primarily in the United States and in Europe.
 
The Company’s preferred stock is redeemable on or after November 12, 2006 at the option of the holder in an amount that exceeds the Company’s available resources. The Company, as of September 30, 2006, had cash and cash equivalents of approximately $10.4 million. The redemption value of Series B and C preferred shares at November 12, 2006 will be approximately $57,700. On October 2, 2006, the holders of a majority of the Series B and Series C Preferred stock agreed to defer their right to redeem such shares until November 12, 2007. The Company does not presently have a plan in place to provide for the funding of the redemption of the preferred stock, which will be approximately $60,800, if requested by the holders subsequent to November 12, 2007 in the event that the proposed public offering does not take place.
 
All common stock share and common stock per share amounts have been adjusted to give retroactive effect to a 1 for 4.9 reverse stock split. See Note N(3).
 
[2]  Unaudited financial information:
 
The accompanying interim balance sheet at September 30, 2006, the statements of operations and cash flows for the nine months ended September 30, 2006 and 2005 and the statement of stockholders’ deficit for the nine months ended September 30, 2006 are unaudited. These unaudited interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles. In the opinion of the Company’s management, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include all normal recurring adjustments, necessary for the fair presentation of the Company’s statement of financial position at September 30, 2006 and its results of operations and its cash flows for the nine months ended September 30, 2006 and 2005. The results for the nine months ended September 30, 2006 are not necessarily indicative of the results to be expected for the year ending December 31, 2006.
 
[3]  Unaudited pro forma information:
 
For purposes of preparing the pro forma information, we have assumed that if the offering contemplated by this prospectus is consummated, all of the convertible preferred stock outstanding will convert into 11,347,662 shares of common stock based on the shares of convertible preferred stock outstanding and accrued dividends at September 30, 2006. Unaudited pro forma stockholders’ equity is set forth in the consolidated balance sheet at September 30, 2006.
 
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 11,347,662 shares of common stock;


F-7

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

 
  •  the payment of $10,225 in satisfaction of the cash amount due to holders of Series B preferred stock upon its conversion into common stock once the initial public offering is completed.
 
The unaudited pro forma balance sheet has been presented as if each event occurred at September 30, 2006, 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 January 1, 2006.
 
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
 		 
    December 31, 2005     September 30, 2006  
Net income (loss) attributable to common stockholders
  $ (11,801 )   $ (1,116 )
Elimination of accretion on preferred stock
    5,332       4,000  
Elimination of preferred stock dividends
    2,686       2,163  
                 
Pro forma net income (loss) attributable to common Stockholders
  $ (3,783 )   $ 5,047  
                 
 
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
 		 
    December 31, 2005     September 30, 2006  
Basic weighted average number of shares used in computing per share amounts
    3,788,733       3,793,721  
Shares issuable upon conversion of outstanding preferred stock
    10,668,167       11,347,662  
                 
Basic pro forma weighted average number of shares used in computing per share amounts
    14,456,900       15,141,383  
                 
 
                 
    Year Ended
 		    Nine Months Ended
 		 
    December 31, 2005     September 30, 2006  
Diluted weighted average number of shares used in computing per share amounts
    3,788,733       3,793,721  
Shares issuable upon conversion of outstanding preferred stock
    10,668,167       11,347,643  
Dilutive effect of common stock equivalents
    —       2,426,562  
                 
Diluted pro forma weighted average number of shares used in computing per share
    14,456,900       17,567,926  
                 


F-8

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

 
[4]  Cash and cash equivalents:
 
The Company considers all highly liquid investments (including commercial paper) purchased with a maturity of 90 days or less to be cash equivalents.
 
[5]  Accounts receivable and allowance for doubtful accounts:
 
Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit issues. Historically, such losses have been within management’s expectations.
 
[6]  Fair value of financial instruments:
 
At December 31, 2005 and 2004 and September 30, 2006, the Company’s financial instruments consist primarily of accounts receivable, and accounts payable. The carrying values of these instruments approximate their fair value, because of their short-term nature.
 
[7]  Revenue recognition:
 
The Company derives revenues from two primary sources or elements: software licenses and services. Services include customer support, consulting, 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 by SOP 98-4 and SOP 98-9, and related interpretations to all transactions to determine the recognition of revenue.
 
For software arrangements involving multiple elements, the Company recognizes revenue using the residual method as described in SOP 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 the undelivered elements in multiple element arrangements is based on the price charged when such elements are sold separately, which is commonly referred to as vendor-specific objective-evidence (“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. The Company recognizes software revenue through direct sales channels and resellers upon receipt of a purchase order or other persuasive evidence and when all other basic revenue recognition criteria are met as described below. Revenue from software licenses sold through an original equipment manufacturer partner is recognized upon the receipt of a royalty report.
 
Services revenue includes revenue from customer support and other professional services. Customer support includes software updates (including unspecified product upgrades and enhancements) on a when-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. To determine the price for the customer support element when sold separately, the Company uses stated renewal rates as established VSOE.
 
Other professional services such as consulting and installation services provided by the Company are not essential to the functionality of the software and can also be performed by the customer or a third party. Revenues from consulting and installation services are recognized when the services are completed. Training fees are recognized after the training course has been provided. Based on the Company’s analysis


F-9

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

of such other professional services transactions sold on a stand-alone basis, the Company has concluded it has established VSOE for such other professional services when sold in connection with a multiple-element software arrangement. 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 arrangements and determined that VSOE of fair value exists to allocate revenues to services. Accordingly, assuming all basic revenue recognition criteria are met, software revenue is recognized upon delivery of the software license using the residual method in accordance with SOP 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 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. Software and/or software license keys for add-on orders or software updates are typically delivered via email. We recognize software revenue upon shipment to resellers and distributors because there is no right of return or refund and no price protection agreements. In situations where multiple copies of licenses are purchased, all copies are delivered to the customer in one shipment and revenue is recognized upon shipment. Occasionally, the Company enters into a site license with a customer that allows the customer to use a specified number of licenses within the organization. When a site license is sold, the Company delivers a master disk to the customer that allows the product to be installed on multiple servers. The Company has no further obligation to provide additional copies of the software or user manuals. Revenue on site licenses is recognized upon shipment of the master disk to the customer. Sales made by the Company’s Original Equipment Manufacturer (OEM) partners are recognized as revenue in the month the product is shipped. The Company estimates the revenue from a preliminary report received from the OEM shortly after the end of the month. Once the final report is received, the revenue is adjusted to that based on the final report, usually in the following month. Services revenue is 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 a customer-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.
 
The Company’s arrangements 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.


F-10

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

[8]  Cost of revenue:
 
Cost of software revenue.  Cost of software revenue consists primarily of media, manual, translation and distribution costs. Cost of software revenue also has included amortization of internally-developed capitalized software. Because the Company’s recent development initiatives have resulted in a significant decrease in the time and costs incurred between technological feasibility and the point at which the software is ready for general release, the Company no longer capitalizes costs of its internally-developed software. Cost of software related to Double-Take EMEA sales in the period from May 24, 2006 through September 30, 2006 will discontinue upon the sale of Double-Take products on hand on May 23, 2006.
 
Cost of services revenue.  Cost of services revenue consists primarily of salary and other personnel-related costs incurred in connection with the Company’s provision of maintenance and professional services. Cost of services revenue also includes other allocated overhead expenses for professional services and product support personnel, as well as travel-related expenses for staff to perform work at a customer’s site.
 
[9]  Property, plant and equipment:
 
Furniture, equipment and computer hardware are depreciated using the straight-line method over their estimated useful lives of up to three years. Leasehold improvements are amortized by the straight-line method over the shorter of the remaining initial terms of the respective leases or economic useful life.
 
[10]  Software development costs:
 
In accordance with SFAS No. 86, the Company capitalizes certain costs associated with the development of the software. Such costs are amortized at the greater of (i) the percentage of sales to date compared to total estimated sales, or (ii) amortized using the straight-line method over the software’s estimated useful lives. Management periodically evaluates the recoverability of capitalized software development costs and write-downs are taken if required. Costs incurred to develop software programs prior to the achievement of technological feasibility are expensed as incurred. The Company’s current process for developing software is essentially completed concurrently with the establishment of technological feasibility and therefore no software development costs have been capitalized for the years ended December 31, 2005, 2004 and the nine months ended September 30, 2006.
 
[11]  Impairment of long-lived assets:
 
In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company records impairment losses on long-lived assets used in operations or expected to be disposed of when indicators of impairment exist and the cash flows expected to be derived from those assets are less than carrying amounts of those assets. The Company has not recorded any impairment charge for the years ended December 31, 2005, 2004 and 2003 and the nine months ended September 30, 2006 and 2005.
 
[12]  Advertising expense:
 
Advertising costs, which include reimbursements to resellers and distributors of $2,648, $2,440 and $1,628, $2,147 and $1,934 for the years ended December 31, 2005, 2004 and 2003, and the nine months ended September 30, 2006 and 2005, respectively, are expensed as incurred. Advertising costs are included in sales and marketing costs.


F-11

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

[13]  Income taxes:
 
The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted laws and tax rates that are expected to be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits not expected to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.
 
[14]  Accounting estimates:
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue, costs and expenses during the period. Based on historical experience and current account information, estimates are made regarding provisions for allowances for doubtful accounts receivable, sales discounts and other allowances, depreciation, amortization, and asset valuations. Actual results could differ from those estimates.
 
[15]  Concentration of credit risk:
 
The Company grants credit to customers in a wide variety of industries and geographic locations. Credit losses related to these customers have been minimal.
 
[16]  Foreign Currency Translation
 
The functional currency of the Company’s foreign operations (see Note N[1]) are the local country’s currency, the Euro. In accordance with SFAS No. 52, Foreign Currency Translation, the assets and liabilities of the Company’s international subsidiaries are translated at their respective period-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. Foreign currency transaction gains and losses are included in results of operations. To date, the Company has not hedged its exposure to changes in foreign currency exchange rates.
 
[17]  Comprehensive Income (Loss)
 
Comprehensive income (loss) includes other comprehensive income and net loss. Other comprehensive income includes certain changes in equity that are excluded from net income (loss). Specifically, cumulative foreign currency translation adjustments are included in accumulated other comprehensive income.
 
[18]  Stock-based compensation:
 
Prior to January 1, 2006, the Company accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, compensation cost for stock options generally was measured as the excess, if any, of the estimated fair value of the Company’s common stock over the amount an employee must pay to acquire the common stock on the date that both the exercise price and the number of shares to be acquired pursuant to the option are fixed. The Company had adopted the


F-12

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” which was released in December 2002 as an amendment to SFAS No. 123 and used the minimum value method of valuing stock options as allowed for non-public companies.
 
In December 2004, the Financial Accounting Standards Board, referred to as FASB, issued SFAS No. 123(R), which revised SFAS No. 123 and supersedes the Accounting Principles Board, referred to as APB, Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) focuses primarily on transactions in which an entity obtains employee services in exchange for share-based payments. Under SFAS 123(R), a public entity generally is required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, with such cost recognized over the applicable requisite service period. In addition, SFAS 123(R) requires an entity to provide certain disclosures in order to assist in understanding the nature of share-based payment transactions and the effects of those transactions on the financial statements. The provisions of SFAS No. 123(R) are required to be applied as of the beginning of the first interim or annual reporting period of the entity’s first fiscal year that begins after December 15, 2005.
 
Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R, “Share-Based Payment,” using the prospective transition method, which requires the Company to apply its provisions only to awards granted, modified, repurchased or cancelled after the effective date. Under this transition method, stock-based compensation expense recognized beginning January 1, 2006 is based on the grant-date fair value of stock option awards granted or modified after January 1, 2006. As the Company had used the minimum value method for valuing its stock options under SFAS 123, all options granted prior to January 1, 2006 continue to be accounted for under APB Opinion No. 25.
 
As a result of adopting SFAS No. 123R on January 1, 2006, based on the grant-date fair value estimate of employee stock options granted, in the nine months ended September 30, 2006 the Company recognized compensation expense of $317, of which $104 is included in sales and marketing, $115 in research and development, $47 in general and administrative, and $51 in cost of revenue, maintenance and professional services. The grant date fair value of options not yet recognized at September 30, 2006 aggregated approximately $3,299. The Company’s income before provision for income taxes and net income for the nine months ended September 30, 2006 are each $317 less than if the Company had continued to account for stock-based compensation under APB Opinion No. 25. Basic and diluted net loss per share for the nine months ended September 30, 2006 would not have changed if the Company had not adopted SFAS No. 123R.
 
The Company accounts for stock option grants to non-employees in accordance with SFAS No. 123 and EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” which require that the fair value of these instruments be recognized as an expense over the period in which the related services are rendered.
 
[19]  Net loss per share:
 
Basic and diluted net loss per share information for all periods is presented under the requirements of SFAS No. 128, “Earnings Per Share.” Basic loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted loss per share is calculated by dividing net loss attributable to common


F-13

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

stockholders by the weighted-average number of common shares outstanding, adjusted for the dilutive effect, if any, of common stock equivalents.
 
The following common stock equivalents (in thousands) were excluded from the computation of diluted net income (loss) per share because they had an anti-dilutive impact:
 
                                         
          Nine Months Ended
 		 
    Year Ended December 31,     September 30,  
    2005     2004     2003     2006     2005  
 
Employee stock options
    2,562       2,509       2,508       3,020       2,564  
Warrants
    163       163       163       163       163  
Redeemable convertible preferred stock
    10,668       9,829       7,583       11,348       10,442  
 
[20]  Recent accounting pronouncements:
 
In November 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position FSP 115-1 which addresses the determination as to when an investment is considered impaired, whether that impairment is other-than-temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amends Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities” and APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.” The guidance in FSP 115-1 is applied to reporting periods beginning after December 15, 2005. We are required to adopt FSP 115-1 for fiscal years beginning after January 1, 2006. The Company adopted this standard for periods beginning on or after January 1, 2006 and currently does not anticipate that it will have a material impact on its financial statements or disclosures.
 
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments.” This statement amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” This statement resolves issues addressed in Statement 133, Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133, and establishes a requirement to evaluate interest in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. It also clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company has not yet determined the impact of the adoption of FAS 155 on its financial statements, if any.


F-14

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“FAS 154”). FAS 154 replaces APB Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented based on the application of the new accounting principle. The statement will require the retrospective application of the impact of the direct effect of changes in accounting principles unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 carries forward without change the guidance contained in APB 20 for reporting the correction of an error in previously issued financial statements and changes in accounting estimates. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 and requires prospective application. The Company adopted this standard for periods beginning on or after January 1, 2006 and currently does not anticipate that it will have a material impact on its financial statements or disclosures.
 
In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets — An Amendment of APB Opinion No. 29” (“SFAS 153”). SFAS 153 eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for fiscal periods beginning after June 15, 2006 and adopted by the Company in 2006. The Company does not believe that the adoption of SFAS 153 will have a material impact on the Company’s consolidated results of operation or financial condition.
 
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” FAS 151 amends Accounting Research Bulletin No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges. In addition, FAS 151 requires that allocation of fixed production overhead to inventory be based on the normal capacity of the production facilities. The Company adopted FAS 151 beginning January 1, 2006. The adoption of FAS 151 did not have a material impact on its financial position and the results of its operations.
 
Note B — Revolving Line of Credit
 
In October 2003, the Company entered into a 12-month revolving line of credit agreement (“Facility”) with a bank which provides for aggregate advances not to exceed the lesser of $4,750 or up to 75% of eligible receivables, as defined. Borrowings under the Facility bear interest at the bank’s prime rate plus 2.5% per annum, subject to an unused line fee of 0.5% annually. The obligations under the Facility are collateralized by substantially all the Company’s assets except its intellectual property. In addition, all present and future indebtedness of the Company to its officers, directors and shareholders are subordinated to borrowings under the line. In connection with entering into the Facility, the Company issued a warrant to the bank to purchase 90,000 shares of its Series B Preferred Stock exercisable at $1.50 per share, subject to adjustment, as defined, expiring in October 2013. The warrant was valued at approximately $105 and was amortized over the 12-month life of the Facility. The Facility contains certain restrictive covenants, including but not limited to, maintenance of minimum tangible net worth and minimum cash or excess availability of $300, both as defined, and other non-financial covenants. In April 2004, in connection with a modification to the Facility, the Company received a waiver for the failure of the Company to comply with the minimum tangible net worth covenant as of December 31, 2003. In September 2005, the Company received a waiver for the failure to comply with the minimum tangible net worth covenant as of December 31, 2004 and for the delivery of audited financial statements.


F-15

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

As extended, the Facility matures on April 30, 2007. At December 31, 2005 and September 30, 2006, there was no outstanding borrowing under the Facility. At September 30, 2006, there is an outstanding letter of credit in the amount of $2,000, which was issued in connection with a payment obligation to a provider of information storage systems (see Note G[2]).
 
Note C — Property and Equipment
 
Property and equipment consists of the following:
 
                         
    December 31,     September 30,
 		 
    2005     2004     2006  
                (unaudited)  
 
Equipment
  $ 69     $ 140     $ 93  
Furniture and fixtures
    148       228       505  
Motor Vehicles
    —       —       100  
Computer hardware
    2,592       2,740       3,757  
Leasehold improvements
    455       419       598  
                         
      3,264       3,527       5,053  
Less accumulated depreciation and amortization
    1,400       1,954       2,533  
                         
    $ 1,864     $ 1,573     $ 2,520  
                         
 
During the years ended December 31, 2005, 2004 and the nine months ended September 30, 2006, the Company recorded depreciation and amortization expense of $805, $527 and $848, respectively.
 
During 2005, the Company wrote off fully depreciated property and equipment with an original cost of $1,357. As of December 31, 2005, property and equipment with an original cost of $75 is fully depreciated.
 
Note D — Software Development Costs
 
         
Balance — January 1, 2004
  $ 515  
Less accumulated amortization
    (515 )
         
Balance — December 31, 2004 (net of accumulated amortization)
  $ —  
         
 
During the years ended December 31, 2004 and 2003, the Company recorded amortization of software development costs of $515 and $1,290, respectively, and these amounts are included in the cost of software licenses.
 
Note E — Notes Payable
 
In June 2004, the Company issued $2,000 of 8% Convertible Promissory Notes as bridge financing in anticipation of a private placement. In October 2004, the notes, including accrued interest of approximately $50 were converted into 2,615,357 shares of Series C Preferred Stock valued at approximately $2,563. The notes, plus all accrued and unpaid interest, were convertible into shares of Series C Preferred Stock at a price equal to 80% of the price of the Series C Preferred Stock sold in the October 2004 private placement (see Note J[1](c)).


F-16

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

In connection with the conversion of these notes, the company recorded, for the year ended December 31, 2004, an interest charge of $513 for the incremental value of the Series C Preferred Stock received upon the conversion.
 
Note F — Provision for Income Taxes
 
The variances between the Company’s effective income tax rate and the Federal statutory rate are as follows:
 
                               
    Year Ended December 31,    
    2005       2004       2003    
 
Statutory federal income tax expense (benefit) rate
    (34 ) %     (34 ) %     (34 ) %
Increase (decrease) in valuation allowance
    33   %     38   %     32   %
State taxes (benefit)
    (4 ) %     (4 ) %     (4 ) %
Impact of permanent difference
    3   %     2   %     2   %
Other
    2   %     (2 ) %     4   %
                         
Effective income tax expense (benefit) rate
    0   %     0   %     0   %
 
The Company has deferred tax assets related to temporary differences and operating loss carryforwards as follows:
 
                 
    Year Ended December 31,  
    2005     2004  
 
Deferred tax assets:
               
Current:
               
Allowance for doubtful accounts
  $ 106     $ 77  
Deferred revenue
    318       —  
Accrued expenses
    1,454       77  
                 
Total current deferred tax assets
    1,878       154  
                 
Non-current:
               
Fixed assets
  $ 1,465     $ 2,921  
Straight-line rent
    236       264  
Net operating loss carryforward
    24,675       23,732  
Sales tax reserve
    213       164  
Other
    11       9  
                 
Total non-current deferred tax assets
    26,600       27,090  
                 
Total deferred tax assets
    28,478       27,244  
Valuation allowance
    (28,478 )     (27,244 )
                 
Net deferred tax assets
  $ 0     $ 0  
                 


F-17

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

 
At December 31, 2005 and September 30, 2006, the Company has available state net operating loss carryforwards in certain states ranging from approximately $67,000 to $70,000 and $64,500 to $67,500, respectively, depending upon the state, expiring in various amounts beginning in 2006 through 2025. The Company also has available federal net operating loss carryforwards of approximately $69,400 and $66,900 at December 31, 2005 and September 30, 2006, respectively, expiring 2011 through 2025. The utilization of these operating loss carryforwards may be limited based upon changes in ownership as defined in Section 382 of the Internal Revenue Code. The Company’s net deferred tax assets at December 31, 2005, 2004 and September 30, 2006, respectively, have been fully reserved due to uncertainty of realization through future operating results.
 
The valuation allowance increased by approximately $1,234 and $3,038 in 2005 and 2004, respectively, primarily due to net operating losses.
 
Note G — Commitments and Contingencies
 
[1] Leases:
 
In September 2001, the Company entered into a lease agreement for its offices in New Jersey which expires in 2011. The Company entered into a lease during 2001 for its location in Indiana which expires in 2010. In March 2003, the Company entered into a sublease agreement for a new location in Massachusetts which expires in 2006. The lease was extended through February 2007. Future minimum annual payments are as follows:
 
                 
    December 31,
 		    September 30,
 		 
    2005     2006  
          (unaudited)  
 
2006
  $ 1,552     $ 639  
2007
    1,473       1,672  
2008
    1,467       1,649  
2009
    1,488       1,555  
2010
    1,041       1,091  
Thereafter
    288       413  
                 
    $ 7,309     $ 7,019  
                 
 
Rent expense under operating leases amounted to approximately $1,538, $1,405 and $1,420 for the years ended 2005, 2004, 2003 and $1,233 and $1,156 for the nine months ended September 30, 2006 and 2005, respectively.
 
[2] Litigation:
 
In May 2003, a provider of information storage systems (“Plaintiff”), filed a complaint in the State of California alleging that the Company infringed certain of its patents. In December 2005 the Company and Plaintiff entered into a settlement agreement (the “Settlement Agreement”) wherein all claims and counterclaims were dismissed with prejudice. Under the terms of the Settlement Agreement, the Company made an initial payment to Plaintiff of $3,760 and further agreed to make additional minimum payments aggregating $2,000 which the Company can use towards the purchase or resale of Plaintiff’s products over 4 years. This annual payment obligation is collateralized by a letter of credit.


F-18

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

 
Included in legal fees and settlement costs for the years ended December 31, 2005, 2004 and 2003 and the nine months ended September 30, 2006 and 2005 are costs of $5,671, $1,755, $200, $0 and $1,040, respectively. As of December 31, 2005, the Company has accrued the initial settlement payment and legal costs of $3,860, which are included in accounts payable and accrued expenses.
 
Note H — Concentration
 
The Company sells its products primarily to or through Distributors, VARS and OEMS who in turn sell to end-users of the Company’s products. The Company believes that the loss of any of these reseller/distributors would require the Company to develop other channels to sell its products to end-users.
 
During the year ended December 31, 2005 and the nine months ended September 30, 2006, one domestic reseller accounted for approximately 19% and 22%, respectively, of net sales and one foreign reseller, which was acquired by the Company on May 23, 2006, accounted for approximately 17% and 15%, respectively, of net sales. The domestic reseller accounted for approximately 30% and 31% of accounts receivable at December 31, 2005, and at September 30, 2006, respectively. The foreign reseller accounted for approximately 23% and 0% of accounts receivable at December 31, 2005, and at September 30, 2006, respectively.
 
As described in Note L, the Company acquired the foreign reseller in May 2006.
 
During the year ended December 31, 2004, sales to one domestic and one foreign reseller accounted for approximately 16% and 22%, respectively, of total net sales and approximately 13% and 10%, respectively, of accounts receivable at December 31, 2004.
 
In addition, the Company had sales to a Series B preferred stockholder, prior to its disposal of its interest in the Company, of $6,598 (20%) for the year ended December 31, 2004. At December 31, 2004, the balance due from such stockholder of approximately $2,028 (36%) was included in accounts receivable.
 
During the year ended December 31, 2003 one domestic and one foreign reseller accounted for approximately 15% and 21%, respectively, of net sales and approximately 9% and 21%, respectively, of accounts receivable at December 31, 2003.
 
Note I — Employment Agreements
 
In January 2001, the Company entered into a 4-year employment agreement with its former Chief Executive Officer (the “Former CEO”) which provided for a base salary of $250 per annum subject to 10% annual increases, plus bonuses. In connection with the agreement, the officer was granted options to purchase 102,041 shares of common stock at an exercise price of $19.60 per share, which was not less than fair market value on the date of the grant. These options were fully vested as of December 31, 2004.
 
Subsequently, in March 2005, the Company entered into a separation agreement (the “Separation Agreement”) with the Former CEO. Pursuant to the Separation Agreement, the Former CEO resigned from the Company and its Board of Directors and entered into a two-year arrangement providing for consulting fees of $275 in the first year and $175 in the second year. The Separation Agreement also contains various provisions related to restrictive covenants concerning non-competition, non-disclosure and non-solicitation. In addition, the Separation Agreement provides that the Former CEO may be required to make certain reimbursements to the Company. The reimbursements, if any are required, are collateralized by shares of the Company common stock owned by the Former CEO. Further, the consulting arrangement is cancelable by the Company if the provisions of the Separation Agreement are not met.


F-19

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

 
Under the Separation Agreement, subject to any required repayments being made, the unvested stock options owned by the Former CEO will continue to vest over the term of the consulting arrangement, and thereafter will be exercisable for the remainder of their term. As of December 31, 2005, and as of September 30, 2006, the Former CEO had been awarded the following options:
 
                                                     
Number of
 		    Exercise
 		    December 31, 2005     September 30, 2006        
  Options
    Price     Vested     Unvested     Vested     Unvested     Expiring  
 
  102,040     $ 19.60       102,040       —       102,040       —       2010  
   10,209     $ 4.90       10,209       —       10,209       —       2011  
  366,181     $ 0.93       205,976       160,205       274,635       91,546       2013  
    6,125     $ 0.93       2,680       3,445       3,828       2,297       2014  
    6,637     $ 1.52       1,244       5,393       2,489       4,148       2015  
                                                     
  491,192               322,149       169,043       393,201       97,991          
                                                     
 
In connection with the modification of the terms of the options granted to the Former CEO and the change in the grantee’s status, the Company recorded a compensation charge of $119 for the year ended December 31, 2005 and $869 for the nine months ended September 30, 2006 based on the estimated fair value of the options during those periods.
 
On November 2, 2006, the Company entered into a settlement agreement with the Former CEO. Under the terms of the settlement agreement, all actual or potential claims by both the Company and the Former CEO are released and both deny any liability or wrongdoing. Additionally, the consulting agreement with the Former CEO terminated effective October 1, 2006, all unvested stock options immediately vest and the expiration date of the options are set at the earlier of their original expiration date or June 22, 2008. As a result of this agreement, the Company will record an expense related to the acceleration of the vesting of the stock options of $329 during the quarter ending December 31, 2006.
 
On October 30, 2006, the Company entered into a settlement agreement with its former Chief Operating Officer (the “Former COO”). Under the terms of the settlement agreement, the Former COO agreed to pay $1.2 million to the Company within 5 years of the date of the settlement agreement. The settlement amount bears interest at 4.96% per year compounded semi-annually. In the event of an IPO by the Company, all payments due under the settlement agreement accelerate and will be due within 10 days of the IPO date. Under the terms of the settlement agreement, all actual or potential claims by both the Company and the former CEO are released and both deny any liability or wrongdoing. Because there is substantial doubt about the ultimate collectibility of the settlement amount, income related to the settlement will be recorded only as cash is received.
 
The employment terms for the Company’s current Chief Executive Officer (“CEO”), as revised in August 2006, provide for annual compensation of $340,000 and provide for certain transaction and IPO related bonuses. Under the terms of his employment, the Company initially granted the CEO options to purchase 380,182 shares of common stock at $1.52 per share, the fair market value on the date of grant. The options vest over 4 years. The CEO subsequently received an additional option grant to purchase 152,073 shares of common stock at $1.96 per share, the then fair market value, and an additional option grant to purchase 38,018 shares of common stock at $1.96 per share, the then fair market value, both of which vest over 4 years. In the event of a change in control, all unvested options will immediately vest and in the event of an IPO, vesting of the initial option grant will be accelerated in full, and vesting of 25% of all other options held by the CEO will be accelerated. In addition, in the event of a change of control or upon an IPO the Company will grant to the CEO shares of common stock equivalent to 1.45% of the


F-20

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

fully-diluted shares of common stock outstanding immediately prior to the Change of Control or IPO which will vest immediately. In the event of an IPO, the Company will record a compensation charge on the grant date equal to the fair value of the shares granted to the CEO and, under SFAS 123(R), will record a compensation charge based upon the fair value of the options that are accelerated.
 
In addition, the Company entered into severance agreements with certain key employees which generally provide for severance if the employee is terminated without cause.
 
Note J — Stockholders’ Equity
 
[1]  Redeemable preferred stock:
 
(a)  Series A preferred stock:
 
In November 2002, holders of 2,536,133 shares of Series A Preferred agreed to convert their preferred shares into 646,760 shares of common stock. At December 31, 2005, holders of approximately 2,000,000 shares of Series A Preferred Stock had not submitted their Series A Preferred Stock certificates to the stock transfer agent for the issuance of common stock. However, for legal and accounting treatment purposes, these shares have been deemed as having been submitted and the related common shares shown as issued and outstanding.
 
(b)  Series B preferred stock:
 
In November 2002, the Company sold 10,000,000 shares of Series B convertible, redeemable, participating, preferred stock (“Series B Preferred”) at $1.50 (“Original Issue Price”) per share for gross proceeds of $15,000 in a private placement. In connection with the Series B private placement, the Company issued 1,333,333 shares of Series B Preferred at the Original Issue Price upon conversion of 2,233,902 issued and outstanding shares of Series A Preferred. In addition, the Company issued 433,334 shares of Series B Preferred, valued at $650, in repayment of the principal portion of certain notes payable. The Company also issued 800 shares of Series B Preferred as additional interest on a $1,200 bridge loan made to the Company in October 2002 and recorded an interest charge of $1,200 for the value of the Series B Preferred issued. Upon completion of the Series B private placement in November 2002, the Company had 12,566,667 shares of Series B Preferred issued and outstanding with an aggregate Original Issue Price of $18,850. The Company incurred costs of $355 in connection with the Series B Preferred private placement.
 
Costs incurred in the Series B private placement are being amortized on a straight-line basis through the mandatory redemption date in 2006.
 
In October 2003, the Company sold an additional 1,066,667 shares of Series B Preferred for gross proceeds of $1,600.
 
The Series B Preferred has the following designations:
 
  •  Convertible, including accrued dividends at 8% per year (compounded monthly) through the date of conversion or redemption, into common stock at $3.68 per share. In addition, if converted immediately prior to a Liquidation Event (defined to include a sale of the Company, except upon the election of a majority of the holders of the Series C Preferred) or a qualified public offering requiring mandatory conversion, or a public offering not requiring mandatory conversion, then the holders of the Series B are also entitled to a cash payment equal to $0.75 per share (50% of the Original Issue Price).


F-21

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

 
  •  Adjustment of Conversion Price — conversion price was to be reduced by 20% if at any time prior to July 1, 2003 the Company failed to meet minimum ending cash balances of $4,000 for each of three consecutive months and achieve aggregate revenues of $18,000 for the nine-month period ended June 30, 2003, or after July 1, 2003, and until the Company is cash flow positive, it failed to maintain a minimum cash balance of $4,000. In 2003, the Company did not meet these requirements and the conversion price was reduced by 20%, resulting in a beneficial conversion feature charge of $1,194.
 
  •  Automatic Conversion — upon a qualified public offering, automatically converts, including accrued dividends, to common stock at $3.68 per share (50% of the Original Issue Price). In addition, the holders of the Series B Preferred are also entitled to a cash payment equal to $0.75 per share (50% of the Original Issue Price).
 
  •  Cumulative dividends at 8% accrue through the earliest of the conversion, liquidation or redemption, payable only after payment of all dividends due to the holders of the Series C Preferred.
 
  •  Liquidation Preference — after payment has been made in full to the holders of the Series C Preferred Stock, the “Liquidation Preference” is the greater of (i) 200% of the Original Issue Price plus accrued and unpaid dividends or (ii) pro rata participation on an as converted to common stock basis, plus a cash payment of $0.75 (50% of the Original Issue Price). Upon any liquidation of the Company, after the preferred payments to the holders of the Series B Preferred and the Series C Preferred, the Series B Preferred will participate ratably on an as converted basis, with the Series C Preferred and the common stock, until the Liquidation Preference and common stock proceeds equal 300% of the Original Issue Price.
 
  •  Participation in all dividends on an as-converted basis.
 
In connection with the issuance of the Series C Preferred Stock in October 2004, certain designations of the Series B Preferred were amended. The Series B Preferred, as amended, has the following additional designations:
 
  •  Voting Rights — Votes on an as-converted basis. In addition, the holders of a majority of the shares of Series B Preferred must consent to, among other things, changes in the designations of the Series B Preferred and the Series C Preferred, the payment of dividends and any sale of or change in control of the Company.
 
  •  Redemption — redeemable at the option of the holder on or after November 12, 2006 at a price equal to the Liquidation Preference plus declared but unpaid dividends (the “Redemption Value”). The minimum redemption value is equal to 200% of the Original Issue Price plus accrued and unpaid dividends. If the holders of the Series C Preferred request redemption prior to when the redemption payment for the Series B Preferred is made, then the Series C Preferred shall be paid in full prior to any redemption of the Series B preferred.
 
The Company is providing straight-line annual accretion for the difference between the carrying value of the Series B Preferred and the Redemption Value so that on the redemption date the carrying value will equal the minimum Redemption Value. The Company recorded dividends and accretion aggregating $7,345, $7,192, $6,565, $5,619 and $5,490 for each of the years ended December 31, 2005, 2004 and 2003 and the nine months ended September 30, 2006 and 2005, respectively. Through December 31, 2005 and September 30, 2006, cumulative unpaid dividends aggregate $5,763 and $7,396 respectively. The aggregate


F-22

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

redemption value including dividends for the Series B Preferred in November 2007 will be $50,916. If the shares are not converted or redeemed such amount will increase quarterly for accrued dividends.
 
(c)  Series C preferred stock:
 
In October 2004, the Company sold 5,102,041 shares of Series C convertible, redeemable, participating, preferred stock (“Series C Preferred”) ($.01 par) at $0.98 per share for gross proceeds of $5,000 in a private placement. In connection with the private placement, the Company issued an additional 2,615,357 shares of Series C Preferred Stock in exchange for outstanding 8% Convertible Notes in the amount of $2,000 plus accrued interest. The 8% Convertible Notes were originally issued in June 2004 (see Note E).
 
In 2005, the Company issued 54,696 shares of Series C Preferred to management in connection with the 2005 Executive Bonus Plan (Note J[5]). The Company recorded compensation of $54 for the fair value of Series C Preferred valued at $0.98 per share.
 
In February 2006, the Company issued 67,998 shares of Series C Preferred to management in connection with the 2005 Executive Bonus Plan. The Company recorded compensation expense of $102 for the fair value of Series C Preferred valued at $1.50 per share.
 
Costs incurred in the Series C private placement are being amortized on a straight-line basis through the mandatory redemption date in 2006.
 
The Series C Preferred has the following designations:
 
  •  Convertible, including accrued dividends at 8% per year (compounded monthly) through the date of conversion, into common stock at $4.80 per share (the Series C Original Issue Price).
 
  •  Automatic Conversion — upon a qualified public offering, automatically converts, including dividends, to common stock at the Series C Original Issue Price.
 
  •  Cumulative dividends at 8% accrued through the earliest of the conversion, liquidation or redemption.
 
  •  Liquidation Preference — upon any Liquidation of the Company, the Series C Liquidation Preference shall be equal to the greater of (i) the Series C Original Issue Price plus accrued dividends and (ii) the amount the holders of the Series C Preferred would have received on an as-converted basis, ratably with the holders of the Series B Preferred and the common stock (with the Series B Preferred participating only up to 300% of the Original Issue Price), after the payment of all preferential amounts to the holders of Series B Preferred and Series C Preferred. A Liquidation is defined to also include a sale of the Company, unless a majority of the holders of the Series C Preferred elect not to do so.
 
  •  Participation in all dividends on an as-converted basis.
 
  •  Voting Rights — Votes on an as-converted basis. In addition, the holders of a majority of the shares of Series C Preferred must consent to, among other things, changes in the designations of the Series B Preferred and the Series C Preferred, the payment of dividends and any sale of or change in control of the Company.
 
  •  Redemption — redeemable at the option of the holder on or after November 12, 2006 at a price equal to the Series C Liquidation Preference plus accrued dividends (the “Redemption Value”).


F-23

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

 
In connection with the Series C Preferred, the Company recorded dividends of $651 and $147 and accretion of $22 and $4 for the years ended December 31, 2005 and 2004, respectively. Through December 31, 2005 and September 30, 2006, cumulative unpaid dividends aggregated $798 and $1,326, respectively. The aggregate redemption value, including dividends for the Series C Preferred in November 2007 will be $9,855. If the shares are not converted or redeemed such amount will increase quarterly for accrued dividends.
 
[2]  Common stock:
 
In connection with the private placement of Series B Preferred Stock in November 2002, the Company issued an aggregate of 691,866 shares of common stock and 272,109 shares of Series B Preferred Stock in exchange for all of the 4,770,035 outstanding shares of Series A Preferred Stock.
 
Also in connection with the Series B private placement in 2002, outstanding warrants to purchase 881,632 shares of common stock (exercise prices of $10.29 to $37.29) which were previously issued in connection with debt were exchanged for 2,106,250 shares of common stock. The Company recorded an interest charge in 2002 of $400 for the fair value of the common shares issued. Further, outstanding warrants to purchase 29,204 shares of common stock (exercise price of $37.29) issued in connection with Series A Preferred Stock were exchanged for 4,172 shares of common stock. The Company recorded a beneficial conversion feature charge of $4 for the fair value of the common shares issued upon the exchange.
 
In 2005 and 2004, options to purchase 1,484 and 2,198 shares of common stock were exercised and the Company received aggregated proceeds of $1 and $2, respectively.
 
For the nine months ended September 30, 2006, options to purchase 6,186 shares of common stock were exercised and the Company received aggregate proceeds of $6.
 
[3]  Warrants:
 
(a)  Common stock:
 
In connection with the private placement of Series B Preferred Stock, then outstanding warrants to purchase an aggregate of 910,836 shares of common stock were exchanged for 434,018 shares of common stock. In connection with the exchange, the Company recorded additional interest expense of approximately $400 and a beneficial conversion feature for those warrants issued in connection with the Series A Preferred Stock exchanged for common stock of $4.
 
As of December 31, 2005 and September 30, 2006, there are warrants, which expire in 2007, outstanding to purchase 117,346 shares of common stock at $1.84 per share.
 
(b) Preferred stock:
 
In October 2003, the Company issued warrants to purchase 90,000 shares of Series B Preferred, exercisable at $1.50 per share, in connection with entering into its revolving credit facility. These warrants are outstanding as of December 31, 2005 and September 30, 2006. Each warrant was valued at approximately $1.17 or an aggregate of $105, which was amortized to financing costs over the term of the facility (see Note B). Amortization for the years ended December 31, 2004 and 2003 was $83 and $22, respectively.


F-24

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

[4]  Stock option plans:
 
In November 1996, the Company adopted the Non-Executive Director Stock Option Plan (the “Directors Plan”), which was amended in 2003. The Directors Plan, as amended, allows the Company to issue up to 61,224 options to non-executive directors of the Company. The Plan provides that commencing June 30, 2004, all non-executive directors on the Board of Directors will initially be granted options to purchase 10,204 shares of common stock at the fair market value at the date of grant and that annually thereafter, each non-executive director will be granted an option to purchase 5,102 shares of common stock at the fair market value at the date of grant.
 
In November 1996, the Company adopted a stock option plan (the “1996 Option Plan”), which was amended in 2000. The 1996 Option Plan, as amended, allows the Company to issue up to 1,020,408 options to employees of the Company under incentive and nonstatutory stock option grants. The options generally become exercisable over a period of 3 years commencing at the date of grant and expire in 4-10 years from the date of grant. The exercise price of options granted pursuant to the 1996 Option Plan shall be no less than one hundred percent (100%) of the fair market value at the date of grant for incentive stock options, and eighty-five percent (85%) of the fair market value at the date of the grant for other options.
 
Through November 2001, the Company had issued 181,331 options to employees and directors at exercise prices above the fair market values at the dates of the grants.
 
In December 2001, the Company issued 93,545 options to employees at an exercise price of $4.90. The fair market value of the common stock at the date of this grant was $10.29. The Company recorded deferred compensation of $504 in connection with this issuance and amortized the cost over the three-year vesting period.
 
In September 2003, the Company adopted the 2003 Employees Stock Option Plan (the “2003 Option Plan”). The 2003 Option Plan allows the Company to issue up to 2,244,897 options to employees of the Company under incentive and nonstatutory stock option grants. In March 2006, the Plan was amended to allow the Company to issue 3,367,346 options. The options generally vest over a period of 3-4 years commencing at the date of grant and expire in 10 years. In 2003, the Company issued 1,721,565 options to purchase shares of common stock at $0.93 per share, which was the fair market value on the date of the grant.
 
In 2004, the Company issued options to purchase 156,921 shares of common stock exercisable at prices between $0.93 and $1.52 per share, which equaled fair market value on the dates of grant, to employees.
 
In 2005, the Company issued options to purchase 832,011 shares of common stock exercisable at $1.52 per share, which equaled fair market value on the dates of grant, to employees.


F-25

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

 
During the nine months ended September 30, 2006, the Company issued options to purchase 555,553 shares of common stock, with a weighted average exercise price of $3.60 per share, which is based on exercise prices equal to the fair market value per share on the dates of grant to employees.
 
                                                 
    Year Ended December 31,  
    2005     2004     2003  
          Weighted
 		          Weighted
 		          Weighted
 		 
    Shares     Average     Shares     Average     Shares     Average  
 
Outstanding at beginning of year
    2,508,347     $ 5.77       2,507,683     $ 6.29       908,249     $ 18.42  
Options granted
    832,011     $ 1.52       156,921     $ 0.99       1,721,565     $ 0.93  
Options cancelled
    (777,565 )   $ 7.76       (154,059 )   $ 9.44       (122,131 )   $ 15.19  
Options exercised*
    (1,484 )   $ 0.94       (2,198 )   $ 0.93       —       —  
                                                 
Outstanding at end of year
    2,561,309     $ 3.78       2,508,347     $ 5.77       2,507,683     $ 6.29  
                                                 
Options exercisable at year end
    1,211,057     $ 6.60       1,226,078     $ 10.44       877,018     $ 13.15  
                                                 
Options not vested at year end
    1,350,252     $ 1.26                                  
 
 
*  Intrinsic value of $1 in 2005 and 2004. Cash received of $1 in 2005 and $2 in 2004.
 
                 
    Nine Months Ended
 
    September 30, 2006  
          Weighted Average
 		 
    Shares     Exercise Price  
    (unaudited)  
 
Outstanding at beginning of period
    2,561,309     $ 3.78  
Options granted
    555,553     $ 3.60  
Options cancelled
    (90,373 )   $ 28.31  
Options exercised**
    (6,186 )   $ 0.95  
                 
Outstanding at end of period
    3,020,303     $ 3.04  
                 
Options exercisable at period end
    1,682,374     $ 3.66  
Options not vested at period end
    1,337,929     $ 2.25  
 
 
**  Intrinsic value of $38. Cash received $6.


F-26

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

The Company’s policy is to issue new shares upon exercise of options as the Company does not hold shares in treasury.
 
The following tables summarize information about stock options outstanding at December 31, 2005 and September 30, 2006:
 
                         
December 31, 2005  
                Weighted Average
 		 
    Number
 		    Number
 		    Remaining Contractual
 		 
Exercise
 		  of Shares
 		    of Shares
 		    Life of Shares Exercisable
 		 
Price
  Outstanding     Exercisable     (in years)  
 
$ 0.93
    1,349,152       758,094       7.48  
$ 1.52
    832,448       73,254       9.12  
$ 4.90
    74,798       74,798       1.96  
$10.29
    75,393       75,393       1.22  
$19.60
    142,856       142,856       4.26  
$37.29
    86,662       86,662       0.75  
                         
      2,561,309       1,211,057          
                         
 
                         
September 30, 2006  
                Weighted Average
 		 
    Number
 		    Number
 		    Remaining Contractual
 		 
Exercise
 		  of Shares
 		    of Shares
 		    Life of Shares Exercisable
 		 
Price
  Outstanding     Exercisable     (in years)  
          (unaudited)        
 
$ 0.93
    1,331,162       1,106,980       6.57  
$ 1.52
    824,466       225,437       8.09  
$ 1.96
    375,794       35,081       6.50  
$ 4.90
    72,653       72,653       1.93  
$ 7.06
    179,107       5,102       6.96  
$10.29
    73,863       73,863       1.23  
$19.60
    142,856       142,856       4.22  
$37.29
    20,402       20,402       2.03  
                         
      3,020,303       1,682,374          
                         
 
The aggregate intrinsic value of stock options outstanding at September 30, 2006 was approximately $22,984. The aggregate intrinsic value of stock options exercisable at September 30, 2006 was approximately $11,281.
 
All options granted are equity awards and the Company has not granted any liability awards. The Company expects to recognize future compensation costs aggregating $3,299 for options granted but not vested as of September 30, 2006. Such amount will be recognized over the weighted average requisite service period, which is expected to be 7 years.


F-27

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

The Company has reserved shares of common stock for issuance upon redemption of preferred stock and the exercise of warrants and options as follows:
 
                 
    December 31,
 		    September 30,
 		 
    2005     2006  
 
Shares reserved for:
               
The Directors Plan
    61,224       61,224  
1996 Option Plan
    379,791       309,827  
2003 Option Plan
    2,241,211       3,132,979  
2006 Option Plan
    —       2,653,061  
Common stock warrants
    117,346       117,346  
Conversion of Series B preferred stock including accrued dividends
    8,915,266       9,471,555  
Series B warrants
    45,918       45,918  
Conversion of Series C preferred stock including accrued dividends
    1,752,319       1,876,128  
                 
      13,513,075       17,668,038  
                 
 
Upon adoption of SFAS 123(R), the Company selected the Black-Scholes option pricing model as the most appropriate model for determining the estimated fair value for stock-based awards. The fair value of stock option awards subsequent to January 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 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. Prior to 2006, the Company used the minimum value method for disclosing the pro forma effects of stock options as permitted for private companies under SFAS 123. The assumptions used in the Black-Scholes option-pricing model are as follows:
 
                     
    Year Ended December 31,   Nine Months Ended September 30, 
    2005   2004   2003   2006   2005
Expected Term
  10 years   10 years   10 years   7 years   10 years
Volatility
  0.01%   0.01%   0.01%   82.10%   0.01%
Risk free rate
  3.63%-4.53%   3.83%-4.73%   2.84%-3.88%   4.36%-5.12%   3.63%-4.53%
Dividend Yield
  —   —   —   —   —
Discount
  —   —   —   —   —


F-28

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

 
During 2005 and for the nine months ended September 30, 2006, the Company granted stock options with exercise prices as follows:
 
                                 
                Fair Market
 		 
                Value per Share  
    Number of
 		          on Accounting
 		       
    Options
 		    Exercise
 		    Measurement
 		    Intrinsic
 		 
Measurement Date
  Granted     Price     Date     Value  
 
Jan — Mar 2005
    420,104     $ 1.52     $ 1.52     $ 0.00  
Apr — Jun 2005
    394,264     $ 1.52     $ 1.52     $ 0.00  
Jul — Sep 2005
    12,755     $ 1.52     $ 1.52     $ 0.00  
Oct — Dec 2005
    5,000     $ 1.52     $ 1.52     $ 0.00  
Jan — Mar 2006
    —       —       —       —  
Apr — Jun 2006
    376,520     $ 1.96     $ 7.06     $ 5.09  
Jul — Sep 2006
    179,126     $ 7.06     $ 9.02     $ 1.96  
 
The board of directors determined at each grant date in 2005 that the per share fair market value of the common stock underlying stock options granted in 2005 was $1.52 per share. These estimates were determined primarily based upon internal valuation estimates as well an arm’s-length transaction involving the Company’s preferred stock in October 2004. During 2005, the Company experienced significant changes in the senior management team and experienced delays in rolling out the Company’s products and services and uncertainties surrounding new development projects, all of which resulted in a high degree of uncertainty as to whether the Company could achieve its business goals. In addition, the Company was also involved in patent litigation, the outcome of which was uncertain. While mediation efforts surrounding this litigation failed in May 2005, the new senior management was able to settle this matter in December 2005. As a result of these uncertainties, the board of directors determined that the fair market value of the common stock underlying stock options granted in 2005 should remain at $1.52 per share throughout the period. The Company has subsequently determined that no reassessment of this estimate is appropriate.
 
In January 2006, the Company determined that because of the settlement of the patent litigation in December 2005 and the achievement of several important business milestones in late 2005, such as a new product launch and two consecutive quarters of profitable operating results, the valuation of the common stock was more complex and required the assistance of an independent valuation specialist. As a result, the Company engaged an unrelated valuation specialist in February 2006 to prepare a valuation of our common stock as of December 31, 2005. The valuation specialist considered several methodologies in its analysis, including an analysis of guideline public companies, an analysis of comparable company transactions, and a discounted cash flow analysis. The results of the public company and comparable company transaction components of the analysis vary not only with factors such as revenue, EBITDA, and income levels, but also with the performance of the public market valuation of the companies at the time and the selected transactions used in the analysis. The final valuation conclusion was based on the discounted cash flow analysis in light of the results of the market-based analysis. The discounted cash flow analysis, an income-based approach, involves applying appropriate discount rates to estimated future free cash flows, which were based on management’s forecasts of revenue and costs at the time. As with any valuation based on the discounted cash flow method, the underlying assumptions involve a significant degree of complexity and judgment. Once the enterprise value of the Company was determined, the result was reconciled to equity value after the consideration of any interest-bearing debt and excess working capital. The equity value was allocated between preferred and common classes of stock in accordance with


F-29

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

the current value method. In determining the per share value of the common shares, management, without taking into account discounts for lack of marketability or lack of control, divided the equity value by the number of common stock equivalents. The discounted cash flow method resulted in an estimated fair market value of the Company’s common stock as of December 31, 2005 of $1.96 per share. The valuation report was used as an aid to the board of directors in determining the fair market value of the common stock underlying the options granted in January through May 2006. Based on the results of this valuation, which was completed in April 2006, the board of directors determined at that time that the fair market value per share of the Company’s common stock was $1.96 per share during this period. All stock options granted during this period have an exercise price equal to the board of director’s fair market value determination of $1.96 per share.
 
In August 2006, the same independent valuation specialist was engaged to perform a valuation of the Company’s common stock as of June 30, 2006. The valuation report was used as an aid by the board of directors in determining the fair market value of the common stock underlying the stock options granted through June 2006. The valuation specialist used substantially the same analysis and methodologies as it did for the previous valuation and determined that the fair market value of the common stock was $7.06 per share as of September 30, 2006.
 
As a result of reviews of the Company’s stock option grants, management determined that reassessments of the fair market value estimates for grants made during the nine months ended September 30, 2006 were appropriate.
 
As an initial matter, management concluded that because the Company’s business had demonstrated continued growth and improvement during the six months ended June 30, 2006 and the fair market value of the Company’s common stock was in a period of sequential increases, a valuation report that estimated the fair market value of the common stock nearest to the end of the period, rather than the beginning of the period, would provide a more reliable and conservative estimate of the fair market value of the Company’s common stock underlying stock option grants whose measurement dates for accounting purposes occurred in the second quarter of 2006, which were all options granted from January 1 through June 30, 2006. As a result of this reassessment, management has retrospectively estimated that the fair market value of the Company’s common stock for purposes of determining the appropriate compensation expense for options granted with a measurement date in the second quarter of 2006 was $7.06 per share.
 
During the third quarter of 2006, management refined some of the assumptions relied upon in the valuation report to closer align the fair market value with the midpoint of the price range estimated by the Company and the underwriters of its proposed initial public offering. As a result of these adjustments, management has estimated that the fair market value of the Company’s common stock for purposes of determining the appropriate compensation expense for our options granted in the third quarter of 2006 was $9.02 per share.
 
As a result of the reassessment of the fair market value of the Company’s common stock underlying stock option grants to employees, the Company has recorded additional stock-based compensation for each stock option granted during the three months ended September 30, 2006 based upon the retrospectively determined fair market value of the stock options at the relevant measurement dates of the stock option grants. The unearned stock-based compensation is expensed ratably over the vesting periods of these stock options.


F-30

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

 
The following table presents the stock-based compensation expense for the year ended December 31, 2005 and for the nine months ended September 30, 2006 and 2005. There was no such expense in the prior years.
 
                         
          Nine Months
 		 
    Year Ended
 		    Ended
 		 
    December 31,     September 30,  
    2005     2006     2005  
Cost of revenue, maintenance and professional services
    —     $ 51       —  
Sales and marketing
    —       104       —  
Research and development
    —       115       —  
General and administrative
  $ 119       915     $ 80  
                         
    $ 119     $ 1,185     $ 80  
                         
 
[5]  Stock purchase plan/executive bonus plans:
 
In 2003, the Company adopted the Senior Management Preferred Stock Purchase Plan (the “Stock Purchase Plan”) which expired in 2004 without the grant of any shares.
 
In 2005, the Company adopted the 2005 Executive Bonus Plan under which 175,000 shares of Series C Preferred were reserved for issuance. In 2005, the Company issued 54,696 shares of Series C Preferred to certain of its executives and recorded a compensation charge of $54 based on the fair value of the Series C Preferred at $0.98 per share.
 
In February 2006, the Company issued 67,998 shares of Series C Preferred to certain of its executives and recorded a compensation charge of $102 based on the fair value of the Series C Preferred at $1.50 per share.
 
Note K — Profit Sharing Plan
 
Effective March 1, 1996, the Company adopted a defined contribution plan (the “Plan”), which, as amended, qualifies under Section 401(k) of the Internal Revenue Code. The Plan covers all employees who meet eligibility requirements. Employer contributions are discretionary. The Company did not make any contribution to the Plan for the years ended 2005, 2004 and 2003 respectively.


F-31

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

Note L — Segment Information
 
The Company operates in one reportable segment.
 
The Company operates in three geographic regions: North America, Europe, Middle East & Africa and Asia-Pacific. All transfers between geographic regions have been eliminated from consolidated revenues. Revenue and long-lived assets by geographic region are as follows:
 
                                         
          Nine Months Ended
 		 
    Year Ended December 31,     September 30,  
    2005     2004     2003     2006     2005  
 
Revenue:
                                       
North America
  $ 31,291     $ 21,648     $ 18,159     $ 30,628     $ 22,024  
Europe, Middle East & Africa
    7,168       6,458       4,712       9,616       5,099  
Asia-Pacific
    2,251       1,732       1,062       1,543       1,758  
                                         
    $ 40,710     $ 29,838     $ 23,933     $ 41,787       28,881  
                                         
 
                         
    December 31,     September 30,
 		 
    2005     2004     2006  
 
Long-lived assets:
                       
North America
  $ 1,864     $ 1,573     $ 2,235  
Europe, Middle East & Africa
    —       —       285  
Asia-Pacific
    —       —       —  
                         
    $ 1,864     $ 1,573     $ 2,520  
                         
 
Note M — Related Party Transactions
 
After the acquisition of Double-Take EMEA, the Company has had transactions with Sunbelt Software Distribution, Inc., or Sunbelt Distribution. An officer of Double-Take Software Inc. is the director and chief executive officer of Sunbelt Distribution. The balances and transactions with Sunbelt Distribution are described below:
 
         
    September 30, 2006  
    (unaudited)  
Trade Receivable
  $ 1,285  
Trade Payable
  $ 3  
 
         
    May 24, 2006
 		 
    to
 		 
    September 30, 2006  
    (unaudited)  
Sales to Sunbelt Distribution
  $ 2,780  
Purchases from Sunbelt Distribution
  $ 224  


F-32

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

 
Note N — Subsequent Event
 
[1]  Acquisition of Double-Take EMEA:
 
On May 23, 2006, the Company acquired all of the issued and outstanding shares of Sunbelt System Software S.A.S. which is now known as Double-Take Software S.A.S., or Double-Take EMEA. From 1998 through the acquisition date, Double-Take EMEA was the principal or exclusive distributor of the Company’s software in the European, Middle Eastern and African market and a certified Double-Take training organization. An initial payment of $1.1 million was made to the former stockholders of Double-Take EMEA for the acquisition which represented earn-out payments for the period January 1, 2006 through April 30, 2006. Subsequent payments totaling $1.5 million were made through September 30, 2006. A portion of the earn-out payments are held in escrow.
 
The acquisition of Double-Take EMEA was accounted for using the purchase method of accounting, and the assets acquired and liabilities assumed were accounted for at their fair values at the acquisition date based on a management review, including a valuation report issued by an independent third party. The amounts are based on currently available information and certain assumptions and estimates that management believes are reasonable.
 
The details of the initial purchase price allocation are as follows (in thousands):
 
         
Earn-out payments for the period January 1, 2006 through April 30, 2006
  $ 1,133  
Amount due to former Double-Take EMEA shareholders
    932  
Transaction costs
    318  
         
Total initial purchase price
  $ 2,383  
         
 
In accordance with SFAS 141, future earn-out payments, which are estimated to be between $10 and $12 million, have not all been included in the calculation of the purchase price because they are contingent in nature and based on a specified percentage of the payments made to the Company by Double-Take EMEA under the Company’s intercompany distribution agreement through December 2007. A portion of the contingent purchase price equal to the excess of the fair value of the assets acquired and liabilities assumed over the non-contingent portion of the purchase price was accrued in accordance with SFAS No. 141. If future earn-out payments exceed the initial amount recorded as the liability, the amount by which the earn-out payments exceed the recorded liability will be recorded as additional purchase price and goodwill.


F-33

 

DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

The identifiable assets and liabilities on the date of acquisition are in thousands as follows:
 
                 
          Life  
Cash and cash equivalents
  $ 1,778          
Accounts receivable, net of allowance
    2,927          
Inventory
    1,381          
Prepaid expenses
    2,694          
Account payable
    (1,229 )        
Accrued expenses
    (1,790 )        
Other liabilities
    (144 )        
Deferred revenue
    (3,944 )        
Properties and equipment
    275          
Other assets
    54          
Customer relationships
    1,992       5 years  
Marketing relationships
    2,267       8 years  
                 
Total assets acquired
  $ 6,261          
                 
Purchase price paid through September 30, 2006
  $ 3,235          
Accrued purchase price
    3,026          
                 
Total
  $ 6,261          
                 
 
[2]  2006 Omnibus Incentive Plan:
 
On September 14, 2006, the Company adopted the 2006 Omnibus Incentive Plan (the 2006 Plan). The 2006 Plan allows the Company to issue stock options, restricted stock, restricted stock units, stock appreciation rights, unrestricted stock, cash based awards or any combination of the foregoing. Any of the foregoing awards may be made subject to attainment of performance goals over a performance period of up to one or more years. The 2006 Plan allows the Company to issue up to 224,490 shares of common stock subject to awards pursuant to the 2006 Plan. The vesting period of the options granted is at the discretion of the Board of Directors and the options expire in 10 years. The exercise price of options granted shall be no less than one hundred percent (100%) of the fair market value at the date of grant or one hundred-ten percent (110%) if the option is granted to a ten percent stockholder.
 
On November 2, 2006, the number of shares eligible for issuance was increased to 2,653,061.
 
[3]  Initial Public Offering
 
The Company has filed a registration statement on Form S-1 with the Securities and Exchange Commission (“SEC”) related to the proposed initial public offering of its common stock. The Company can give no assurance that the registration statement will be declared effective by the SEC.
 
In connection with the Company’s initial public offering:
 
  •  the Company effected a 1 for 4.9 reverse stock split of its common stock on November 3, 2006. All share and per share amounts related to common stock, options and warrants included in the consolidated financial statements have been restated to reflect the reverse stock split. The


F-34

 

  DOUBLE-TAKE SOFTWARE, INC.
(formerly NSI Software, Inc.)
 
Notes to Consolidated Financial Statements — (Continued)
December 31, 2005, 2004 and 2003
(unaudited with respect to September 30, 2006 and 2005)
(in thousands, except for share and per share amounts)

conversion ratios of the Company’s Series B Preferred Stock and Series C Preferred Stock have also been adjusted to reflect the reverse split.
 
  •  the Company has incurred costs of $1,469 through September 30, 2006. These costs have been recorded in other assets. If the initial public offering is not completed, these costs will be recorded as operating expenses at that time.


F-35

 

Double-Take Software, Inc.
(formerly NSI Software, Inc.)

Schedule II — Valuation and Qualifying Accounts
 
(in thousands, except for share and per share amounts)
 
                                 
    Balance at
 		    Additions Charged
 		          Balance at
 		 
    Beginning
 		    to Costs and
 		    Deductions (See
 		    End of
 		 
    of Period     Expenses     Notes Below)     Period  
 
Year ended December 31, 2003:
                               
Allowance for doubtful accounts
  $ 188       —     $ 104     $ 84  
Valuation allowance on deferred tax assets
  $ 20,482     $ 3,724       —     $ 24,206  
Year ended December 31, 2004:
                               
Allowance for doubtful accounts
  $ 84     $ 116       —     $ 200  
Valuation allowance on deferred tax assets
  $ 24,206     $ 3,038       —     $ 27,244  
Year ended December 31, 2005:
                               
Allowance for doubtful accounts
  $ 200     $ 100     $ 26     $ 274  
Valuation allowance on deferred tax assets
  $ 27,244     $ 1,234       —     $ 28,478  
 
 
(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 related to federal and state net operating loss carryforwards.


F-36

 

SUNBELT SYSTEM SOFTWARE
 
         
    Pages
 
Consolidated Financial Statements
   
Report of independent auditors
  F-38
Consolidated Balance sheets as of December 31, 2005 and 2004 and as of March 31, 2006 (unaudited)
  F-39
Consolidated Statements of Operations for the years ended December 31, 2005 and 2004 and for the three months ended March 31, 2006 (unaudited) and March 31, 2005 (unaudited)
  F-40
Consolidated statements of Stockholders’ Equity for the years ended December 31, 2005 and 2004 and for the three months ended March 31, 2006 (unaudited)
  F-41
Consolidated statements of Cash Flows for the years ended December 31, 2005 and 2004 and for the three months ended March 31, 2006 (unaudited) and March 31, 2005 (unaudited)
  F-42
Notes to the Consolidated Financial Statements
  F-43


F-37

 

 
SUNBELT SYSTEM SOFTWARE
 
REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors and Shareholders of Sunbelt System Software
 
We have audited the accompanying consolidated balance sheets of Sunbelt System Software (the “Group”) as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with auditing standards generally accepted in the 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 Group’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 Group’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 Sunbelt System Software at December 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United-States.
 
Paris-La Défense, France
July 17, 2006
 
/s/ ERNST & YOUNG Audit
 
Represented by Laure-Hélène de la Motte


F-38

 

SUNBELT SYSTEM SOFTWARE
 
CONSOLIDATED BALANCE SHEETS
 
                         
    December 31,     March 31,
 		 
    2005     2004     2006  
    (in thousands, except for share and per share data)  
                (unaudited)  
 
ASSETS
Current assets:
                       
Cash and cash equivalents
  € 2,363       287       2,609  
Inventories
    1,525       2,670       333  
Trade accounts receivable, less allowance for doubtful accounts of €54 as of December 31, 2005, €38 as of December 31, 2004 and €49 as of March 2006
    2,991       2,162       2,628  
Prepaid expenses and other current assets
    2,325       1,679       2,112  
                         
Total current assets
    9,204       6,798       7,682  
Property and equipment, net
    237       232       225  
Other assets
    43       38       44  
                         
Total assets
  € 9,484       7,068       7,951  
                         
 
LIABILITIES
Current liabilities:
                       
Trade accounts payable
    2,336       2,261       524  
Accrued expenses
    1,561       961       1,439  
Other current liabilities
    85       252       49  
Deferred revenue
    2,861       1,799       3,034  
                         
Total current liabilities
    6,843       5,273       5,046  
                         
Long term liabilities
    55       65       55  
                         
Shareholders’ equity:
                       
Share capital
    7       7       37  
Retained earnings
    2,579       1,723       2,815  
Accumulated other comprehensive income
    —       —       (2 )
                         
Total shareholders’ equity
    2,586       1,730       2,850  
                         
Total liabilities and shareholders’ equity
  € 9,484       7,068       7,951  
                         
 
See accompanying notes.


F-39

 

SUNBELT SYSTEM SOFTWARE
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
                                 
    Year Ended December 31,     Three Months Ended March 31,  
    2005     2004     2006     2005  
    (in thousands, except for share and per share data)  
                (unaudited)  
 
Revenues
                               
Software licenses
  € 9,378       8,121       2,367       2,228  
Maintenance and professional services
    3,879       2,241       1,478       601  
                                 
Total revenues
    13,257       10,362       3,845       2,829  
                                 
Cost of revenue
                               
Software licenses
    4,082       3,626       1,149       875  
Maintenance and professional services
    2,128       1,266       728       332  
                                 
Total cost of revenue
    6,210       4,892       1,878       1,207  
                                 
Gross margin
    7,047       5,470       1,967       1,622  
Operating expenses
                               
Sales and marketing
    4,490       3,659       1,243       966  
General and administrative
    1,168       898       357       292  
Depreciation and amortization
    85       56       23       38  
                                 
Income from operations
    1,304       858       343       326  
Interest expense
    (116 )     (87 )     (35 )     (28 )
Interest income
    38       121       69       15  
                                 
Income before income taxes
    1,226       891       377       313  
Income tax (expense)
    (370 )     (263 )     (111 )     (94 )
                                 
Net income
  € 856       628       266       219  
                                 
 
See accompanying notes.


F-40

 

SUNBELT SYSTEM SOFTWARE
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
                                         
                      Accumulated
 		       
                      Other
 		       
    Common Stock     Retained
 		    Comprehensive
 		       
    Shares     Amount     earnings     Income     Total  
    (in thousands, except for share and per share data)  
 
Balance at January 1, 2004
    500       7       1,095       —       1,102  
Net income
                    628               628  
                                         
Balance at December 31, 2004
    500       7       1,723       —       1,730  
Net income
                    856               856  
                                         
Balance at December 31, 2005
    500       7       2,579       —       2,586  
Increase in share capital
            30       (30 )             —  
Comprehensive income:
                                       
Net income
                    266               266  
Other comprehensive income:
                                       
Foreign currency translation adjustment
                            (2 )     (2 )
Total comprehensive income
                                    264  
                                         
Balance at March 31, 2006 (unaudited)
    500       37       2,815       (2 )     2,850  
                                         
 
See accompanying notes.


F-41

 

SUNBELT SYSTEM SOFTWARE
 
 
                                 
    Year Ended December 31,     Three Months Ended March 31,  
    2005     2004     2006     2005  
    (in thousands, except for share and per share data)  
                (unaudited)  
 
Cash flow from operating activities
                               
Net income
  € 856       628       266       219  
Adjustments to reconcile net income to net cash provided by operating activities
                               
Depreciation and amortization
    85       56       23       38  
Changes in operating assets and liabilities
                               
Trade accounts receivable
    (829 )     (482 )     363       161  
Prepaid expenses and other current assets
    (646 )     (988 )     213       174  
Inventories
    1,145       (1,344 )     1,193       740  
Other assets
    (4 )     6       (1 )     (2 )
Trade accounts payable and accrued expenses
    677       927       (1,937 )     (917 )
Deferred revenue and other liabilities
    900       1,159       145       110  
                                 
Net cash provided by (used in) operating activities
    2,184       (38 )     265       523  
Cash flow from investing activities
                               
Purchase of property and equipment
    (93 )     (96 )     (12 )     (27 )
                                 
Net cash used in investing activities
    (93 )     (96 )     (12 )     (27 )
Cash flow from financing activities
                               
Payments on capital lease obligations
    (18 )     (18 )     (4 )     (6 )
                                 
Net cash provided by (used in) financing activities
    (18 )     (18 )     (4 )     (6 )
Effects of exchange rate — changes in cash
    3       1       (3 )     (6 )
                                 
Net increase (decrease) in cash
    2,076       (151 )     246       484  
Cash and cash equivalents at beginning of the period
    287       438       2,363       287  
                                 
Cash and cash equivalents at end of period
  € 2,363       287       2,609       771  
                                 
Supplemental disclosures of cash flow information
                               
Interest paid
    2       1       —       —  
Income taxes paid
    151       461       69       18  
 
See accompanying notes.


F-42

 

 
SUNBELT SYSTEM SOFTWARE
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
SUNBELT SYSTEM SOFTWARE
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except for share and per share data)
 
1 — SIGNIFICANT ACCOUNTING POLICIES
 
Description of business
 
Sunbelt System Software (“Sunbelt”) and its subsidiary (the “Group”) is principally a distributor of data protection software developed by Double-Take Software, Inc (formerly NSI Software, Inc) (“Double-Take”). In addition, the Group provides service support for the installation, implementation, training and maintenance of such software. The Group markets its products to large and medium size enterprises through the reseller channel throughout Europe and the Middle East Asia region “EMEA” and Asia Pacific “Oceania”. The Group is headquartered in Reuil Malmaison, France.
 
Principles of consolidation and basis of presentation
 
The consolidated financial statements of the Group have been prepared in conformity with U.S. generally accepted accounting principles.
 
The accompanying consolidated financial statements include the accounts of Sunbelt System Software S.A.S and its subsidiary in the United Kingdom, Sunbelt System Software Ltd. All intercompany balances and transactions have been eliminated.
 
Unaudited financial information
 
The accompanying interim balance sheet at March 31, 2006, the statements of operations and cash flows for the three months ended March 31, 2006 and 2005 and the statement of stockholders’ equity for the three months ended March 31, 2006 are unaudited. These unaudited interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles. In the opinion of the Group’s management, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include all normal recurring adjustments, necessary for the fair presentation of the Group’s statement of financial position at March 31, 2006 and its results of operations and its cash flows for the three months ended March 31, 2006 and 2005. The results for the three months ended March 31, 2006 are not necessarily indicative of the results to be expected for the year ending December 31, 2006.
 
Estimates and assumptions
 
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
 
Foreign currency translation and transactions
 
Generally, the functional currency of Group’s entities is the applicable local currencies in accordance with Statement of Financial Accounting Standards (“SFAS”) 52, “Foreign Currency Translation”, while the Group’s reporting currency is the euro.
 
All assets and liabilities of the Group entities with functional currencies other than the euro are translated into euro equivalents at exchange rate as follows: (1) asset and liability accounts at the rate of exchange in effect on the balance sheet date, (2) revenues and expenses at the average rate of exchange for the year, and (3) stockholder’s equity accounts at historical exchange rates. Translation gains or losses are recorded in cumulative translation adjustment as a separate component of stockholders’ equity.
 
Realized and unrealized transaction gains or losses are reflected in net income.


F-43

 

 
SUNBELT SYSTEM SOFTWARE
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Revenue recognition
 
The Group’s revenue is derived from two primary sources: software license fees and maintenance and professional service fees, which include implementation, installation, training and maintenance. The Group recognizes revenue pursuant to the requirements of Statement of Position (“SOP”) 97-2, “Software Revenue Recognition”, as amended by SOP 98-4, “Deferral of the Effective Date of a Provision of SOP 97-2” and SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions”.
 
Revenues from sales of licenses to end-user clients are generally recognized when (1) the Group enters into a legally binding arrangement with an end user client, (2) the Group delivers the software (assuming no significant remaining obligations exist), (3) collection of the resulting receivable is probable and (4) the amount of fees is fixed and determinable. If any of these criteria are not met, revenue recognition is deferred until such time as all of the criteria are met.
 
The Group’s software license arrangements include maintenance services for an initial period, typically 12 months. Generally, subsequent maintenance services are automatically renewed for 12-month periods unless either party cancels the maintenance agreement. Payments for maintenance fees are generally made in advance and are non-refundable. The Group recognizes revenues from maintenance services ratably over the contractual maintenance term.
 
Many of our arrangements include service support for the implementation, installation and training of such software. Consulting revenues from these arrangements are generally accounted for separately from software license revenues as the services (1) are not essential to the functionality of the software license, (2) are available from other vendors, and (3) do not include significant modification or customization of the software. Revenue is recognized on these services when the services are completed.
 
Since licenses are almost always sold with maintenance services, the Group recognizes the amount of license revenue in a license and maintenance package based on the residual value method. The fee allocated to maintenance services is based upon the fee charged to renew these maintenance services. Under the residual method, discounts offered on services are allocated to the delivered elements in the arrangement, typically software licenses. License revenues and service revenues that have been prepaid or invoiced but that have not yet been recognized as revenues under the policy are reflected as deferred revenues.
 
Cost of revenues
 
Cost of revenues is comprised of cost of license revenues and cost of service revenues. Cost of license revenues consists of license fees paid to Double-Take, the costs of software packaging, production of documentation and shipping. Cost of service revenues consists primarily of personnel related costs (salaries) incurred in providing services.
 
Advertising costs
 
The Group expenses advertising costs as incurred.  Advertising expenses were €111 and €89 for the years ended December 31, 2005 and 2004 respectively and were €20 (unaudited) and €49 (unaudited) for the three month periods ended March 31, 2005 and March 31, 2006.
 
Cash and cash equivalents
 
The Group considers highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents include certificates of deposits with a maturity of less than 3 months for €1,267 as of December 31, 2005 and €1,924 (unaudited) as of March 31, 2006.


F-44

 

 
SUNBELT SYSTEM SOFTWARE
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Inventories
 
The Group accounts for its inventories based on the weighted average method.
 
Trade receivables
 
Trade receivables are carried at anticipated net realizable value. Doubtful accounts are provided for on the basis of anticipated collection losses. The estimated losses are determined from historical collection experience and a review of outstanding accounts receivable.
 
Property and equipment
 
Property and equipment is stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization are calculated on a straight-line basis over the estimated useful lives of the respective assets, which are as follows:
 
     
Computers and hardware
  4 years
Leasehold improvements
  6 years
Purchased software
  1 year
 
Leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining period of the existing leases. Repairs and maintenance expenditures are expensed as incurred. When assets are retired or otherwise disposed of, the assets and related allowances for depreciation are eliminated from the accounts and any resulting gain or loss is recognized as an operating expense.
 
Impairment of long lived assets
 
The Group reviews the carrying value of its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable pursuant to the requirements of SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived-Assets.”
 
Recoverability of long-lived assets is assessed by a comparison of the carrying amount of the asset (or the group of assets, including the asset in question, that represents the lowest level of separately-identifiable cash flows) to the total estimated undiscounted cash flows expected to be generated by the asset or group of assets. If the future net undiscounted cash flows is less than the carrying amount of the asset or group of assets, the asset or group of assets is considered impaired and an expense is recognized equal to the amount required to reduce the carrying amount of the asset or group of assets to its then fair value. Fair value is determined by discounting the cash flows expected to be generated by the asset, when the quoted market prices are not available for the long-lived assets. Estimated future cash flows are based on assumptions and are subject to risk and uncertainty.
 
Income taxes
 
The Group accounts for income taxes in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” Deferred tax assets and liabilities are computed based on the difference between the financial and income tax bases of assets and liabilities using currently enacted tax rates. SFAS 109 requires that deferred tax assets be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized.


F-45

 

 
SUNBELT SYSTEM SOFTWARE
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Concentrations of credit risk
 
The Group is subject to concentration in the volume of business transacted with its main supplier Double-Take. Purchases from Double-Take accounted for more than 80% of the total transactions in 2004 and more than 90% in 2005.
 
The Group maintains its cash, cash equivalents, with high credit quality financial institutions. Credit risk is limited due to a large number and geographic dispersion of customers comprising the Group’s customer base. For the years ended December 31, 2005 and December 31, 2004 no customer individually accounted for more than 10% of consolidated net revenues.
 
Comprehensive income
 
The Group applies the provisions of SFAS No. 130, “Reporting Comprehensive Income”. Comprehensive income is defined to include all changes in equity, except those resulting from investments by stockholders and distributions to stockholders, and is reported in the statement of stockholders’ equity. Included in the Group’s comprehensive income are net income and foreign currency translation adjustments.
 
Recent accounting pronouncements
 
On December 16, 2004, the FASB issued SFAS 153, “Exchanges of Non-monetary Assets, an Amendment of APB Opinion No. 29, Accounting for Non-monetary Transactions”. This Statement eliminates the exception from fair value measurement for non-monetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153, is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005 and is not expected to have a material impact on the Company’s results of operations, cash flows or financial position.
 
On June 7, 2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections”, a replacement of APB 20, “Accounting Changes”, and SFAS 3, “Reporting Accounting Changes in Interim Financial Statements”. SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Previously, most voluntary changes in accounting principles required recognition via a cumulative effect adjustment within net income of the period of the change. SFAS 154 requires retrospective application to prior periods’ financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, the SFAS does not change the transition provisions of any existing accounting pronouncements. Management does not believe adoption of SFAS 154 will have a material effect on our consolidated financial position, results of operations or cash flows.
 
2 — PROPERTY AND EQUIPMENT
 
Property and equipment consist of the following:
 
                         
    December 31,     March 31,  
    2005     2004     2006  
                (unaudited)  
 
Computer and other office furniture
  € 233       156       245  
Motor vehicles
    49       71       45  
Leasehold improvements
    67       67       67  
Other
    53       48       51  
                         
      402       342       408  
Less accumulated depreciation and amortization
    (165 )     (110 )     (183 )
                         
    € 237       232       225  
                         


F-46

 

 
SUNBELT SYSTEM SOFTWARE
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Amount of assets purchased under capital lease in 2004 amounted to €72. No assets were purchased under capital lease in 2005 or in the three months ended March 2006.
 
Accumulated depreciation of assets under capital leases amount to €9 as of December 31, 2004, €22 as of December 31, 2005 and €5 as of March 31, 2006 (unaudited).
 
3 — PREPAID AND OTHER CURRENT ASSETS
 
                         
    December 31,     March 31,  
    2005     2004     2006  
                (unaudited)  
 
Prepaid expenses
  € 1,487       993       1,571  
Value added tax and other tax receivable
    348       209       390  
Consideration to be received from supplier
    482       456       138  
Other
    8       21       13  
                         
Total
  € 2,325       1,679       2,112  
                         
 
Consideration to be received from supplier relate to rebates to be received from the Group’s main supplier Double-Take.
 
4 — ACCRUED EXPENSES
 
                         
    December 31,     March 31,  
    2005     2004     2006  
                (unaudited)  
 
Value added tax and other tax liabilities(*)
  € 616       170       701  
Compensation and related payroll taxes
    933       646       686  
Other
    12       145       52  
                         
Total
  € 1,561       961       1,439  
                         
 
 
(*): includes €478, €148 and €580 (unaudited) of income tax payable as of December 31, 2005, December 31, 2004 and March 31, 2006 respectively.
 
5 — INCOME TAXES
 
Income (loss) before income taxes is as follows:
 
                                 
    Year Ended December 31,     Three Months Ended March 31,  
    2005     2004     2006     2005  
                (unaudited)  
 
France
  € (38 )     514       11       21  
UK
    1,264       377       366       293  
                                 
Total
  € 1,226       891       377       313  
                                 


F-47

 

 
SUNBELT SYSTEM SOFTWARE
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Income tax expense consists of the following:
 
                                 
    Year Ended December 31,     Three Months Ended March 31,  
    2005     2004     2006     2005  
                (unaudited)  
 
Current income tax expense
  € 374       262       117       96  
Deferred income tax expense
    (4 )     1       (6 )     (2 )
                                 
Total
  € 370       263       111       94  
                                 
 
Effective tax rate
 
Actual income tax differs from the amount that would arise from using the statutory tax rate in France as follows:
 
                                 
          Three Months Ended
 		 
    Year Ended December 31,     March 31,  
    2005     2004     2006     2005  
                (unaudited)  
 
French Statutory tax rate
    34.83 %     34.83 %     34.83 %     34.83 %
                                 
Income tax provision computed at French Statutory tax rate
    427       310       109       131  
Impact of foreign tax rate
    (61 )     (18 )     (13 )     (19 )
Other differences
    4       (29 )     15       (18 )
                                 
Income tax expense
  € 370       263       111       94  
                                 
 
6 — COMMITMENTS AND CONTINGENCIES
 
Operating and capital leases
 
The Group leases its facilities under lease agreements expiring through December 2013. These leases qualify as operating lease arrangements. Certain leases have rent escalation clauses that are variable based on inflation indices. Certain cars are leased under capital lease arrangements.
 
Future minimum operating and capital lease payments are as follows:
 
                 
    Operating     Capital  
 
Year ending December 31, 2006
  € 196       16  
2007
    155       16  
2008
    142       13  
2009
    52       —  
2010
    39       —  
2011-2013
    98       —  
                 
Total minimum lease payments
    682       45  
Less: Amounts representing interest
            (2 )
                 
Present value of capital lease obligations
            43  
                 
Less: current portion
  €         27  
                 


F-48

 

 
SUNBELT SYSTEM SOFTWARE
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For the years ended December 31, 2005 and 2004 operating rental expenses were €264 and €195 respectively. For the three month periods ended March 31, 2006 and March 31, 2005, operating rental expenses were €61 (unaudited) and €61(unaudited).
 
Interest paid under capital lease arrangements amounted to €2 and €1 for the years ended December 31, 2005 and December 31, 2004. Interest paid for the three month periods ended March 31, 2006 and March 31, 2005, were €0.4 (unaudited) and €0.2 (unaudited).
 
Guarantees and indemnification obligations
 
The Group enters into agreements in the ordinary course of business with, among others, customers, resellers, and distributors. Indemnities under these agreements are limited by the initial end user customer agreement. Third-party claims and patent infringements are Double-Take’s responsibility.
 
As of December 31, 2005, the Group is not aware of any other material commitment.
 
7 — EXPOSURE TO MARKET RISKS
 
Foreign currency risk
 
The Group is exposed to foreign currency risk since it has foreign operations in the United Kingdom. Most of the Group’s sales are denominated in euro and in GBP, which are the most important currency influencing the costs, and in their relation between them and with the U.S. dollars. During the years ended December 31, 2005 and 2004, the Group has not used derivative financial instruments to hedge its currency exposure.
 
8 —  EMPLOYEE RETIREMENT PLANS
 
French employee retirement plan
 
Under French law, the Group must make contributions to government-regulated schemes for retirement plans. Pension costs for the years ended December 31, 2005 and December 31, 2004 amounted to respectively €7 and €8. Pension costs for the three month periods ended March 31, 2006 and March 31, 2005 amounted to €2 (unaudited) in both periods.
 
French law also requires payment of a lump sum retirement indemnity to employees based upon years of service and compensation at retirement. Estimated retirement indemnities are accrued over the working life of employees using actuarial assumptions such as discount rate, turnover rate and percentage of average salary increase. Benefits do not vest prior to retirement. There is no formal plan and no funding of the obligation is required. The Group’s obligation as of December 31, 2005 and 2004 was respectively €28 and €21. The Group obligation as of March 31, 2006 was €30 (unaudited).
 
U.K. defined contribution plan
 
The UK subsidiary has a defined contribution plan, which covers substantially all employees. Generally, all employees are eligible for the plan. Sunbelt contributes to the plan an amount representing 3% of the salary of each employee. The amounts of cost recognized for defined contribution pension plans for the years ended December 31, 2005 and December 31, 2004 are €14 and €10 respectively and €5 (unaudited) and €3 (unaudited) respectively for the three month periods ended March 31, 2006 and March 31, 2005.
 
9 — CAPITAL (COMMON STOCK AND CAPITAL IN EXCESS OF PAR VALUE)
 
General
 
As of December 31, 2005 and 2004, there were 500 shares issued and outstanding. Each share is entitled to one vote. The share nominal value for each share amounted to 15.24 euros.
 
As of March 17, 2006, Sunbelt increased its share capital from €7 to €37. The nominal value per share was raised to 74 euros.


F-49

 

 
SUNBELT SYSTEM SOFTWARE
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Dividend rights
 
Dividends may be distributed from the statutory retained earnings, subject to the requirements of French law and the Group’s by-laws. As of December 31, 2005, the Group has not distributed any dividends since its inception. The retained earnings totaled approximately €2,579 and €1,723 as of December 31, 2005 and December 31, 2004 respectively. Dividend distributions, if any, will be made in euros.
 
10 — SEGMENT INFORMATION
 
Reportable segments
 
The Group operates in a single business segment, software sales and related services. The Group’s products and services are sold throughout EMEA and Asia Pacific, through direct and indirect sales channels. The Group’s chief operating decision maker, the chief executive officer, evaluates the performance of the Group based upon stand-alone revenue of product channels and the two geographic regions of the segment discussed below and does not receive discrete financial information about asset allocation, expense allocation or profitability from the Group’s software sales and related services.
 
The Group is organized into two geographic regions: the United Kingdom and all other countries. All transfers between geographic regions have been eliminated from consolidated revenues. The following information is presented in accordance with SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information.
 
Geographic areas
 
The following tables represent revenue by country based on country of invoice and long-lived assets by country based on the location of assets:
 
Revenue analysis
 
                                 
    Year Ended December 31,     Three Months Ended March 31,  
    2005     2004     2006     2005  
                (unaudited)  
 
France
  € 9,114       8,000       1,748       125  
UK
    4,298       2,439       2,144       2,739  
Elimination of intercompany transactions
    (154 )     (77 )     (47 )     (35 )
                                 
Total sales to external customers
  € 13,257       10,362       3,845       2,829  
                                 
 
Net book value of long-lived assets
 
                         
    December 31,     March 31,  
    2005     2004     2006  
                (unaudited)  
 
France
  € 228       220       217  
UK
    9       12       8  
                         
Total net book value of long-lived assets
  € 237       232       225  
                         


F-50

 

 
SUNBELT SYSTEM SOFTWARE
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11 — RELATED PARTY TRANSACTIONS
 
The Group is involved in some transactions with Sunbelt Software Distribution (“SSD”) a US-based company. The CEO of the Group is also CEO of SSD. For the years ended December 31, 2005 and 2004, transactions with SSD are described below:
 
                         
    December 31,   March 31,
    2005   2004   2006
            (unaudited)
 
Trade receivable
  € —       1       5  
Trade payable
    40       35       52  
 
                                 
    Year Ended December 31,   Three Months Ended March 31,
    2005   2004   2006   2005
            (unaudited)
 
Sales to SSD
  € 64       39       16       2  
Purchases from SSD
    278       215       85       51  
 
12 — VALUATION AND QUALIFYING ACCOUNTS (Schedule II)
 
The following table sets forth activity in the Group’s accounts receivable reserve account:
 
                                         
    Balance
 		              Balance
    at Beginning
 		          Currency
 		  at End
    of Year   Provisions   Reversals   Variation   of Year
 
Fiscal year 2004
    14       29       (4 )     (1 )     38  
Fiscal year 2005
    38       34       (19 )     1       54  
 
13 — SUBSEQUENT EVENTS
 
In May 23, 2006, all of the shares of Sunbelt Systems Software were purchased by Double-Take. Sunbelt Systems Software shareholders were paid $1.1 million by Double-Take as the initial payment for the acquisition. The remaining portion of the total purchase price, which is estimated to be between $10 million and $12 million will be payable in monthly increments based upon a specified percentage of the amounts paid by Sunbelt to Double-Take each month in respect of purchases under the distribution agreement with Double-Take through December 31, 2007.
 
On May 16, 2006 at the ordinary shareholders’ meeting, a distribution totaling €1.6 million was declared. The distribution consisted of €915 as a dividend and €685 as a distribution of reserves. The distribution was paid to Double-Take on May 23, 2006. Additionally, on June 7, 2006 an additional dividend was declared and paid in the aggregate amount of €726.
 
On July 16, 2006, Sunbelt System Software changed its name to Double-Take Software.


F-51

 

 
7,500,000 Shares
 
(DOUBLE-TAKE SOFTWARE LOGO)
 
Common Stock
 
 
 
PROSPECTUS
 
 
Cowen and Company
Thomas Weisel Partners LLC
 
Joint Bookrunning Managers
 
 
CIBC World Markets
Pacific Crest Securities
 
                    , 2006
 
Until          , 2006, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

 
PART II
 
Information Not Required in Prospectus
 
Item 13.   Other Expenses of Issuance and Distribution
 
The following table sets forth the various fees and expenses, other than the underwriting discounts and commissions, payable by Double-Take Software, Inc. (the “Registrant”) in connection with the sale of the common stock being registered hereby. All amounts shown are estimates except for the SEC registration fee, the NASD filing fee and The NASDAQ Stock Market listing fee.
 
         
    Amount  
 
SEC registration fee
  $ 10,700  
NASD filing fee
    9,125  
The NASDAQ Stock Market listing fee
    100,000  
Blue sky qualification fees and expenses
    15,000  
Accounting fees and expenses
    1,000,000  
Legal fees and expenses
    1,350,000  
Printing and engraving expenses
    425,000  
Transfer agent and registrar fees
    45,000  
Miscellaneous expenses
    46,175  
         
Total
  $ 3,000,000  
         
 
Item 14.   Indemnification of Directors and Officers
 
Delaware General Corporation Law.  Section 145(a) of the General Corporation Law of the State of Delaware (the “Delaware General Corporation Law”) provides 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, whether civil, criminal, administrative or investigative (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, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, 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 if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the person’s conduct was unlawful.
 
Section 145(b) of the Delaware General Corporation Law states 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 or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which the person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of


II-1

 

all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the Delaware Court of Chancery or such other court shall deem proper.
 
Section 145(c) of the Delaware General Corporation Law provides that to the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.
 
Section 145(d) of the Delaware General Corporation Law states that any indemnification under subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because the person has met the applicable standard of conduct set forth in subsections (a) and (b) of Section 145. Such determination shall be made with respect to a person who is a director or officer at the time of such determination (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, (2) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, (3) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (4) by the stockholders.
 
Section 145(f) of the Delaware General Corporation Law states that the indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of Section 145 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office.
 
Section 145(g) of the Delaware General Corporation Law provides that a corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of Section 145.
 
Section 145(j) of the Delaware General Corporation Law states that the indemnification and advancement of expenses provided by, or granted pursuant to, Section 145 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
 
Certificate of Incorporation.  The Registrant’s amended and restated certificate of incorporation filed as Exhibit 3.1 hereto provides that, to the fullest extent permitted by the Delaware General Corporation Law, the Registrant’s directors will not be personally liable to the Registrant or its stockholders for monetary damages resulting from a breach of their fiduciary duties as directors. However, nothing contained in such provision will eliminate or limit the liability of directors (1) for any breach of the director’s duty of loyalty to the Registrant or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (3) under section 174 of the Delaware General Corporation Law or (4) for any transaction from which the director derived an improper personal benefit.
 
Bylaws.  The Registrant’s amended and restated bylaws provide for the indemnification of the officers and directors of the Registrant to the fullest extent permitted by the Delaware General Corporation Law. The bylaws provide that each person who was or is made a party to, or is threatened to be made a party to, any civil or criminal action, suit or proceeding by reason of the fact that such person is or was a director or officer of the Registrant shall be indemnified and held harmless by the Registrant to the fullest extent authorized by the Delaware General Corporation Law against all expense, liability and loss, including, without limitation, attorneys’ fees, incurred by such person in connection therewith, if such


II-2

 

person acted in good faith and in a manner such person reasonably believed to be or not opposed to the best interests of the Registrant and had no reason to believe that such person’s conduct was illegal.
 
Insurance.  The Registrant maintains directors and officers liability insurance, which covers directors and officers of the Registrant against certain claims or liabilities arising out of the performance of their duties.
 
Underwriting Agreement.  The Registrant’s underwriting agreement with the underwriters will provide for the indemnification of the directors and officers of the Registrant and certain controlling persons against specified liabilities, including liabilities under the Securities Act.
 
Item 15.   Recent Sales of Unregistered Securities
 
The information presented below describes sales and issuances of securities by the Registrant since January 1, 2003. The number of shares and consideration per share shown does not give effect to the reverse split expected to be implemented by the Registrant immediately before completion of the offering. The information presented below regarding the aggregate consideration received by the Registrant is provided before deduction of offering and other related expenses. Unless otherwise indicated below, the consideration for all such sales and issuances, other than issuances of stock options, was cash.
 
(1) In October 2003, the Registrant issued 1,066,667 shares of the Registrant’s Series B Convertible Preferred Stock, at a purchase price of $1.50 per share, or $1,600,000 in the aggregate, to four institutional investors.
 
(2) In June 2004, the Registrant issued 8% Subordinated Convertible Promissory Notes to accredited investors in an aggregate amount of $2,000,000 (the “Promissory Notes”).
 
(3) In October 2004, the Registrant issued 5,102,041 shares of the Registrant’s Series C Convertible Preferred Stock, at a purchase price of $0.98 per share, or $5,000,000 in the aggregate, to four accredited investors. In connection with that issuance, the Registrant also issued to the same four accredited investors an aggregate of 2,615,357 share of the Registrant’s Series C Convertible Preferred Stock upon the conversion of the principal amount and all accrued interest under the Promissory Notes.
 
(4) In August 2005, the Registrant issued 54,696 shares of the Registrant’s Series C Convertible Preferred Stock to six of the Registrant’s executive officers pursuant to the Registrant’s annual bonus plan for executive officers.
 
(5) In February 2006, the Registrant issued 67,998 shares of the Registrant’s Series C Convertible Preferred Stock to five of the Registrant’s executive officers pursuant to the Registrant’s annual bonus plan for executive officers.
 
(6) In 2004, the Registrant issued 2,199 shares of the Registrant’s Common Stock upon the exercise of employee benefit options to one of the Registrant’s employees at an exercise price of $0.93 per share, for aggregate consideration of $2,048. In 2005, the Registrant issued an aggregate of 1,486 shares of the Registrant’s Common Stock upon the exercise of employee benefit options to two of the Registrant’s employees at an exercise price of $0.93 per share, for aggregate consideration of $1,384. In 2006, the Registrant issued an aggregate of 8,263 shares of the Registrant’s Common Stock upon the exercise of employee benefit options to six of the Registrant’s employees at a weighted average exercise price of $0.93 per share, for aggregate consideration of $8,276.
 
(7) Since January 1, 2003, the Registrant has issued to directors, officers and employees options to purchase approximately 3,252,581 shares of the Registrant’s Common Stock under the Registrant’s 2003 Employees Stock Option Plan, the Registrant’s Non-Executive Director Stock Option Plan and the Registrant’s 2006 Omnibus Incentive Plan at exercise prices from $0.93 to $7.06 per share.
 
* * * *
 
The issuances of securities in the transactions described in paragraphs 1, 2 and 3 above were effected without registration under the Securities Act in reliance on Section 4(2) thereof or Rule 506 of


II-3

 

Regulation D thereunder in that such sales were to purchasers who represented that they were accredited investors as defined under the Securities Act. The issuances of securities in the transactions described in paragraphs 4, 5, 6 and 7 above were effected without registration under the Securities Act in reliance on Section 4(2) thereof or Rule 701 thereunder as transactions pursuant to compensatory benefit plans and contracts relating to compensation. None of the foregoing transactions was effected using any form of general advertising or general solicitation as such terms are used in Regulation D under the Securities Act. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates or other instruments issued in such transactions. All such recipients either received adequate information about the Registrant or had access, through employment or other relationships, to such information.
 
Item 16.   Exhibits and Financial Statement Schedules
 
(a) Exhibits
 
The following exhibits are filed herewith:
 
         
  1 .01   Form of Underwriting Agreement.
  2 .01†   Share Purchase Agreement dated as of May 23, 2006, by and among Double-Take Software, Inc. (the “Company”), Sunbelt International S.A.R.L. and Mr. Joe Murciano.
  3 .01   Form of Second Amended and Restated Certificate of Incorporation of the Company (to become effective upon completion of the offering).
  3 .02   Second Amended and Restated Bylaws of the Company (to become effective upon completion of the offering).
  **3 .03   Amended and Restated Certificate of Incorporation.
  **3 .04   Amended and Restated Bylaws.
  **4 .01   Form of certificate representing the Common Stock, par value $.001 per share, of the Company.
  **5 .01   Opinion of Hogan & Hartson L.L.P. regarding the validity of the Common Stock.
  *10 .01   1996 Employees Stock Option Plan.
  *10 .02   Form of Incentive Stock Award pursuant to the 1996 Employees Stock Option Plan.
  *10 .03   Non-Executive Director Stock Option Plan.
  *10 .04   Form of Non-Qualified Incentive Stock Option Award pursuant to the Non-Executive Director Stock Option Plan.
  *10 .05   2003 Employees Stock Option Plan.
  *10 .06   Form of Incentive Stock Award pursuant to the 2003 Employees Stock Option Plan.
  10 .07   Double-Take Software 2006 Omnibus Incentive Plan.
  10 .08A   Form of Incentive Stock Option Agreement pursuant to the Double-Take Software 2006 Omnibus Incentive Plan.
  10 .08B   Form of Nonqualified Stock Option Agreement pursuant to the Double-Take Software 2006 Omnibus Incentive Plan.
  10 .08C   Form of Director Nonqualified Stock Option Agreement pursuant to the Double-Take Software 2006 Omnibus Incentive Plan.
  10 .09   Form of Double-Take Software, Inc. Indemnification Agreement.
  10 .10   NSI Executive Compensation Plan 2006.
  *10 .11   Amended and Restated Registration Rights Agreement dated as of October 6, 2004, among the Company and the Holders Named Therein (the “Registration Rights Agreement”).
  *10 .12   Amendment and Joinder to the Registration Rights Agreement dated as of July 31, 2006.
  *10 .13   Lease Agreement, dated June 12, 2000, between E-L Allison Pointe II, LLP and the Company.
  *10 .14   First Amendment to the Lease Agreement, dated June 15, 2000, by and between E-L Allison Pointe II, LLP and the Company.
  *10 .15   Loan and Security Agreement dated as of October 16, 2003, among the Company and Silicon Valley Bank.


II-4

 

         
  *10 .16   Loan Modification Agreement, dated as of April 26, 2004, by and between Silicon Valley Bank and the Company.
  *10 .17   Third Loan Modification Agreement by and between Silicon Valley Bank and the Company.
  *10 .18   Fifth Loan Modification Agreement by and between Silicon Valley Bank and the Company.
  *10 .19   Seventh Loan Modification Agreement by and between Silicon Valley Bank and the Company.
  *10 .20   Eighth Loan Modification Agreement between Silicon Valley Bank and the Company.
  *10 .21   Ninth Loan Modification Agreement between Silicon Valley Bank and the Company.
  10 .22   Employment Letter, dated August 7, 2006, between Double-Take Software, Inc. and Dean Goodermote.
  10 .23   Employment Letter, dated October 31, 2006, between Double-Take Software, Inc. and S. Craig Huke.
  10 .24   Employment Letter, dated October 31, 2006, between Double-Take Software, Inc. and Daniel M. Jones.
  *10 .25+   Products License and Distribution Agreement, dated as of November 16, 2001, by and between the Company and Dell Products L.P. by and on behalf of itself and Dell Computer Corporation.
  *10 .26   Amendment 3 to Products License and Distribution Agreement, dated as of December 2, 2003, between the Company and Dell Computer Corporation.
  *10 .27+   Amendment 4 to Products License and Distribution Agreement, effective as of July 25, 2003, between the Company and Dell Computer Corporation.
  *10 .28+   Amendment 5 to Products License and Distribution Agreement, dated as of December 2, 2003, between the Company and Dell Computer Corporation.
  *10 .29   Amendment 6 to Products License and Distribution Agreement, effective as of February 26, 2004, between the Company and Dell Computer Corporation.
  *10 .30   Amendment 7 to Products License and Distribution Agreement, effective as of February 18, 2005, between the Company and Dell Computer Corporation.
  *10 .31+   Amendment to Products License and Distribution Agreement, effective as of January 31, 2006, between the Company and Dell Computer Corporation.
  *10 .32+   Restated Xcelerate! Distributor Agreement, dated as of August 28, 2006, between Double-Take Software, Inc. and Sunbelt International.
  *10 .33+   Xcelerate! Partner Agreement, dated August 2, 2001, between the Company and Sunbelt Software Distribution Inc.
  *10 .34+   Addendum 1 to Xcelerate Partner Agreement, dated August 2, 2001, between the Company and Sunbelt Software Distribution Inc.
  *10 .35+   Addendum 3 to Xcelerate Partner Agreement, dated November 27, 2001, between the Company and Sunbelt Software Distribution Inc.
  *10 .36+   Addendum 4 to Xcelerate Partner Agreement, dated May 31, 2002, between the Company and Sunbelt Software Distribution Inc.
  *10 .37+   Addendum 4 to Xcelerate Partner Agreement, dated August 27, 2002, between the Company and Sunbelt Software Distribution Inc.
  *10 .38   Amendment 5 to Xcelerate Partner Agreement, dated February 13, 2004, between the Company and Sunbelt Software Distribution Inc.
  *10 .39+   Amendment 6 to Xcelerate Partner Agreement, dated February 14, 2004, between the Company and Sunbelt Software Distribution Inc.
  *10 .40+   Amendment 7 to Xcelerate Partner Agreement, dated March 22, 2005, between the Company and Sunbelt Software Distribution Inc.
  *10 .41+   Amendment 8 to Xcelerate Partner Agreement, dated April 1, 2005, between the Company and Sunbelt Software Distribution Inc.
  *10 .42+   Amendment 9 to Xcelerate Partner Agreement, dated February 15, 2006, between the Company and Sunbelt Software Distribution Inc.
  10 .46   Amended and Restated Employment/Severance Agreement, dated October 31, 2006, between Double-Take Software, Inc. and Robert L. Beeler.

II-5

 

         
  10 .47   Amended and Restated Employment/Severance Agreement, dated October 31, 2006, between Double-Take Software, Inc. and David J. Demlow.
  10 .48   Form of Non-Disclosure Confidentiality Agreement.
  *21 .01   Subsidiaries of the Company.
  23 .01   Consent of Eisner LLP.
  23 .02   Consent of Ernst & Young Audit.
  **23 .03   Consent of Hogan & Hartson L.L.P.
  *24 .01   Power of Attorney (included on signature page).
  *24 .02   Power of Attorney of Paul Birch and John Landry.
  99 .01   Consent of IDC
  99 .02   Consent of The McLean Valuation Services Group
 
 
  *  Previously filed.
 
  **  To be filed by amendment.
 
  +  Confidential treatment was requested for certain portions of these agreements. The confidential portions were filed separately with the Securities and Exchange Commission.
 
  †  Previously filed but updated version filed herewith.
 
(b) Financial Statement Schedules
 
The financial statement schedules are omitted because they are inapplicable or the requested information is shown in the financial statements of Double-Take Software, Inc. or related notes thereto.
 
Item 17.   Undertakings
 
The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
 
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 initial bona fide offering thereof.
 
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 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 Act and will be governed by the final adjudication of such issue.

II-6

 

SIGNATURES
 
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Pre-Effective Amendment No. 3 to Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Southborough, Commonwealth of Massachusetts, on November 7, 2006.
 
DOUBLE-TAKE SOFTWARE, INC.
 
  By: 
/s/  Dean Goodermote
Dean Goodermote
President, Chief Executive Officer and
Chairman of the Board of Directors
(Duly Authorized Officer)
 
Pursuant to the requirements of the Securities Act of 1933, this Pre-Effective Amendment No. 3 to Registration Statement on Form S-1 has been signed on November 7, 2006 by the following persons in the capacities indicated.
 
         
Name
 
Title
 
/s/  Dean Goodermote

Dean Goodermote 		  President, Chief Executive Officer, and
Chairman of the Board of Directors
(Principal Executive Officer)
     
/s/  S. Craig Huke

S. Craig Huke 		  Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
     
*

Paul Birch 		  Director
     
*

Ashoke (Bobby) Goswami 		  Director
     
*

John B. Landry 		  Director
     
*

Laura L. Witt 		  Director
     
*

John W. Young 		  Director
         
*  
/s/  Dean Goodermote

Dean Goodermote
Attorney-in-Fact 		   


II-7

 

EXHIBIT INDEX
 
         
  1 .01   Form of Underwriting Agreement.
  2 .01†   Share Purchase Agreement dated as of May 23, 2006, by and among Double-Take Software, Inc. (the “Company”), Sunbelt International S.A.R.L. and Mr. Joe Murciano.
  3 .01   Form of Second Amended and Restated Certificate of Incorporation of the Company (to become effective upon completion of the offering).
  3 .02   Second Amended and Restated Bylaws of the Company (to become effective upon completion of the offering).
  **3 .03   Amended and Restated Certificate of Incorporation.
  **3 .04   Amended and Restated Bylaws.
  **4 .01   Form of certificate representing the Common Stock, par value $.001 per share, of the Company.
  **5 .01   Opinion of Hogan & Hartson L.L.P. regarding the validity of the Common Stock.
  *10 .01   1996 Employees Stock Option Plan.
  *10 .02   Form of Incentive Stock Award pursuant to the 1996 Employees Stock Option Plan.
  *10 .03   Non-Executive Director Stock Option Plan.
  *10 .04   Form of Non-Qualified Incentive Stock Option Award pursuant to the Non-Executive Director Stock Option Plan.
  *10 .05   2003 Employees Stock Option Plan.
  *10 .06   Form of Incentive Stock Award pursuant to the 2003 Employees Stock Option Plan.
  10 .07   Double-Take Software 2006 Omnibus Incentive Plan.
  10 .08A   Form of Incentive Stock Option Agreement pursuant to the Double-Take Software 2006 Omnibus Incentive Plan.
  10 .08B   Form of Nonqualified Stock Option Agreement pursuant to the Double-Take Software 2006 Omnibus Incentive Plan.
  10 .08C   Form of Director Nonqualified Stock Option Agreement pursuant to the Double-Take Software 2006 Omnibus Incentive Plan.
  10 .09   Form of Double-Take Software, Inc. Indemnification Agreement.
  10 .10   NSI Executive Compensation Plan 2006.
  *10 .11   Amended and Restated Registration Rights Agreement dated as of October 6, 2004, among the Company and the Holders Named Therein (the “Registration Rights Agreement”).
  *10 .12   Amendment and Joinder to the Registration Rights Agreement dated as of July 31, 2006.
  *10 .13   Lease Agreement, dated June 12, 2000, between E-L Allison Pointe II, LLP and the Company.
  *10 .14   First Amendment to the Lease Agreement, dated June 15, 2000, by and between E-L Allison Pointe II, LLP and the Company.
  *10 .15   Loan and Security Agreement dated as of October 16, 2003, among the Company and Silicon Valley Bank.
  *10 .16   Loan Modification Agreement, dated as of April 26, 2004, by and between Silicon Valley Bank and the Company.
  *10 .17   Third Loan Modification Agreement, by and between Silicon Valley Bank and the Company.
  *10 .18   Fifth Loan Modification Agreement, by and between Silicon Valley Bank and the Company.
  *10 .19   Seventh Loan Modification Agreement, by and between Silicon Valley Bank and the Company.
  *10 .20   Eighth Loan Modification Agreement, between Silicon Valley Bank and the Company.
  *10 .21   Ninth Loan Modification Agreement, between Silicon Valley Bank and the Company.
  10 .22   Employment Letter, dated August 7, 2006, between Double-Take Software, Inc. and Dean Goodermote.
  10 .23   Employment Letter, dated October 31, 2006, between Double-Take Software, Inc. and S. Craig Huke.
  10 .24   Employment Letter, dated October 31, 2006, between Double-Take Software, Inc. and Daniel M. Jones.
  *10 .25+   Products License and Distribution Agreement, dated as of November 16, 2001, by and between the Company and Dell Products L.P. by and on behalf of itself and Dell Computer Corporation.
  *10 .26   Amendment 3 to Products License and Distribution Agreement, dated as of December 2, 2003, between the Company and Dell Computer Corporation.

 

         
  *10 .27+   Amendment 4 to Products License and Distribution Agreement, effective as of July 25, 2003, between the Company and Dell Computer Corporation.
  *10 .28+   Amendment 5 to Products License and Distribution Agreement, dated as of December 2, 2003, between the Company and Dell Computer Corporation.
  *10 .29   Amendment 6 to Products License and Distribution Agreement, effective as of February 26, 2004, between the Company and Dell Computer Corporation.
  *10 .30   Amendment 7 to Products License and Distribution Agreement, effective as of February 18, 2005, between the Company and Dell Computer Corporation.
  *10 .31+   Amendment to Products License and Distribution Agreement, effective as of January 31, 2006, between the Company and Dell Computer Corporation.
  *10 .32+   Restated Xcelerate! Distributor Agreement, dated as of August 28, 2006, between Double-Take Software, Inc. and Sunbelt International.
  *10 .33+   Xcelerate! Partner Agreement, dated August 2, 2001, between the Company and Sunbelt Software Distribution Inc.
  *10 .34+   Addendum 1 to Xcelerate Partner Agreement, dated August 2, 2001, between the Company and Sunbelt Software Distribution Inc.
  *10 .35+   Addendum 3 to Xcelerate Partner Agreement, dated November 27, 2001, between the Company and Sunbelt Software Distribution Inc.
  *10 .36+   Addendum 4 to Xcelerate Partner Agreement, dated May 31, 2002, between the Company and Sunbelt Software Distribution Inc.
  *10 .37+   Addendum 4 to Xcelerate Partner Agreement, dated August 27, 2002, between the Company and Sunbelt Software Distribution Inc.
  *10 .38   Amendment 5 to Xcelerate Partner Agreement, dated February 13, 2004, between the Company and Sunbelt Software Distribution Inc.
  *10 .39+   Amendment 6 to Xcelerate Partner Agreement, dated February 14, 2004, between the Company and Sunbelt Software Distribution Inc.
  *10 .40+   Amendment 7 to Xcelerate Partner Agreement, dated March 22, 2005, between the Company and Sunbelt Software Distribution Inc.
  *10 .41+   Amendment 8 to Xcelerate Partner Agreement, dated April 1, 2005, between the Company and Sunbelt Software Distribution Inc.
  *10 .42+   Amendment 9 to Xcelerate Partner Agreement, dated February 15, 2006, between the Company and Sunbelt Software Distribution Inc.
  10 .46   Amended and Restated Employment/Severance Agreement, dated October 31, 2006, between Double-Take Software, Inc. and Robert L. Beeler.
  10 .47   Amended and Restated Employment/Severance Agreement, dated October 31, 2006, between Double-Take Software, Inc. and David J. Demlow.
  10 .48   Form of Non-Disclosure Confidentiality Agreement.
  *21 .01   Subsidiaries of the Company.
  23 .01   Consent of Eisner LLP.
  23 .02   Consent of Ernst & Young Audit.
  **23 .03   Consent of Hogan & Hartson L.L.P.
  *24 .01   Power of Attorney (included on signature page).
  *24 .02   Power of Attorney of Paul Birch and John Landry.
  99 .01   Consent of IDC.
  99 .02   Consent of The McLean Valuation Services Group.
 
 
  *  Previously filed.
 
  **  To be filed by amendment.
 
  +  Confidential treatment was requested for certain portions of these agreements. The confidential portions were filed separately with the Securities and Exchange Commission.
 
  †  Previously filed but updated version filed herewith.

EX-1.01 2 w23440a3exv1w01.htm EX-1.01 exv1w01
 

Exhibit 1.01
 
DOUBLE-TAKE SOFTWARE, INC.
Common Stock
FORM OF UNDERWRITING AGREEMENT
 
Cowen and Company, LLC
Thomas Weisel Partners LLC
Cibc World Markets Corp.
Pacific Crest Securities
     As representatives of the
     several Underwriters
c/o Cowen and Company, LLC
1221 Avenue of the Americas
New York, New York 10020
c/o Thomas Weisel Partners LLC
Lever House
390 Park Avenue, 2nd Floor
New York, New York 10022
Dear Sirs:
1. Introductory. Double-Take Software, Inc., a Delaware corporation (the “Company”), and the selling shareholders named in Schedule B hereto (the “Selling Shareholders”), propose to sell, pursuant to the terms of this Agreement and acting severally and not jointly, to the several underwriters named in Schedule A hereto (the “Underwriters,” or, each, an “Underwriter”), an aggregate of ___shares of the common stock, $0.001 par value per share of the Company (the “Common Stock”). The aggregate of ___shares of the Common Stock so proposed to be sold is hereinafter referred to as the “Firm Stock.” The Selling Shareholders also propose to sell to the Underwriters, upon the terms and conditions set forth in Section 3 hereof, up to an additional ___shares of the Common Stock (the “Optional Stock”). The Firm Stock and the Optional Stock are hereinafter collectively referred to as the “Stock.” Cowen and Company, LLC (“Cowen”), Thomas Weisel Partners LLC (“Thomas Weisel”), CIBC World Markets Corp. and Pacific Growth Equities, LLC are acting as Representatives of the several underwriters and in such capacity are hereinafter referred to as the “Representatives.”
2. Representations and Warranties of The Company And The Selling Shareholders
     (I) Representations and Warranties of The Company. The Company represents and warrants to the several Underwriters, as of the date hereof and as of each Closing Date, and agrees with the several Underwriters, that:
(a) A registration statement of the Company on Form S 1 (File No. 333-136499) (including all pre-effective amendments thereto, the “Initial Registration Statement”) in respect of the Stock has been filed with the Securities and Exchange Commission (the “Commission”). The Initial

 

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Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered to you for each of the Underwriters, and, excluding exhibits thereto, have been declared effective by the Commission in such form and meets the requirements in all material respects of the Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations of the Commission thereunder (the “Rules and Regulations”). Other than a registration statement, if any, increasing the size of the offering filed pursuant to Rule 462(b) under the Securities Act and the Rules and Regulations (a “Rule 462(b) Registration Statement”) which became effective upon filing and the Prospectus (as defined below) contemplated hereby to be filed pursuant to Rule 424(b) under the Securities Act in accordance with Section 4(I)(a) hereof, no other document with respect to the Initial Registration Statement or the offer and sale of the Stock has heretofore been filed with the Commission or distributed. No stop order suspending the effectiveness of the Initial Registration Statement, any post-effective amendment thereto or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose or pursuant to Section 8A of the Securities Act has been initiated or, to Company’s knowledge, threatened by the Commission (any preliminary prospectus included in the Initial Registration Statement or filed with the Commission pursuant to Rule 424(a) of the Rules and Regulations is hereinafter called a “Preliminary Prospectus”). The various parts of the Initial Registration Statement and the Rule 462(b) Registration Statement, if any, in each case including all exhibits thereto and including the information contained in the Prospectus (as defined below) filed with the Commission pursuant to Rule 424(b) under the Securities Act and deemed by virtue of Rule 430A under the Securities Act to be part of the Initial Registration Statement at the time it became effective are hereinafter collectively called the “Registration Statements.” The final prospectus, in the form filed pursuant to and within the time limits described in Rule 424(b) under the Securities Act, is hereinafter called the “Prospectus.”
(b) As of the Applicable Time (as defined below) and as of the Closing Date or the Option Closing Date, as the case may be, neither (i) the General Use Free Writing Prospectus(es) (as defined below) issued at or prior to the Applicable Time, and the Pricing Prospectus (as defined below) and the information included on Schedule ___hereto, all considered together (collectively, the “General Disclosure Package”), nor (ii) any individual Limited Use Free Writing Prospectus (as defined below), when considered together with the General Disclosure Package, included or will include any untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to information contained in or omitted from the General Disclosure Package or any Limited Use Free Writing Prospectus, in reliance upon, and in conformity with, written information furnished to the Company through Cowen and Thomas Weisel by or on behalf of any Underwriter expressly for inclusion therein, which information the parties hereto agree is limited to the Underwriter’s Information (as defined in Section 17). As used in this paragraph (b) and elsewhere in this Agreement:
      “Applicable Time” means A.M., New York time, on the date of this Agreement or such other time as agreed to by the Company and the Representatives.
      “Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 under the Securities Act relating to the Stock in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g) under the Securities Act.
      “General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is identified on Schedule C to this Agreement.

 

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      “Limited Use Free Writing Prospectuses” means any Issuer Free Writing Prospectus that is not a General Use Free Writing Prospectus.
      “Pricing Prospectus” means the Preliminary Prospectus relating the Stock that is included in the Registration Statement immediately prior to the Applicable Time.
(c) No order preventing or suspending the use of any Preliminary Prospectus, any Issuer Free Writing Prospectus or the Prospectus relating to the proposed offering of the Stock has been issued by the Commission, and no proceeding for that purpose or pursuant to Section 8A of the Securities Act has been instituted or, to the Company’s knowledge, threatened by the Commission; and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Securities Act and the Rules and Regulations, and the Pricing Prospectus, at the time of filing thereof, did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to information contained in or omitted from any Preliminary Prospectus, in reliance upon, and in conformity with, written information furnished to the Company through Cowen and Thomas Weisel by or on behalf of any Underwriter expressly for inclusion therein, which information the parties hereto agree is limited to the Underwriter’s Information (as defined in Section 17).
(d) At the respective times the Registration Statements and any amendments thereto became or become effective and at each Closing Date, each Registration Statement and any amendments thereto conformed and will conform in all material respects to the requirements of the Securities Act and the Rules and Regulations and did not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and the Prospectus and any amendments or supplements thereto, at time the Prospectus or any amendment or supplement thereto was issued and at each Closing Date, conformed and will conform in all material respects to the requirements of the Securities Act and the Rules and Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing representations and warranties in this paragraph (d) shall not apply to information contained in or omitted from the Registration Statements or the Prospectus, or any amendment or supplement thereto, in reliance upon, and in conformity with, written information furnished to the Company through Cowen and Thomas Weisel by or on behalf of any Underwriter expressly for inclusion therein, which information the parties hereto agree is limited to the Underwriter’s Information (as defined in Section 17).
(e) Each Issuer Free Writing Prospectus, as of its issue date and at all subsequent times through the completion of the public offer and sale of the Stock or until any earlier date that the Company notified or notifies the Representatives as described in Section 4(I)(f) did not, does not and will not include any information that conflicted, conflicts or will conflict with the information contained in the Registration Statement, Pricing Prospectus or the Prospectus, or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances prevailing at the subsequent time, not misleading. The foregoing sentence does not apply to statements in or omissions from any Issuer Free Writing Prospectus in reliance upon, and in conformity with, written information furnished to the Company through the Representatives by or on behalf of any Underwriter specifically for inclusion therein, which information the parties hereto agree is limited to the Underwriter’s Information (as defined in Section 17).

 

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(f) The Company has not, directly or indirectly, distributed and will not distribute any offering material in connection with the offering and sale of the Stock other than any Preliminary Prospectus, the Prospectus and other materials, if any, permitted under the Securities Act and consistent with Section 4(I)(b) below. The Company will file with the Commission all Issuer Free Writing Prospectuses in the time and manner required under Rules 163(b) and 433(d) under the Securities Act.
(g) (i) At the earliest time after the filing of the Registration Statement that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the Securities Act) and (ii) as of the date hereof (with such date being used as the determination date for purposes of this clause (g)(ii)), the Company was not and is not an “ineligible issuer” as defined in Rule 405 under the Securities Act (without taking into account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an “ineligible issuer,”) including without limitation, for purposes of Rules 164 and 433 under the Securities Act with respect to the offering of the Stock as contemplated by the Registration Statement.
(h) The Company and each of its subsidiaries (as defined in Section 15) have been duly incorporated and are validly existing as corporations or other legal entities in good standing (or the foreign equivalent thereof) under the laws of their respective jurisdictions of incorporation. The Company and each of its subsidiaries are duly qualified to do business and are in good standing as foreign corporations or other legal entities in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification and have all power and authority (corporate or other) necessary to own or hold their respective properties and to conduct the businesses in which they are engaged, except where the failure to so qualify, be in good standing or have such power or authority would not have, singularly or in the aggregate, a material adverse effect on the condition (financial or otherwise), results of operations, assets, business or prospects of the Company and its subsidiaries taken as a whole (a “Material Adverse Effect”). The Company owns or controls, directly or indirectly, only the following corporations, partnerships, limited liability partnerships, limited liability companies, associations or other entities: Double-Take Software S.A.S. existing under the laws of the Republic of France (“Sunbelt”) (100%).
(i) This Agreement has been duly authorized, executed and delivered by the Company.
(j) The Stock to be issued and sold by the Company to the Underwriters hereunder has been duly authorized and, when issued and delivered against payment therefor as provided herein, will be validly issued, fully paid and nonassessable and free of any preemptive or similar rights and will conform to the description thereof contained in the General Disclosure Package and the Prospectus.
(k) The Company has an authorized capitalization as set forth in the Pricing Prospectus under the “Actual” column of the table set forth under the heading “Capitalization,” and all of the issued shares of capital stock of the Company, including the Stock to be sold by the Selling Shareholders, have been duly authorized and validly issued, are fully paid and non-assessable, have been issued in compliance with applicable federal and state securities laws, and conform to the description thereof contained in the General Disclosure Package and the Prospectus. As of the date of such table, there were ___shares of Common Stock issued and outstanding, ___shares of Series B Preferred Stock, par value $___and ___shares of Series C Preferred Stock, par value $___issued and outstanding and ___shares of Common Stock were issuable upon the exercise of all options, warrants and convertible securities outstanding as of such date (excluding ___shares of Common Stock issuable after giving

 

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effect to dividends accrued on the Series B Preferred Stock and Series C Preferred Stock). Since such date, the Company has not issued any securities other than Common Stock issued pursuant to the exercise of stock options outstanding under the Company’s stock option plans, the issuance of restricted Common Stock pursuant to employee stock purchase plans, the issuance of securities pursuant to reservations and other transactions, in each such case, as described in the General Disclosure Package or Prospectus or the issuance of common stock pursuant to the conversion of convertible securities referred to in the General Disclosure Package or Prospectus. None of the outstanding shares of Common Stock was issued in violation of any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of the Company. There are no authorized or outstanding shares of capital stock, options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any capital stock of the Company or any of its subsidiaries other than those described above or accurately described in the General Disclosure Package. The description of the Company’s stock option, stock bonus and other stock plans or similar equity incentive arrangements, and the options or other rights granted thereunder, as described in the General Disclosure Package and the Prospectus, accurately and fairly present the information required by the Securities Act or Rules and Regulations to be shown with respect to such plans, arrangements, options and rights.
(l) All the outstanding shares of capital stock of each subsidiary of the Company have been duly authorized and validly issued, are fully paid and nonassessable and, except to the extent set forth in the General Disclosure Package or the Prospectus, are owned by the Company directly or indirectly through one or more wholly-owned subsidiaries, free and clear of any claim, lien, encumbrance, security interest, restriction upon voting or transfer or any other claim of any third party.
(m) The execution, delivery and performance of this Agreement by the Company, the issuance and sale of the shares of Stock to be sold by the Company and the consummation of the transactions contemplated hereby to be consummated by the Company will not (with or without notice or lapse of time or both) (i) conflict with or result in a breach or violation of any of the terms or provisions of, constitute a default under, give rise to any right of termination or other right or the cancellation or acceleration of any right or obligation or loss of a benefit under, or give rise to the creation or imposition of any lien, encumbrance, security interest, claim or charge upon any property or assets of the Company or any subsidiary pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, except (A) under such indentures, mortgages, deeds of trust, loan agreements or other agreements or instruments that are not material, and (B) for such conflicts, breaches, violations, defaults, rights, losses, creations or impositions that would not, in the aggregate, be material), (ii) violate the provisions of the charter or by-laws (or analogous governing instruments, as applicable) of the Company or any of its subsidiaries, or (iii) violate any law, statute, rule, regulation, judgment, order or decree of any court or governmental agency or body, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets, except, in the case of clause (iii) for such conflicts, breaches, violations, defaults, rights, liens, encumbrances, security interests, claims and charges that would not have, singularly or in the aggregate, a Material Adverse Effect.
(n) Except for (x) the registration of the Stock under the Securities Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the Exchange Act and applicable state securities laws, the National Association of Securities Dealers, Inc. (“NASD”) and the Nasdaq Global Market in connection with the purchase and distribution of the

 

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Stock by the Underwriters, (y) such as have been obtained and are in full force and effect under the laws and regulations of jurisdictions, if any, outside the United States in which the Stock is offered and no consent, approval, authorization, license, certificate, permit, notice or order of, or filing, qualification or registration with (each an “Authorization”), any court, tribunal, government, governmental or regulatory authority, self-regulatory organization or body (each, a “Regulatory Body”), foreign or domestic, which has not been made, obtained or taken and is not in full force and effect, is required for the execution, delivery and performance of this Agreement by the Company, the offer or sale of the Stock or the consummation of the transactions contemplated hereby to be consummated by the Company; and to the knowledge of the Company, no event has occurred that allows or results in, or after notice or lapse of time or both would allow or result in, revocation, suspension, termination or invalidation of any such Authorization or any other impairment of the rights of the holder or maker of any such Authorization. All corporate approvals (including those of stockholders) necessary for the Company to consummate the transactions contemplated in this Agreement have been obtained and are in effect.
(o) Eisner LLP which has certified certain financial statements and related schedules included in the Registration Statements, the General Disclosure Package and the Prospectus is, to the Company’s knowledge, an independent registered public accounting firm as required by the Securities Act and the Rules and Regulations, including Rule 2-01 of Regulation S-X of the Rules and Regulations and the Rules and Regulations and the Public Company Accounting Oversight Board (United States) (the “PCAOB”). Ernst & Young Audit, which has certified certain financial statements and related schedules included in the Registration Statements, the General Disclosure Package and the Prospectus is, to the Company’s knowledge, an independent certified public accounting firm as required by the Securities Act and the Rules and Regulations, including Rule 2-01 of Regulation S-X of the Rules and Regulations.
(p) The financial statements, together with the related notes, included in the General Disclosure Package, the Prospectus and in each Registration Statement fairly present the financial position and the results of operations and changes in financial position of the Company and its consolidated subsidiaries at the respective dates or for the respective periods therein specified. Such statements and related notes have been prepared in accordance with the generally accepted accounting principles in the United States (“GAAP”) applied on a consistent basis throughout the periods involved except as may be set forth in the related notes included in the General Disclosure Package; provided, however, that those financial statements that are unaudited are subject to year-end adjustment and do not contain all of the footnotes required under GAAP. The financial statements, together with the related notes and schedules, included in the General Disclosure Package and the Prospectus comply in all material respects with the Securities Act and the Rules and Regulations. No other financial statements or supporting schedules or exhibits are required by the Securities Act or the Rules and Regulations to be included in the Registration Statements, the General Disclosure Package or the Prospectus. The pro forma and pro forma as adjusted financial information and the related notes included in the Registration Statements, the General Disclosure Package and the Prospectus have been properly compiled and prepared in accordance with the applicable requirements of the Securities Act and the Rules and Regulations and present fairly the information shown therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. The summary and selected financial data included in the General Disclosure Package, the Prospectus and each Registration Statement fairly present the information shown therein as at the respective dates and for the respective periods specified.

 

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(q) Neither the Company nor any of its subsidiaries has sustained, since the date of the latest audited financial statements included in the General Disclosure Package, any material loss or material interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the General Disclosure Package; and, since such date, there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries, or any material adverse changes, or any development involving a prospective material adverse change, in or affecting the business, assets, management, financial position, prospects, stockholders’ equity or results of operations of the Company and its subsidiaries taken as a whole, otherwise than as set forth or contemplated in the General Disclosure Package.
(r) Except as set forth in the General Disclosure Package, there is no legal or governmental proceeding pending to which the Company or any of its subsidiaries is a party or of which any property or assets of the Company or any of its subsidiaries is the subject which is required to be described in the Registration Statements, the General Disclosure Package or the Prospectus and which is not described therein, or which, singularly or in the aggregate, if determined adversely to the Company or any of its subsidiaries, could reasonably be expected to have a Material Adverse Effect; and to the Company’s knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others.
(s) Neither the Company nor any of its subsidiaries (i) is in violation of its charter or by-laws (or analogous governing instrument, as applicable), (ii) is in default, and no event has occurred which, with notice or lapse of time or both, would constitute a default, in the performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it is bound or to which any of its property or assets is subject or (iii) is in violation in any respect of any law, ordinance, governmental rule, regulation or court order, decree or judgment to which it or its property or assets may be subject except, in the case of clauses (ii) and (iii) of this paragraph (s), for any violations, defaults or events which, singularly or in the aggregate, would not have a Material Adverse Effect.
(t) The Company and each of its subsidiaries possess all permits issued by, and have made all declarations and filings with, each appropriate local, state, federal or foreign Regulatory Body that are necessary or desirable for the ownership of their respective properties or the conduct of their respective businesses as described in the General Disclosure Package and the Prospectus (collectively, the “Governmental Permits”) except where any failures to possess or make the same, singularly or in the aggregate, would not have a Material Adverse Effect. The Company and its subsidiaries are in compliance with all such Governmental Permits, and all such Governmental Permits are valid and in full force and effect, except where such non-compliance, invalidity or failure to be in full force and effect would not, singularly or in the aggregate, have a Material Adverse Effect. Neither the Company nor any subsidiary has received notification of any revocation, modification, suspension, termination or invalidation (or proceedings related thereto) of any such Governmental Permit and, to the knowledge of the Company, no event has occurred that allows or results in, or after notice or lapse of time or both would allow or result in, revocation, modification, suspension, termination or invalidation (or proceedings related thereto) of any such Governmental Permit will not be renewed, except where such revocation, modification, suspension, termination, invalidation or lack of renewal would not, singularly or in the aggregate, have a Material Adverse Effect.
(u) Neither the Company nor any of its subsidiaries is or, immediately after giving effect to the offering of the Stock and the application of the proceeds thereof as described in the General

 

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Disclosure Package and the Prospectus, will be required to register as an “investment company” under the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder.
(v) Neither the Company nor, to the Company’s knowledge, any of its officers or directors has taken or will take, and the Company has used reasonable efforts to cause each of its affiliates not to have taken or take, directly or indirectly, any action designed or intended to stabilize or manipulate the price of any security of the Company, or which caused or resulted in, or which would reasonably be expected to cause or result in, stabilization or manipulation of the price of any security of the Company, in each case to facilitate the sale or resale of the shares of the Stock.
(w) (i) The Company and its subsidiaries own or possess the right to use all patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, software, databases, know-how, Internet domain names, trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures, and other intellectual property (collectively, “Intellectual Property”) necessary to carry on their respective businesses as currently conducted, and as proposed to be conducted and described in the General Disclosure Package and the Prospectus, and the Company has no knowledge of any claim to the contrary or any challenge by any other person to the rights of the Company and its subsidiaries with respect to the foregoing. To the Company’s knowledge, the Intellectual Property licenses described in the General Disclosure Package and the Prospectus are valid, binding upon, and enforceable by or against the parties thereto in accordance with its terms. The Company has complied in all material respects with, and is not in breach nor has received any asserted or threatened claim of breach of, any Intellectual Property license, and the Company has no knowledge of any breach or anticipated breach by any other person to any Intellectual Property license. The Company’s business as now conducted does not, and to the Company’s knowledge, as proposed to be conducted will not, infringe or conflict with any Intellectual Property or franchise right of any person. Except as described in the General Disclosure Package, no claim has been made against the Company alleging the infringement by the Company or any of its licensees or other third parties of any Intellectual Property right or franchise right of any person, except for such as would not have a Material Adverse Effect. The Company has taken all reasonable steps to protect, maintain and safeguard its rights in all Intellectual Property, including the execution of appropriate nondisclosure and confidentiality agreements. Each employee of and consultant to the Company and its subsidiaries has entered into a confidentiality and invention assignment agreement in favor of the Company or its applicable subsidiary as a condition of the employment or retention of services of such employee or consultant, except where the failure to enter into such an agreement would not have a Material Adverse Effect.
  (ii)   Except for matters relating to third parties expressly identified and named in the Prospectus: (A) there are no rights of third parties to any Intellectual Property owned by or licensed to the Company or any of its subsidiaries that conflict with the rights of the Company or its subsidiaries related to such Intellectual Property, except for any such rights that, singularly or in the aggregate, would not have a Material Adverse Effect; (B) to the Company’s knowledge, there is no infringement by third parties of any Intellectual Property right owned by or licensed to the Company or its subsidiaries that would have a Material Adverse Effect; (C) other than in connection with assertions or inquiries made by patent office examiners in the ordinary course of the prosecution of the patent applications of the Company or its subsidiaries, there is no pending or threatened action, suit, proceeding or other claim by others challenging the rights of the Company or any of its subsidiaries in or to, or the validity or scope of, any Intellectual Property owned by or licensed to the Company or its subsidiaries,

 

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      except for any such claim that would not have a Material Adverse Effect, and the Company is unaware of any facts that would form a reasonable basis for any such claim; (D) there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or other claim by others that the Company or any of its subsidiaries, or any of their respective licensees, infringes or otherwise violates, or would infringe or otherwise violate upon commercialization of its products and product candidates described in the Prospectus, any patent, trademark, copyright, trade secret or other proprietary rights of others, and there are no facts that would form a reasonable basis for any such claim by others that the Company or any of its subsidiaries, or any of their respective licensees, infringes or otherwise violates, or would infringe or otherwise violate upon commercialization of its products and product candidates described in the Prospectus, any Intellectual Property of others, except, in each case in this clause (D), for any such claims that would not have a Material Adverse Effect; and (E) there is no patent or, to the Company’s knowledge, patent application that contains claims that conflict with any Intellectual Property described in the Prospectus as being owned by or licensed to the Company or any of its subsidiaries or that is necessary for the conduct of their respective businesses as currently or contemplated to be conducted, except for such as would not have a Material Adverse Effect.
  (iii)   The consummation of the transactions contemplated by this Agreement will not result in the loss or impairment of or payment of any additional amounts with respect to, nor require the consent of any other person in respect of, the Company’s right to own, use, or hold for use any of the Intellectual Property as owned, used or held for use in the conduct of the business as currently conducted. With respect to the use of the software in the Company’s business as it is currently conducted, the Company has not experienced any material defects in such software including any material error or omission in the processing of any transactions other than defects which have been corrected, and to the knowledge of the Company, no such software contains any device or feature designed to disrupt, disable, or otherwise impair the functioning of any software or is subject to the terms of any “open source” or other similar license that provides for the source code of the software to be publicly distributed or dedicated to the public. The Company has at all times complied in all material respects with all applicable laws relating to privacy, data protection, and the collection and use of personal information collected, used, or held for use by the Company in the conduct of the Company’s business. To the Company’s knowledge, no claims have been asserted or threatened against the Company alleging a violation of any person’s privacy or personal information or data rights and the consummation of the transactions contemplated hereby will not breach or otherwise cause any violation of any law related to privacy, data protection, or the collection and use of personal information collected, used, or held for use by the Company in the conduct of the Company’s business. The Company takes reasonable measures to ensure that such information is protected against unauthorized access, use, modification, or other misuse.
(x) The Company and each of its subsidiaries have good and marketable title to, or have valid rights to lease or otherwise use, all real property, and good title to all other property owned by them, in each case, which are material to the business of the Company and its subsidiaries taken as a whole, and, in each case, free and clear of all liens, encumbrances, security interests, claims and defects that could, singularly or in the aggregate, reasonably be expected to result in a

 

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Material Adverse Effect; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or any of its subsidiaries holds properties described in the General Disclosure Package and the Prospectus, are in full force and effect, and neither the Company nor any subsidiary has received any notice of any material claim (i) of any sort that has been asserted by anyone adverse to the rights of the Company or any subsidiary under any of the leases or subleases mentioned above, or (ii) affecting or questioning the rights of the Company or such subsidiary to the continued possession of any leased or subleased premises under any such lease or sublease.
(y) No labor disturbance by the employees of the Company or any of its subsidiaries exists or, to the Company’s knowledge, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or its subsidiaries principal suppliers, manufacturers, customers or contractors that could reasonably be expected, singularly or in the aggregate, to have a Material Adverse Effect. The Company is not aware that any key employee or significant group of employees of the Company or any subsidiary has plans to terminate employment with the Company or any such subsidiary.
(z) To the knowledge of the Company, no “prohibited transaction” as defined under Section 406 of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”) and not exempt under ERISA Section 408 and the regulations and published interpretations thereunder has occurred with respect to any “employee benefit plan” as defined in Section 3(3) of ERISA which the Company or any member of the Company’s controlled group as defined in Code Section 414(b), (c), (m), or (o) (an “ERISA Affiliate”) sponsors or to which the Company or any ERISA Affiliate could have an obligation to contribute (each an “Employee Benefit Plan”). At no time has the Company or any ERISA Affiliate maintained, sponsored, participated in, or contributed to any Employee Benefit Plan subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA, or Section 412 of the Code or any “multiemployer plan” as defined in Section 3(37) of ERISA. No Employee Benefit Plan provides or promises retiree health, life insurance, or other retiree welfare benefits except as may be required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or similar state law. Each Employee Benefit Plan is and has been operated in material compliance with its terms and all applicable laws, including but not limited to ERISA and the Code. Each Employee Benefit Plan intended to be qualified under Code Section 401(a) has a favorable determination or opinion letter from the IRS upon which it can rely, and any such determination or opinion letter remains in effect and has not been revoked; to the Company’s knowledge, nothing has occurred since the date of any such determination or opinion letter that is reasonably likely to adversely affect such qualification. The Company does not have any obligations under any collective bargaining agreement with any union and, to the Company’s knowledge, no organization efforts are underway with respect to Company employees.
(aa) The Company and its subsidiaries are in compliance with all foreign, federal, state and local rules, laws and regulations relating to the use, treatment, storage and disposal of hazardous or toxic substances or waste and protection of health and safety or the environment which are applicable to their businesses (“Environmental Laws”), except where the failure to comply would not, singularly or in the aggregate, have a Material Adverse Effect. There has been no storage, generation, transportation, handling, treatment, disposal, discharge, emission, or other release of any kind of toxic or other wastes or other hazardous substances by, due to, or caused by the Company or any of its subsidiaries (or, to the Company’s knowledge, any other entity for whose acts or omissions the Company or any of its subsidiaries is or may otherwise be liable) upon any of the property now or previously owned or leased by the Company or any of its subsidiaries, or upon any other property, in violation of any law, statute, ordinance, rule, regulation, order,

 

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judgment, decree or permit or which would, under any law, statute, ordinance, rule (including rule of common law), regulation, order, judgment, decree or permit, give rise to any liability, except for any violation or liability which would not have, singularly or in the aggregate with all such violations and liabilities, a Material Adverse Effect; and there has been no disposal, discharge, emission or other release of any kind onto such property or into the environment surrounding such property of any toxic or other wastes or other hazardous substances with respect to which the Company or any of its subsidiaries has knowledge, except for any such disposal, discharge, emission, or other release of any kind which would not have, singularly or in the aggregate with all such discharges and other releases, a Material Adverse Effect. To the knowledge of the Company, the associated costs and liabilities, with respect to compliance with all Environmental laws, (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or Governmental Permits issued thereunder, any related constraints on operating activities and any potential liabilities to third parties) to the Company and its subsidiaries, would not, singularly or in the aggregate, result in a Material Adverse Effect.
(bb) The Company and its subsidiaries each (i) have timely filed all necessary federal, state, local and foreign tax returns, and all such returns were true, complete and correct, (ii) have paid all federal, state, local and foreign taxes, assessments, governmental or other charges due and payable for which it is liable, including, without limitation, all sales and use taxes and all taxes which the Company or any of its subsidiaries is obligated to withhold from amounts owing to employees, creditors and third parties, and (iii) do not have any tax deficiency or claims outstanding or assessed or, to its knowledge, proposed against any of them, except those, in each of the cases described in clauses (i), (ii) and (iii) of this paragraph (bb), that could not reasonably be expected to, singularly or in the aggregate, have a Material Adverse Effect or that are disclosed in the General Disclosure Package and the Prospectus. The Company and its subsidiaries have not engaged in any transaction which is a corporate tax shelter or which has a reasonable basis to be characterized as such by the Internal Revenue Service or any other taxing authority.
(cc) The Company and each of its subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is reasonably adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar businesses in similar industries.
(dd) The Company and each of its subsidiaries maintains a system of internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that has been designed by the Company’s principal executive officer and principal financial officer, or under their supervision, to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company’s internal control over financial reporting is effective in all material respects. Since the end of the Company’s most recent audited fiscal year, there has been (A) no material weakness in the Company’s internal control over financial reporting (whether or not remediated) and (B) no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
(ee) The minute books of the Company and each of its subsidiaries have been made available to the Underwriters and counsel for the Underwriters, and such books (i) contain a summary that

 

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is complete in all material respects of all meetings and actions of the board of directors (including each board committee) and shareholders of the Company (or analogous governing bodies and interest holders, as applicable) and each of its subsidiaries since the time of its respective incorporation or organization through the date of the latest meeting and action and (ii) accurately in all material respects reflect all meetings and actions referred to in such minutes.
(ff) There is no franchise, lease, contract, agreement or document required by the Securities Act or by the Rules and Regulations to be described in the General Disclosure Package and in the Prospectus or to be filed as an exhibit to the Registration Statements which is not described or filed therein as required; and all descriptions of any such franchises, leases, contracts, agreements or documents contained in the Registration Statements are accurate and complete descriptions of such documents in all material respects. Other than as described in the General Disclosure Package, no such franchise, lease, contract or agreement has been suspended or terminated for convenience or default by the Company or any of the other parties thereto, and neither the Company nor any of its subsidiaries has received notice and the Company does not have knowledge of any such pending or threatened suspension or termination, except for such pending or threatened suspensions or terminations that would not reasonably be expected to, singularly or in the aggregate, have a Material Adverse Effect.
(gg) No relationship, direct or indirect, exists between or among the Company on the one hand, and the directors, officers, stockholders (or analogous interest holders), customers or suppliers of the Company or any of its affiliates on the other hand, which is required to be described in the General Disclosure Package and the Prospectus and which is not so described.
(hh) No person or entity has the right to require registration of shares of Common Stock or other securities of the Company or any of its subsidiaries because of the filing or effectiveness of the Registration Statements or otherwise in connection with the offering and sale of the Stock as contemplated by this Agreement, except for persons and entities (i) who have been given proper notice and who are Selling Shareholders, (ii) who have expressly waived such right in writing or (iii) who have been given timely and proper written notice and have failed to exercise such right within the time or times required under the terms and conditions of such right. Except as described in the General Disclosure Package, there are no persons with registration rights or similar rights to have any securities registered by the Company or any of its subsidiaries under the Securities Act.
(ii) Neither the Company nor any of its subsidiaries own any “margin securities” as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), and none of the proceeds of the sale of the Stock will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Stock to be considered a “purpose credit” within the meanings of Regulation T, U or X of the Federal Reserve Board.
(jj) Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person that would give rise to a valid claim against the Company or the Underwriters for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Stock or any transaction contemplated by this Agreement.
(kk) No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in either the General Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.

 

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(ll) The Stock has been approved for listing subject to notice of issuance on the Nasdaq Global Market (“Nasdaq GM”) of The Nasdaq Stock Market (“Nasdaq”).
(mm) The Company has taken all necessary actions to ensure that, upon the effectiveness of the Registration Statement, it will be in compliance with all provisions of the Sarbanes-Oxley Act of 2002 and all rules and regulations promulgated thereunder or implementing the provisions thereof (the “Sarbanes-Oxley Act”) that are then in effect and that the Company is required to comply with as of the effectiveness of the Registration Statement, and is actively taking steps to ensure that it will be in compliance with other provisions of the Sarbanes-Oxley Act when such provisions will become applicable to the Company.
(nn) The Company has taken all necessary actions to ensure that, upon the time the Nasdaq GM shall have approved the Stock for inclusion therein, it will be in compliance with all corporate governance requirements set forth in the Nasdaq Marketplace Rules that are then in effect and that the Company is required to comply with as of time the Nasdaq GM shall have approved the Stock for inclusion therein, and is actively taking such steps to ensure that it will be in compliance with other corporate governance requirements set forth in the Nasdaq Marketplace Rules when such provisions will become applicable to the Company.
(oo) To the Company’s knowledge after due inquiry, neither the Company nor any of its subsidiaries, nor any employee or agent of the Company or any subsidiary, has (i) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds, (iii) violated any provision of the Foreign Corrupt Practices Act of 1977, as amended or (iv) made any other unlawful payment.
(pp) There are no transactions, arrangements or other relationships between and/or among the Company or, the knowledge of the Company, any of its affiliates (as such term is defined in Rule 405 of the Rules and Regulations), on the one hand, and any unconsolidated entity, including, but not limited to, any structure finance, special purpose or limited purpose entity, on the other hand, that could reasonably be expected to materially affect the Company’s liquidity or the availability of or requirements for its capital resources required to be described in the General Disclosure Package and the Prospectus that have not been described as required.
(qq) There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees or indebtedness by the Company or any of its subsidiaries to or for the benefit of any of the executive officers or directors of the Company, any of its subsidiaries or any of their respective family members, except as disclosed in the Registration Statements, the General Disclosure Package and the Prospectus.
(rr) The statistical and market related data included in the Registration Statement, the General Disclosure Package and the Prospectus are based on or derived from sources that the Company believes to be reliable and accurate.
(ss) The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with

 

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respect to the Money Laundering Laws is pending, or to the knowledge of the Company, threatened.
(tt) Neither the Company nor any of its subsidiaries nor, to the knowledge of the Company, any director, officer, agent, employee or affiliate of the Company or any of its subsidiaries is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not directly or indirectly use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC, in violation of such sanctions.
(uu) The Company does not directly or indirectly control an associated person (within the meaning of Article I, Section 1(ee) of the By-laws of the NASD) of, any member firm of the NASD. The Company does not have any affiliates (within the meaning of NASD Conduct Rule 2720(b)(1)(a)), other than as set forth on Schedule _.
Any certificate signed by or on behalf of the Company and delivered to the Representatives or to counsel for the Underwriters pursuant to this Agreement shall be deemed to be a representation and warranty by the Company to each Underwriter as to the matters covered thereby.
     (II) Representations and Warranties and Agreements of The Selling Shareholders. Each Selling Shareholder severally and not jointly represents and warrants to the several Underwriters as of the date hereof and as of each Closing Date, and agrees with the several Underwriters, that such Selling Shareholder:
(a) Such Selling Shareholder has, and immediately prior to each Closing Date (as defined in Section 3 hereof) the Selling Shareholder will have, good and valid title to, or a valid “security entitlement” within the meaning of Section 8-501 of the New York Uniform Commercial Code (the “UCC” in respect of, the shares of Stock to be sold by the Selling Shareholder hereunder on such date, free and clear of all liens, security interests, encumbrances, equities or claims of any kind, other than pursuant to this Agreement, the Power of Attorney and the Custody Agreement; upon payment for the shares of Stock to be sold by such Selling Shareholder pursuant to this Agreement, delivery of such shares, as directed by the Underwriters, to Cede & Co. (“Cede”) or such other nominee as may be designated by the Depository Trust Company (“DTC”) (unless delivery of such shares is unnecessary because such shares are already in possession of Cede or such nominee), registration of such shares in the name of Cede or such other nominee (unless registration of such shares is unnecessary because such shares are already registered in the name of Cede or such nominee), and the crediting of such shares on the books of DTC to securities accounts of the Underwriters (assuming that neither DTC nor any such Underwriter has notice of any “adverse claim,” within the meaning of Section 8-105 of the New York Uniform Commercial Code (the “UCC”) to such shares), (A) DTC shall be a “protected purchaser” of such shares within the meaning of Section 8-303 of the UCC and will acquire its interest in the shares (including without limitation, all rights that such Selling Shareholder had or has the power to transfer in such shares) free and clear of any “adverse claim” within in the meaning of Section 8-102 of the UCC, (B) under Section 8-501 of the UCC, the Underwriters will acquire a valid security entitlement in respect of such shares and (C) no action based on any “adverse claim” within the meaning of Section 8-102 of the UCC to such shares may be asserted against the Underwriters with respect to such security entitlement; for purposes of this representation, such Selling Shareholder may assume that when such payment, delivery (if necessary) and crediting occur, (x) such shares will have been registered in the name of Cede or another nominee designated by DTC, in each case on the Company’s share registry in accordance with its

 

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certificate of incorporation, bylaws and applicable law, (y) DTC will be registered as a “clearing corporation” within the meaning of Section 8-102 of the UCC and (z) appropriate entries to the accounts of the several Underwriters on the records of DTC will have been made pursuant to the UCC.
(b) This Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Shareholder.
(c) Such Selling Shareholder has duly and irrevocably authorized, executed and delivered a power of attorney, in substantially the form heretofore delivered by the Representatives (the “Power of Attorney”), appointing, ____________ and each of them, as attorney in fact (the “Attorneys in fact”) with the authority specified therein; and the Power of Attorney is a valid and binding agreement of such Selling Shareholder, enforceable against such Selling Shareholder in accordance with its terms.
(d) Such Selling Shareholder has duly and irrevocably authorized, executed and delivered a custody agreement, in substantially the form heretofore delivered by the Representatives (the “Custody Agreement”), with ____________ as custodian for such Selling Shareholder (in such capacity, the “Custodian”), pursuant to which such Selling Shareholder has placed in custody with the Custodian for delivery under this Agreement certificates for all of the shares of Stock to be sold by such Selling Shareholder hereunder, in negotiable and suitable form for transfer or delivery or accompanied by duly executed instruments of transfer or assignment in blank; and the Custody Agreement is a valid and binding agreement of such Selling Shareholder, enforceable against such Selling Shareholder in accordance with its terms. Such Selling Stockholder has authorized the Custodian to deliver the Stock to be sold by such Selling Shareholder hereunder and to accept payment therefor.
(e) Such Selling Shareholder has full right, power and authority to enter into this Agreement, the Power of Attorney and the Custody Agreement; the execution, delivery and performance of this Agreement, the Power of Attorney and the Custody Agreement by such Selling Shareholder, the consummation by such Selling Shareholder of the transactions contemplated hereby and thereby and the compliance by such Selling Shareholder with its obligations hereunder and thereunder have been duly authorized and do not and will not (with or without notice or lapse of time or both) conflict with or result in a breach or violation of any of the terms or provisions of, constitute a default under, or give rise to the creation or imposition of any lien, encumbrance, security interest, claim or charge upon the Stock to be sold by such Selling Shareholder hereunder or any other property or assets of such Selling Shareholder pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Selling Shareholder is a party or by which the Selling Shareholder is bound or to which any of the property or assets of the Selling Shareholder is subject, except (A) as to such property and assets (other than the Stock) that are not material, and (B) for such conflicts, breaches, violations, defaults, rights, losses, creations or impositions that would not have an adverse effect on the ability of the Selling Shareholder to perform its obligations under the Agreement, nor will such actions result in any violation of the provisions of the charter, by-laws or the articles of partnership (or analogous governing instruments, as applicable) of the Selling Shareholder, any law, statute, rule, regulation, judgment, order or decree of any court or governmental agency or body, domestic or foreign, having jurisdiction over the Selling Shareholder or any property or assets of the Selling Shareholder; and, except for the registration of the Stock under the Securities Act and such consents, approvals, authorizations, registrations or qualifications as may be required under applicable state securities laws in connection with the purchase and distribution of the Stock by the Underwriters, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and

 

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performance of this Agreement, the Power of Attorney or the Custody Agreement by such Selling Shareholder, and the consummation by such Selling Shareholder of the transactions contemplated hereby and thereby.
(f) The shares of Stock represented by the certificates held in custody under the Custody Agreement for such Selling Shareholder are subject to the interests of the Underwriters hereunder; the arrangements made by such Selling Shareholder for such custody and the appointments of each Attorney in fact and the Custodian are irrevocable; the obligations of such Selling Shareholder hereunder shall not be terminated by operation of law (whether by death or incapacity of any individual Selling Shareholder or, in the case of an estate or trust Selling Shareholder, by the death or incapacity of any executor or trustee thereof or the termination of such trust or estate, or in the case of a partnership or corporation Selling Shareholder, by the dissolution or liquidation of such partnership or corporation, or by the occurrence of any other event); and if any individual Selling Shareholder or trustee or executor of any estate or trust Selling Shareholder should die or become incapacitated, if any estate or trust Selling Shareholder should be terminated, if any partnership or corporation Selling Shareholder should be dissolved or liquidated or if any other event should occur before the delivery of the Stock to the Underwriters hereunder, certificates for the Stock to be sold by such Selling Shareholder shall be delivered on behalf of such Selling Shareholder in accordance with the terms and conditions of this Agreement and all action taken by the Attorneys in fact or any of them under the Power of Attorney or by the Custodian under the Custody Agreement shall be as valid, in each such case as if such death, incapacity, termination, dissolution, liquidation or other event had not occurred, whether or not the Custodian, the Attorneys in fact or any of them shall have notice of such death, incapacity, termination, dissolution, liquidation or other event.
(g) At the respective times the Registration Statements and any amendments thereto became or become effective and at each Closing Date, each Registration Statement and any amendments thereto did not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and the General Disclosure Package, the Prospectus and any amendments or supplements thereto, at time the Prospectus or any amendment or supplement thereto was issued and at the Applicable Time and each Closing Date, did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing representations and warranties in this paragraph (g) apply only to the extent that any information contained in or omitted from the Registration Statements, the General Disclosure Package or Prospectus was made in reliance upon and in conformity with written information furnished to the Company by such Selling Shareholder specifically for inclusion therein which information the parties hereto agree is limited to Underwriters’ Information (as defined in Section 17).
(h) Such Selling Shareholder has not taken, directly or indirectly, any action designed or intended to stabilize or manipulate the price of any security of the Company, or which caused or resulted in, or which would reasonably be expected to cause or result in, the stabilization or manipulation of the price of any security of the Company, in each case to facilitate the sale or resale of the shares of the Stock.
(i) The NASD Questionnaire completed by such Selling Stockholder is accurate and complete.

 

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Any certificate signed by or on behalf of a Selling Shareholder and delivered to the Representatives or to counsel for the Underwriters pursuant to this Agreement shall be deemed to be a representation and warranty by such Selling Shareholder to each Underwriter as to the matters covered thereby.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company and each Selling Shareholder agrees, severally and not jointly, to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Company and each Selling Shareholder, that number of shares of Firm Stock (rounded up or down, as determined by Cowen and Thomas Weisel in their discretion, in order to avoid fractions) obtained by multiplying ___shares of Firm Stock in the case of the Company and the number of shares of Firm Stock set forth opposite the name of such Selling Shareholder in Schedule B hereto, in the case of a Selling Shareholder, in each case by a fraction the numerator of which is the number of shares of Firm Stock set forth opposite the name of such Underwriter in Schedule A hereto and the denominator of which is the total number of shares of Firm Stock.
      The purchase price per share to be paid by the Underwriters to the Company and the Selling Shareholders for the Stock will be $___(the “Purchase Price”).
      The Company and the Custodian, on behalf of the Selling Shareholders, will deliver the Firm Stock to the Representatives for the respective accounts of the several Underwriters, through the facilities of The Depositary Trust Company or, at the election of the Representatives, in the form of definitive certificates, in each such case, issued in such names and in such denominations as the Representatives may direct by notice in writing to the Company and the Custodian given at or prior to 12:00 Noon, New York time, on the second (2nd) full business day preceding the First Closing Date (as defined below) against payment of the aggregate Purchase Price therefor by wire transfer in federal (same day) funds to an account at a bank reasonably acceptable to Cowen and Thomas Weisel payable to the order of the Company and, ___as Custodian for the Selling Shareholders for the Firm Stock sold by them all at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, in New York, New York. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligations of each Underwriter hereunder. The time and date of the delivery and closing shall be at 10:00 A.M., New York time, on ___, 2006, in accordance with Rule 15c6-1 of the Exchange Act. The time and date of such payment and delivery are herein referred to as the “First Closing Date.” The First Closing Date and the location of delivery of, and the form of payment for, the Firm Stock may be varied by agreement among the Company, the Selling Shareholders, Cowen and Thomas Weisel.
      The Company, in the event the Representatives elect to have the Underwriters take delivery of definitive certificates instead of delivery from the Company of the certificates through the facilities of The Depository Trust Company, and the Custodian, on behalf of the Selling Shareholders, shall make certificates for the Firm Stock available to the Representatives for examination on behalf of the Underwriters in New York, New York at least one (1) full business day prior to the First Closing Date.
      For the purpose of covering any over allotments in connection with the distribution and sale of the Firm Stock as contemplated by the Prospectus, the Underwriters may purchase all or less than all of the Optional Stock. The price per share to be paid for the Optional Stock shall be the Purchase Price. The Selling Shareholders agree, severally and not jointly, to sell to the Underwriters the respective numbers of shares of Optional Stock obtained by multiplying the number of shares of Optional Stock specified in such notice by a fraction the numerator of which is the number of shares set forth opposite the names of such Selling Shareholders in Schedule B hereto under the caption “Number of Optional Shares to be Sold” and the denominator of which is the total number of shares of Optional Stock (subject to adjustment by Cowen and Thomas Weisel to eliminate fractions). Such shares of Optional Stock shall be

 

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purchased from each Selling Shareholder for the account of each Underwriter in the same proportion as the number of shares of Firm Stock set forth opposite such Underwriter’s name on Schedule A bears to the total number of shares of Firm Stock (subject to adjustment by Cowen and Thomas Weisel to eliminate fractions). The option granted hereby may be exercised as to all or any part of the Optional Stock at any time, and from time to time, not more than thirty (30) days subsequent to the date of this Agreement. No Optional Stock shall be sold and delivered unless the Firm Stock previously has been, or simultaneously is, sold and delivered. The right to purchase the Optional Stock or any portion thereof may be surrendered and terminated at any time upon notice by Cowen and Thomas Weisel to the Company and Selling Shareholders.
      The option granted hereby may be exercised by written notice being given to the Company, the Custodian and the Selling Shareholders by Cowen and Thomas Weisel setting forth the number of shares of the Optional Stock to be purchased by the Underwriters and the date and time for delivery of and payment for the Optional Stock. Each date and time for delivery of and payment for such Optional Stock (which may be the First Closing Date, but not earlier) is herein referred to as the “Option Closing Date” and shall in no event be earlier than two (2) business days nor later than five (5) business days after written notice is given. (Each Option Closing Date and the First Closing Date are herein referred to as the “Closing Dates.”)
      The Custodian, on behalf of the Selling Shareholders, will deliver the Optional Stock to the Representatives for the respective accounts of the several Underwriters, in the form of definitive certificates, in each such case, issued in such names and in such denominations as the Representatives may direct by notice in writing to the Company and the Custodian given at or prior to 12:00 Noon, New York time, on the second (2nd) full business day preceding the Option Closing Date (as defined above)) against payment of the aggregate Purchase Price therefor by wire transfer in federal (same day) funds to, an account at a bank acceptable to Cowen and Thomas Weisel payable to the order of ___as Custodian for the Selling Shareholders for the Optional Stock sold by them, all at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligations of each Underwriter hereunder. The Selling Shareholders shall make the certificates for the Optional Stock available to the Representatives for examination on behalf of the Underwriters in New York, New York not later than 10:00 A.M., New York Time, at least one (1) full business day prior to the Option Closing Date. The Option Closing Date and the location of delivery of, and the form of payment for, the Optional Stock may be varied by agreement among the Company, the Selling Shareholders, Cowen and Thomas Weisel.
      The several Underwriters propose to offer the Stock for sale upon the terms and conditions set forth in the Prospectus.
4. Further Agreements Of The Company and The Selling Shareholders
     (I) Further Agreements Of The Company. The Company agrees with the several Underwriters:
(a) To prepare the Rule 462(b) Registration Statement, if necessary, in a form approved by the Representatives and file such Rule 462(b) Registration Statement with the Commission by 10:00 P.M., New York time, on the date hereof, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act; to prepare the Prospectus in a form approved by the Representatives containing information previously omitted at the time of effectiveness of the Registration Statement in reliance on rules 430A, 430B and 430C and to file such Prospectus pursuant to Rule 424(b) under the Securities

 

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Act not later than the second (2nd) business day following the execution and delivery of this Agreement or, if applicable, such earlier time as may be required by Rule 430A of the Rules and Regulations; to notify the Representatives immediately of the Company’s intention to file or prepare any supplement or amendment to any Registration Statement or to the Prospectus and to make no amendment or supplement to the Registration Statements, the General Disclosure Package or to the Prospectus to which the Representatives shall reasonably object by notice to the Company after a reasonable period to review; to advise the Representatives, promptly after it receives notice thereof, of the time when any amendment to any Registration Statement has been filed or becomes effective or any supplement to the General Disclosure Package or the Prospectus or any amended Prospectus has been filed and to furnish the Underwriters with copies thereof; to file promptly all material required to be filed by the Company with the Commission pursuant to Rule 433(d) or 163(b)(2), as the case may be; to advise the Representatives, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus, any Issuer Free Writing Prospectus or the Prospectus, of the suspension of the qualification of the Stock for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding of which the Company is aware for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statements, the General Disclosure Package or the Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus, any Issuer Free Writing Prospectus or the Prospectus or suspending any such qualification, and promptly to use its commercially reasonable best efforts to obtain the withdrawal of such order.
(b) The Company represents and agrees that, unless it obtains the prior consent of the Representatives, it has not made and will not, other than the final term sheet prepared and filed pursuant to Section 4(I)(c) hereof, make any offer relating to the Stock that would constitute a “free writing prospectus” as defined in Rule 405 under the Securities Act (each, a “Permitted Free Writing Prospectus”); provided that the prior written consent of the Representatives hereto shall be deemed to have been given in respect of the Issuer Free Writing Prospectus included in Schedule ___hereto. The Company represents that it has treated and agrees that it will treat each Permitted Free Writing Prospectus as an Issuer Free Writing Prospectus, comply with the requirements of Rules 164 and 433 under the Securities Act applicable to any Issuer Free Writing Prospectus, including the requirements relating to timely filing with the Commission, legending and record keeping and will not take any action that would result in an Underwriter or the Company being required to file with the Commission pursuant to Rule 433(d) under the Securities Act a free writing prospectus prepared by or on behalf of such Underwriter that such Underwriter otherwise would not have been required to file thereunder. The Company will satisfy the condition in Rule 433 under the Securities Act to avoid a requirement to file with the Commission any electronic road show.
(c) If the Company elects to prepare a final term sheet relating to the Stock, the Company will prepare such final term sheet (the “Final Term Sheet”) reflecting the final terms of the Stock, in form and substance satisfactory to the Representatives, and shall file such Final Term Sheet as an Issuer Free Writing Prospectus pursuant to Rule 433 under the Securities Act prior to the close of business two (2) business days after the date hereof; provided that the Company shall provide the Representatives with copies on any such Final Term Sheet a reasonable amount of time prior to such proposed filing and will not use or file any such document to which the Representatives or counsel to the Underwriters shall reasonably object.
(d) If at any time prior to the expiration of nine (9) months after the later of (i) the latest effective date of the Registration Statement or (ii) the date of the Prospectus, when a prospectus relating to the Stock is required to be delivered (or in lieu thereof, the notice referred to in

 

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Rule 173(a) under the Securities Act) any event occurs or condition exists as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact, or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made when the Prospectus is delivered (or in lieu thereof, the notice referred to in Rule 173(a) under the Securities Act), not misleading, or if it is necessary at any time to amend or supplement any Registration Statement or the Prospectus to comply with the Securities Act, that the Company will promptly notify the Representatives thereof and upon their request will prepare an appropriate amendment or supplement in form and substance satisfactory to the Representatives which will correct such statement or omission or effect such compliance and will use its best efforts to have any amendment to any Registration Statement declared effective as soon as possible. The Company will furnish without charge to each Underwriter and to any dealer in securities as many copies as the Representatives may from time to time reasonably request of such amendment or supplement. In case any Underwriter is required to deliver a prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Securities Act) relating to the Stock nine (9) months or more after the later of (i) the latest effective date of the Registration Statement or (ii) the date of the Prospectus, the Company upon the request of the Representatives and at the expense of such Underwriter will prepare promptly an amended or supplemented Prospectus as may be necessary to permit compliance with the requirements of Section 10(a)(3) of the Securities Act and deliver to such Underwriter as many copies as such Underwriter may request of such amended or supplemented Prospectus complying with Section 10(a)(3) of the Securities Act.
(e) If the General Disclosure Package is being used to solicit offers to buy the Stock at a time when the Prospectus is not yet available to prospective purchasers and any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of the Underwriters, it becomes necessary to amend or supplement the General Disclosure Package in order to make the statements therein, in the light of the circumstances then prevailing, not misleading, or to make the statements therein not conflict with the information contained in the Registration Statement then on file and not superseded or modified, or if it is necessary at any time to amend or supplement the General Disclosure Package to comply with any law, the Company promptly will prepare, file with the Commission (if required) and furnish to the Underwriters and any dealers an appropriate amendment or supplement to the General Disclosure Package so that the General Disclosure Package as so amended or supplemented will not, in the light of the circumstances then prevailing, be misleading or conflict with the Registration Statement then on file, or so that the General Disclosure Package will comply with law.
(f) If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or will conflict with the information contained in the Registration Statement, Pricing Prospectus or Prospectus and not superseded or modified or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances prevailing at the subsequent time, not misleading, the Company has promptly notified or will promptly notify the Representatives so that any use of the Issuer Free Writing Prospectus may cease until it is amended or supplemented and has promptly amended or will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission. The foregoing sentence does not apply to statements in or omissions from any Issuer Free Writing Prospectus in reliance upon, and in conformity with, written information furnished to the Company through the Cowen and Thomas Weisel by or on behalf of any Underwriter expressly for inclusion therein, which information the parties hereto agree is limited to the Underwriter’s Information (as defined in Section 17).

 

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(g) To furnish promptly to each of the Representatives and to counsel for the Underwriters a signed copy of each of the Registration Statements as originally filed with the Commission, and of each amendment thereto filed with the Commission, including all consents and exhibits filed therewith.
(h) To deliver promptly to the Representatives in New York City such number of the following documents as the Representatives shall reasonably request: (i) conformed copies of the Registration Statements as originally filed with the Commission (in each case excluding exhibits), (ii) each Preliminary Prospectus, (iii) any Issuer Free Writing Prospectus, (iv) the Prospectus (the delivery of the documents referred to in clauses (i), (ii), (iii) and (iv) of this paragraph (h) to be made not later than 10:00 A.M., New York time, on the business day following the execution and delivery of this Agreement), (v) conformed copies of any amendment to the Registration Statement (excluding exhibits), and (vi) any amendment or supplement to the General Disclosure Package or the Prospectus (the delivery of the documents referred to in clauses (v) and (vi) of this paragraph (h) to be made not later than 10:00 A.M., New York City time, on the business day following the date of such amendment or supplement).
(i) To make generally available to its shareholders as soon as practicable, but in any event not later than the Availability Date (as defined below), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Securities Act and the Rules and Regulations (including, at the option of the Company, Rule 158). For the purpose of the preceding sentence, “Availability Date” means the 45th day after the end of the fourth fiscal quarter following the fiscal quarter that includes such Effective Date, except that, if such fourth fiscal quarter is the last quarter of the Company’s fiscal year, “Availability Date” means the 90th day after the end of such fourth fiscal quarter.
(j) To take promptly from time to time such actions as the Representatives may reasonably request to qualify the Stock for offering and sale under the securities or Blue Sky laws of such jurisdictions (domestic or foreign) as the Representatives may designate and to continue such qualifications in effect, and to comply with such laws, for so long as required to permit the offer and sale of Stock in such jurisdictions; provided that the Company and its subsidiaries shall not be obligated (i) to qualify as foreign corporations or entities in any jurisdiction in which they are not so qualified, (ii) to file a general consent to service of process in any jurisdiction or (iii) to subject itself to taxation in any such jurisdiction in which it is not otherwise subject.
(k) Upon request, during the period of five (5) years from the date hereof, to deliver to each of the Underwriters, (i) as soon as they are available, copies of all reports or other communications furnished to shareholders, and (ii) as soon as they are available, copies of any reports and financial statements furnished or filed with the Commission or any national securities exchange or automatic quotation system on which the Stock is listed or quoted; provided, however, that in no case shall the Company be required to furnish materials pursuant to this paragraph that are filed and publicly available on the Commission’s EDGAR database.
(l) That the Company will not, for a period of one hundred eighty (180) days from the date of this Agreement (the “Lock-Up Period”), without the prior written consent of Cowen and Thomas Weisel, directly or indirectly offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or publicly announce the offering of, or file any registration statement under the Securities Act, other than the Company’s sale of the Stock hereunder and the issuance of restricted Common Stock or options to acquire Common Stock pursuant to the Company’s employee benefit plans, qualified stock option plans or other employee compensation or similar plans as such plans, with respect to the material terms and

 

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number of shares subject to such plans, are in existence on the date hereof and described in the Prospectus and the issuance of Common Stock pursuant to the valid exercises of options, warrants or rights outstanding on the date hereof. The Company will cause each officer, director, shareholder, optionholder and warrantholder listed in Schedule D to furnish to the Representatives, prior to the First Closing Date, a letter, substantially in the form of Exhibit I hereto, pursuant to which each such person shall agree, among other things not to directly or indirectly offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, not to engage in any swap or other agreement or arrangement that transfers, in whole or in part, directly or indirectly, the economic risk of ownership of Common Stock or any such securities and not to engage in any short selling of any Common Stock or any such securities, during the Lock-Up Period, without the prior written consent of Cowen and Thomas Weisel. The Company also agrees that during such period, the Company will not file any registration statement, preliminary prospectus or prospectus, or any amendment or supplement thereto, under the Securities Act for any such transaction or which registers, or offers for sale, Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, except for a registration statement on Form S-8 relating to employee benefit plans. The Company hereby agrees that (i) if it issues an earnings release or material news, or if a material event relating to the Company occurs, during the last seventeen (17) days of the Lock-Up Period, or (ii) if prior to the expiration of the Lock-Up Period, the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the Lock-Up Period, the restrictions imposed by this paragraph (l) or the letter shall continue to apply until the expiration of the eighteen (18)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, unless Cowen and Thomas Weisel waive such extension in writing. The Company will provide the Representatives and any co-managers and each stockholder subject to the Lock-Up Period pursuant to the lock-up letters described in Sections 6(q) with prior notice (in accordance with Section 14 herein) of any such announcement that gives rise to an extension of the Lock-Up Period.
(m) To supply the Representatives with copies of all correspondence to and from, and all documents issued to and by, the Commission in connection with the registration of the Stock under the Securities Act or any of the Registration Statements, any Preliminary Prospectus or the Prospectus, or any amendment or supplement thereto or document incorporated by reference therein.
(n) Prior to each of the Closing Dates, to furnish to the Representatives, as soon as they have been prepared, copies of any unaudited interim consolidated financial statements of the Company for any periods subsequent to the periods covered by the financial statements appearing in the Registration Statements and the Prospectus.
(o) Prior to the latest of the Closing Dates, not to issue any press release or other communication directly or indirectly or hold any press conference with respect to the Company, its condition, financial or otherwise, or earnings, business affairs or business prospects (except for routine oral marketing communications in the ordinary course of business and consistent with the past practices of the Company and of which the Representatives are notified), without the prior written consent of the Representatives, unless in the judgment of the Company and its counsel, and after notification to the Representatives, such press release or communication is required by law.
(p) Until Cowen and Thomas Weisel shall have notified the Company of the completion of the resale of the Stock, that the Company will not, and will use reasonable efforts to cause its affiliated purchasers (as defined in Regulation M under the Exchange Act) not to, either alone or

 

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with one or more other persons, bid for or purchase, for any account in which it or any of its affiliated purchasers has a beneficial interest, any Stock, or attempt to induce any person to purchase any Stock; and not to, and to cause its affiliated purchasers not to, make bids or purchase for the purpose of creating actual, or apparent, active trading in or of raising the price of the Stock.
(q) Not to take any action prior to latest of the Closing Dates which would require the Prospectus to be amended or supplemented pursuant to Section 4(I)(d).
(r) To at all times comply with all applicable provisions of the Sarbanes-Oxley Act in effect from time to time and to file with the Commission such information on Form 10-Q or Form 10-K as may be required by Rule 463 under the Act, in each case, when the Prospectus is required to be delivered.
(s) To apply the net proceeds from the sale of the Stock as set forth in the Registration Statement, the General Disclosure Package and the Prospectus under the heading “Use of Proceeds.”
(t) To use its best efforts to effect and maintain the quotation of the Stock on the Nasdaq GM.
(u) To use its commercially reasonable best efforts to do and perform all things required to be done or performed under this Agreement by the Company prior to each Closing Date and to satisfy all conditions precedent to the delivery of the Firm Stock and the Optional Stock.
     (II) Further Agreements of the Selling Shareholders. Each Selling Shareholder, severally and not jointly, agrees with the several Underwriters that:
(a) The shares of Stock represented by the certificates held in custody under the Custody Agreement for such Selling Shareholder are for the benefit of and coupled with and subject to the interests of the Underwriters hereunder, and the arrangements made by such Selling Shareholder for such custody and the appointments of the Attorneys in fact and the Custodian are irrevocable. The obligations of such Selling Shareholder hereunder shall not be terminated by operation of law, whether by death or incapacity of any Selling Shareholder that is an individual or, in the case of a Selling Shareholder that is an estate or trust, by the death or incapacity of any executor or trustee thereof or the termination of such trust or estate, or in the case of a Selling Shareholder that is a partnership or corporation, by the dissolution or liquidation of such partnership or corporation, or by the occurrence of any other event before the delivery of the Stock hereunder. If any individual Selling Shareholder or trustee or executor of any estate or trust Selling Shareholder should die or become incapacitated, if any estate or trust Selling Shareholder should be terminated, if any partnership or corporation Selling Shareholder should be dissolved or liquidated or if any other event should occur before the delivery of the Stock to the Underwriters hereunder, certificates for the Stock to be sold by such Selling Shareholder shall be delivered on behalf of such Selling Shareholder in accordance with the terms and conditions of this Agreement as if such death, incapacity, termination, dissolution, liquidation or other event had not occurred and all action taken by the Attorneys in fact or any of them under the Power of Attorney or by the Custodian under the Custody Agreement shall be as valid as if such death, incapacity, termination, dissolution, liquidation or other event had not occurred, whether or not the Custodian, the Attorneys in fact or any of them shall have notice of such death, incapacity, termination, dissolution, liquidation or other event.

 

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(b) Such Selling Shareholder will not take, directly or indirectly, any action designed or intended to stabilize or manipulate the price of any security of the Company, or that would reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company.
(c) Such Selling Shareholder will deliver to Cowen and Thomas Weisel on or prior to the First Closing Date a properly completed and executed United States Treasury Department Form W-8 (if the Selling Shareholder is a non-United States person) or Form W-9 (if the Selling Shareholder is a United States person) or such other applicable form or statement specified by Treasury Department regulations in lieu thereof.
(d) Such Selling Shareholder agrees that it will not prepare of have prepared on its behalf or use or refer to any “free writing prospectus” (as defined in Rule 405 under the Securities Act) and agrees that it will not distribute any written materials in connection with the offer or sale of the Stock.
(e) During the period when delivery of a prospectus (or, in lieu thereof, the notice referred to under Rule 173(a) under the Securities Act) is required under the Securities Act, such Selling Shareholder will advise the Representatives promptly, and will confirm such advice in writing to the Representatives, of any change in the information relating to such Selling Shareholder in the Registration Statement, the Prospectus or any document comprising the General Disclosure Package.
(f) Such Selling Shareholder will use his, her or its commercially reasonable best efforts to do and perform all things required to be done or performed under this Agreement by such Selling Shareholder prior to the each Closing Date and to satisfy all conditions precedent to the delivery of the Firm Stock and the Optional Stock.
5. Payment of Expenses. The Company agrees to pay, or reimburse if paid by any Underwriter, whether or not the transactions contemplated hereby are consummated or this Agreement is terminated: (a) the costs incident to the authorization, issuance, preparation, printing and delivery of certificates for the Stock, including any taxes payable in that connection; (b) the costs incident to the Registration of the Stock under the Securities Act; (c) the costs incident to the preparation, printing and distribution of the Registration Statements, any Preliminary Prospectus, any Issuer Free Writing Prospectus, the General Disclosure Package, the Prospectus, any amendments, supplements and exhibits thereto and the costs of printing, reproducing and distributing the Power of Attorney, the Custody Agreement, the “Agreement Among Underwriters” between the Representatives and the Underwriters, the Master Selected Dealers’ Agreement, the Underwriters’ Questionnaire, this Agreement and any closing documents by mail, facsimile transmission or other means of communications, in all cases, as may be reasonably requested for use in connection with the offering and sale of the Stock; (d) the fees and expenses (including related reasonable fees and expenses of a single counsel for the Underwriters) incurred in connection with securing any required review by the NASD of the terms of the sale of the Stock and any filings made with the NASD; (e) any applicable listing, quotation or other fees; (f) the fees and expenses (including related reasonable fees and expenses of a single counsel to the Underwriters) of qualifying the Stock under the securities laws of the several jurisdictions as provided in Section 4(I)(j)) and of preparing, printing and distributing wrappers, Blue Sky Memoranda and Legal Investment Surveys; (g) all fees and expenses of the registrar and transfer agent of the Stock; and (i) all other costs and expenses incident to the offering of the Stock or the performance of the obligations of the Company under this Agreement (including, without limitation, the fees and expenses of the Company’s counsel and the Company’s independent accountants); provided that, except to the extent otherwise provided in this Section 5 and in Sections 9 and 10, the Underwriters shall pay their own costs and expenses, including the fees and expenses of their counsel, any

 

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transfer taxes on the resale of any Stock by them and the expenses of advertising any offering of the Stock made by the Underwriters.
      Each Selling Shareholder will pay all fees and expenses incident to the performance of such Selling Shareholder’s obligations under this Agreement which are not otherwise specifically provided for herein, including but not limited to any fees and expenses of counsel for such Selling Shareholder, such Selling Shareholder’s pro rata share of fees and expenses of the Attorneys in fact and the Custodian and all expenses and taxes incident to the sale and delivery of the Stock to be sold by such Selling Shareholder to the Underwriters hereunder, unless any agreement between the Company and the Selling Shareholders provides that the Company shall pay some or all of such fees and expenses, in which case the Company shall pay such specified fees and expenses and the Selling Shareholder shall pay the remainder.
6. Conditions of Underwriters’ Obligations. The respective obligations of the several Underwriters hereunder are subject, in their discretion, to the accuracy, when made and at the Applicable Time and on such Closing Date, of the representations and warranties of the Company and the Selling Shareholders contained herein, to the accuracy of the statements of the Company and the Selling Shareholders made in any certificates pursuant to the provisions hereof, to the performance by the Company and the Selling Shareholders of their obligations hereunder, and to each of the following additional terms and conditions:
(a) No stop order suspending the effectiveness of any Registration Statement or any part thereof, preventing or suspending the use of any Preliminary Prospectus, the Prospectus or any Permitted Free Writing Prospectus or any part thereof shall have been issued and no proceedings for that purpose or pursuant to Section 8A under the Securities Act shall have been initiated or threatened by the Commission and all requests for additional information on the part of the Commission (to be included in the Registration Statements or the Prospectus or otherwise) shall have been complied with to the reasonable satisfaction of the Representatives; the Rule 462(b) Registration Statement, if any, each Issuer Free Writing Prospectus and the Prospectus shall have been filed with, the Commission within the applicable time period prescribed for such filing by, and in compliance with, the Rules and Regulations and in accordance with Section 4(I)(a), and the Rule 462(b) Registration Statement, if any, shall have become effective immediately upon its filing with the Commission; and the NASD shall have raised no objection to the fairness and reasonableness of the terms of this Agreement or the transactions contemplated hereby.
(b) None of the Underwriters shall have discovered and disclosed to the Company on or prior to such Closing Date that any Registration Statement or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of counsel for the Underwriters, is material or omits to state any fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein not misleading, or that the General Disclosure Package, any Issuer Free Writing Prospectus or the Prospectus or any amendment or supplement thereto contains an untrue statement of fact which, in the opinion of such counsel, is material or omits to state any fact which, in the opinion of such counsel, is material and is necessary in order to make the statements, in the light of the circumstances in which they were made, not misleading.
(c) All corporate proceedings and other legal matters incident to the authorization, form and validity of each of this Agreement , the Custody Agreements, the Powers of Attorney, the Stock, the Registration Statements, the General Disclosure Package, each Issuer Free Writing Prospectus and the Prospectus and all other legal matters relating to this Agreement and the transactions contemplated hereby shall be reasonably satisfactory in all material respects to counsel for the

 

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Underwriters, and the Company and the Selling Shareholders shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters.
(d) Hogan & Hartson L.L.P. shall have furnished to the Representatives such counsel’s (i) written opinion, as counsel to the Company, addressed to the Underwriters and dated such Closing Date, in substantially the form attached hereto as Exhibit ___ and (ii) written statement, as counsel to the Company, addressed to the Underwriters and dated such Closing Date, in substantially the form attached hereto as Exhibit ___.
(e) Hogan & Hartson MNP shall have furnished to the Representatives such counsel’s written opinion, as foreign counsel to the Company, addressed to the Underwriters and dated the Closing Date, in form and substance reasonably satisfactory to the Representatives.
(f) Each of Hogan & Hartson L.L.P., ___,___and ___shall have furnished to the Representatives such counsel’s written opinion, as counsel to the Selling Shareholders, addressed to the Underwriters and dated such Closing Date, in substantially the form attached hereto as Exhibits ___,___and ___respectively.
(g) The Representatives shall have received from Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Underwriters, such opinion or opinions, dated such Closing Date, with respect to such matters as the Underwriters may reasonably require, and the Company and the Selling Shareholders shall have furnished to such counsel such documents as they request for enabling them to pass upon such matters.
(h) At the time of the execution of this Agreement, the Representatives shall have received from each of Ernst & Young Audit and Eisner LLP a letter, addressed to the Underwriters, executed and dated such date, in form and substance satisfactory to the Representatives (i) confirming that they an independent registered accounting firm with respect to the Company and its subsidiaries within the meaning of the Securities Act and the Rules and Regulations and PCAOB and (ii) stating the conclusions and findings of such firm, of the type ordinarily included in accountants’ “comfort letters” to underwriters, with respect to the financial statements and certain financial information contained or incorporated by reference in the Registration Statements, the General Disclosure Package and the Prospectus.
(i) On the effective date of any post-effective amendment to any Registration Statement and on such Closing Date, the Representatives shall have received a letter (the “bring-down letter”) from each of Ernst & Young Audit and Eisner LLP addressed to the Underwriters and dated such Closing Date confirming, as of the date of the bring-down letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the General Disclosure Package and the Prospectus, as the case may be, as of a date not more than three (3) business days prior to the date of the bring-down letter), the conclusions and findings of such firm, of the type ordinarily included in accountants’ “comfort letters” to underwriters, with respect to the financial information and other matters covered by its letter delivered to the Representatives concurrently with the execution of this Agreement pursuant to paragraph (h) of this Section 6.
(j) The Company shall have furnished to the Representatives a certificate, dated such Closing Date, of its chief executive officer and its chief financial officer stating that (i) such officers have carefully examined the Registration Statement, the General Disclosure Package, any Permitted Free Writing Prospectus and the Prospectus and, to knowledge of such officer, at the respective times the Registration Statements and any amendments thereto became or become

 

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effective and at each Closing Date did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the General Disclosure Package, as of the Applicable Time and as of such Closing Date, any Permitted Free Writing Prospectus as of its date and as of such Closing Date, the Prospectus and each amendment or supplement thereto, as of the respective date thereof and as of such Closing Date, did not include any untrue statement of a material fact and did not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading, (ii) since the effective date of the Initial Registration Statement, no event has occurred which should have been set forth in a supplement or amendment to the Registration Statements, the General Disclosure Package or the Prospectus, (iii) to the best of their knowledge after reasonable investigation, as of such Closing Date, the representations and warranties of the Company in this Agreement are true and correct and the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to such Closing Date, and (iv) there has not been, subsequent to the date of the most recent audited financial statements included in the General Disclosure Package, any material adverse change in the financial position or results of operations of the Company and its subsidiaries, or any change or development that, singularly or in the aggregate, would involve a material adverse change or a prospective material adverse change, in or affecting the condition (financial or otherwise), results of operations, business, assets or prospects of the Company and its subsidiaries taken as a whole, except as set forth in the Prospectus.
(k) At the time of the execution of this Agreement, the Representatives shall have received copies of the Power of Attorney and Custody Agreement executed by each Selling Shareholder, Attorney-in-fact and Custodian.
(l) Each Selling Shareholder (or the Custodian or one or more Attorneys-in-fact on behalf of such Selling Shareholder) shall have furnished to the Representatives on such Closing Date a certificate, dated the such date, signed by, or on behalf of, such Selling Shareholder stating that the representations, warranties and agreements of such Selling Shareholder contained herein are true and correct as of such Closing Date and that such Selling Shareholder has complied with all agreements contained herein to be performed by such Selling Shareholder at or prior to such Closing Date.
(m) Since the date of the latest audited financial statements included in the General Disclosure Package, (i) neither the Company nor any of its subsidiaries shall have sustained any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth in the General Disclosure Package, and (ii) there shall not have been any change in the capital stock or long-term debt of the Company or any of its subsidiaries, or any change, or any development involving a prospective change, in or affecting the business, management, financial position, stockholders’ equity or results of operations of the Company and its subsidiaries, otherwise than as set forth in the General Disclosure Package, the effect of which, in any such case described in clause (i) or (ii) of this paragraph (m), is, in the judgment of the Representatives, so material and adverse as to make it impracticable or inadvisable to proceed with the sale or delivery of the Stock on the terms and in the manner contemplated in the General Disclosure Package.
(n) No action shall have been taken and no law, statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency or body which would prevent the issuance or sale of the Stock or materially and adversely affect or potentially materially and adversely affect the business or operations of the Company; and no injunction, restraining order

 

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or order of any other nature by any federal or state court of competent jurisdiction shall have been issued which would prevent the issuance or sale of the Stock or materially and adversely affect or potentially materially and adversely affect the business or operations of the Company.
(o) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange, Nasdaq GM or in the over-the-counter market, or trading in any securities of the Company on any exchange or in the over-the-counter market, shall have been suspended or materially limited, or minimum or maximum prices or maximum range for prices shall have been established on any such exchange or such market by the Commission, by such exchange or market or by any other regulatory body or governmental authority having jurisdiction, (ii) a banking moratorium shall have been declared by Federal or state authorities or a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States, (iii) the United States shall have become engaged in hostilities, or the subject of an act of terrorism, or there shall have been an outbreak of or escalation in hostilities involving the United States, or there shall have been a declaration of a national emergency or war by the United States or (iv) there shall have occurred such a material adverse change in general economic, political or financial conditions (or the effect of international conditions on the financial markets in the United States shall be such) so as to make it, in the judgment of the Representatives, impracticable or inadvisable to proceed with the sale or delivery of the Stock on the terms and in the manner contemplated in the General Disclosure Package and the Prospectus.
(p) The Nasdaq GM shall have approved the Stock for inclusion therein, subject only to official notice of issuance and evidence of satisfactory distribution.
(q) Cowen and Thomas Weisel shall have received the written agreements, substantially in the form of Exhibit I hereto, of the officers, directors, shareholders, optionholders and warrantholders of the Company listed in Schedule D to this Agreement.
      All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Underwriters.
7. Indemnification And Contribution.
(a) The Company shall indemnify and hold harmless each Underwriter, its directors, officers, managers, members, employees, Representatives and agents and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively the “Underwriter Indemnified Parties,” and each an “Underwriter Indemnified Party”) against any loss, claim, damage, expense or liability whatsoever (or any action, investigation or proceeding in respect thereof), joint or several, to which such Underwriter Indemnified Party may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, expense, liability, action, investigation or proceeding arises out of or is based upon (A) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed pursuant to Rule 433(d) of the Rules and Regulations, any Registration Statement or the Prospectus, or in any amendment or supplement thereto, (B) the omission or alleged omission to state in any Preliminary Prospectus, any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed pursuant to Rule 433(d) of the Rules and Regulations, any Registration Statement or the Prospectus, or in any amendment or supplement thereto a material fact required to be stated therein or necessary to make the statements therein not misleading; or (C) any act or failure to act, or any alleged act or failure to act, by any

 

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Underwriter in connection with, or relating in any manner to, the Stock or the offering contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, expense, liability, action, investigation or proceeding arising out of or based upon matters covered by subclause (A) or (B) above of this Section 7(a) (provided that the Company shall not be liable in the case of any matter covered by this subclause (C) to the extent that it is determined in a final judgment by a court of competent jurisdiction that such loss, claim, damage, expense or liability resulted directly from any such act or failure to act undertaken or omitted to be taken by such Underwriter through its gross negligence or willful misconduct), and shall reimburse each Underwriter Indemnified Party promptly upon demand for any legal fees or other expenses reasonably incurred by that Underwriter Indemnified Party in connection with investigating, or preparing to defend, or defending against, or appearing as a third party witness in respect of, or otherwise incurred in connection with, any such loss, claim, damage, expense, liability, action, investigation or proceeding, as such fees and expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, expense or liability arises out of or is based upon an untrue statement or alleged untrue statement in, or omission or alleged omission from any Preliminary Prospectus, any Registration Statement or the Prospectus, or any such amendment or supplement thereto, or any Issuer Free Writing Prospectus made in reliance upon and in conformity with written information furnished to the Company through the Representatives by or on behalf of any Underwriter specifically for use therein, which information the parties hereto agree is limited to the Underwriter’s Information (as defined in Section 17).
The indemnity agreement in this Section 7(a) is not exclusive and is in addition to each other liability which the Company might have under this Agreement or otherwise, and shall not limit any rights or remedies which may otherwise be available under this Agreement, at law or in equity to any Underwriter Indemnified Party.
(b) The Selling Shareholders, jointly and severally, shall indemnify and hold harmless each Underwriter Indemnified Party, against any loss, claim, damage, expense or liability whatsoever (or any action, investigation or proceeding in respect thereof), joint or several, to which that Underwriter Indemnified Party may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, expense, liability, action, investigation or proceeding arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed pursuant to Rule 433(d) of the Rules and Regulations,any Registration Statement or the Prospectus, or in any amendment or supplement thereto, or (ii) the omission or alleged omission to state in any Preliminary Prospectus, any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed pursuant to Rule 433(d) of the Rules and Regulations, any Registration Statement or the Prospectus, or in any amendment or supplement thereto, a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information provided to the Company by or on behalf of a Selling Shareholder specifically for inclusion therein, and shall reimburse each Underwriter Indemnified Party promptly upon demand for any legal or other expenses reasonably incurred by that Underwriter Indemnified Party in connection with investigating or preparing to defend or defending against or appearing as a third party witness in connection with any such loss, claim, damage, liability, action, investigation or proceeding, as such fees and expenses are incurred; provided, however, that the liability of the Selling Shareholders pursuant to this Section 7(b) shall not exceed the aggregate gross proceeds received after underwriting commissions and discounts, but before expenses, from the sale of Offered Securities by such Shareholder pursuant to this Agreement (with respect to each Selling Shareholder, such amount being referred to herein as

 

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such Selling Shareholder’s “Net Proceeds”). This indemnity agreement is not exclusive and will be in addition to any liability which the Selling Shareholders might have under this Agreement or otherwise, and shall not limit any rights or remedies which may otherwise be available under this Agreement, at law or in equity to each Underwriter Indemnified Party.
(c) Each Underwriter, severally and not jointly, shall indemnify and hold harmless the Company and its directors, its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively the “Company Indemnified Parties” and each individually a “Company Indemnified Party”) and the Selling Shareholders against any loss, claim, damage, expense or liability whatsoever (or any action, investigation or proceeding in respect thereof), joint or several, to which such Company Indemnified Party may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, expense, liability, action, investigation or proceeding arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed pursuant to Rule 433(d) of the Rules and Regulations,any Registration Statement or the Prospectus, or in any amendment or supplement thereto, or (ii) the omission or alleged omission to state in any Preliminary Prospectus, any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed pursuant to Rule 433(d) of the Rules and Regulations,any Registration Statement or the Prospectus, or in any amendment or supplement thereto, a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through the Representatives by or on behalf of that Underwriter specifically for use therein, which information the parties hereto agree is limited to the Underwriter’s Information as defined in Section 17, and shall reimburse the Company Indemnified Parties, reasonably and promptly for any legal or other expenses reasonably incurred by such party in connection with investigating or preparing to defend or defending against or appearing as third party witness in connection with any such loss, claim, damage, liability, action, investigation or proceeding, as such fees and expenses are incurred. This indemnity agreement is not exclusive and will be in addition to any liability which the Underwriters might otherwise have and shall not limit any rights or remedies which may otherwise be available under this Agreement, at law or in equity to the Company Indemnified Parties.
(d) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party under this Section 7, notify such indemnifying party in writing of the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 7 except to the extent it has been materially prejudiced by such failure; and, provided, further, that the failure to notify an indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 7. If any such action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense of such action with counsel reasonably satisfactory to the indemnified party (which counsel shall not, except with the written consent of the indemnified party, be counsel to the indemnifying party). After notice from the indemnifying party to the indemnified party of its election to assume the defense of such action, except as provided herein, the indemnifying party shall not be liable to the indemnified party under Section 7 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense of such action other than reasonable costs of investigation; provided,

 

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however, that any indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense of such action but the fees and expenses of such counsel (other than reasonable costs of investigation) shall be at the expense of such indemnified party unless (i) the employment thereof has been specifically authorized in writing by the Company in the case of a claim for indemnification under Section 7(a), the Selling Shareholder in the case of a claim for indemnification under Section 7(b) or Cowen and Thomas Weisel in the case of a claim for indemnification under Section 7(c), (ii) such indemnified party shall have been advised by its counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party, (iii) the indemnifying party has failed to assume the defense of such action and employ counsel reasonably satisfactory to the indemnified party within a reasonable period of time after notice of the commencement of the action or the indemnifying party does not diligently defend the action after assumption of the defense, in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of (or, in the case of a failure to diligently defend the action after assumption of the defense, to continue to defend) such action on behalf of such indemnified party and the indemnifying party shall be responsible for legal or other expenses subsequently incurred by such indemnified party in connection with the defense of such action; provided, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such indemnified parties (in addition to any local counsel), which firm shall be designated in writing by Cowen and Thomas Weisel if the indemnified parties under this Section 7 consist of any Underwriter Indemnified Party or by the Company if the indemnified parties under this Section 7 consist of any Company Indemnified Parties. Subject to this Section 7(d), the amount payable by an indemnifying party under Section 7 shall include, but not be limited to, (x) reasonable legal fees and expenses of counsel to the indemnified party and any other expenses in investigating, or preparing to defend or defending against, or appearing as a third party witness in respect of, or otherwise incurred in connection with, any action, investigation, proceeding or claim, and (y) all amounts paid in settlement of any of the foregoing. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of judgment with respect to any pending or threatened action or any claim whatsoever, in respect of which indemnification or contribution could be sought under this Section 7 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party in form and substance reasonably satisfactory to such indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. Subject to the provisions of the following sentence, no indemnifying party shall be liable for settlement of any pending or threatened action or any claim whatsoever that is effected without its written consent (which consent shall not be unreasonably withheld or delayed), but if settled with its written consent, if its consent has been unreasonably withheld or delayed or if there be a judgment for the plaintiff in any such matter, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. In addition, if at any time an indemnified party shall have requested that an indemnifying party reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Sections 7(a) or 7(b) effected without its written consent if (i) such settlement is entered into more than forty-five (45) days after receipt by such indemnifying party of the request for reimbursement, (ii) such indemnifying party shall have received notice of the terms of such settlement at least thirty (30) days prior to such settlement being entered into and

 

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(iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement.
(e) If the indemnification provided for in this Section 7 is unavailable or insufficient to hold harmless an indemnified party under Section 7(a), 7(b) or 7(c), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid, payable or otherwise incurred by such indemnified party as a result of such loss, claim, damage, expense or liability (or any action, investigation or proceeding in respect thereof), as incurred, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company and the Selling Shareholders on the one hand and the Underwriters on the other from the offering of the Stock, or (ii) if the allocation provided by clause (i) of this Section 7(e) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) of this Section 7(e) but also the relative fault of the Company and the Selling Shareholders on the one hand and the Underwriters on the other with respect to the statements, omissions, acts or failures to act which resulted in such loss, claim, damage, expense or liability (or any action, investigation or proceeding in respect thereof) as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Shareholders on the one hand and the Underwriters on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Stock purchased under this Agreement (before deducting expenses) received by the Company and the Selling Shareholders bear to the total underwriting discounts and commissions received by the Underwriters with respect to the Stock purchased under this Agreement, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company and the Selling Shareholders on the one hand and the Underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Selling Shareholders on the one hand or the Underwriters on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement, omission, act or failure to act; provided that the parties hereto agree that the written information furnished to the Company through the Representatives by or on behalf of the Underwriters for use in the Preliminary Prospectus, any Registration Statement or the Prospectus, or in any amendment or supplement thereto, consists solely of the Underwriter’s Information as defined in Section 17. The Company, the Selling Shareholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 7(e) were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage, expense, liability, action, investigation or proceeding referred to above in this Section 7(e) shall be deemed to include, for purposes of this Section 7(e), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating, preparing to defend or defending against or appearing as a third party witness in respect of, or otherwise incurred in connection with, any such loss, claim, damage, expense, liability, action, investigation or proceeding. Notwithstanding the provisions of this Section 7(e), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Stock underwritten by it and distributed to the public were offered to the public less the amount of any damages which such Underwriter has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement, omission or alleged omission, act or alleged act or failure to act or alleged failure to act. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters’ obligations to contribute as provided in this Section 7(e) are several in proportion to their respective underwriting obligations and not joint.

 

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8. Termination. The obligations of the Underwriters hereunder may be terminated by Cowen and Thomas Weisel, in their absolute discretion, by notice given to the Company and the Attorney-in-fact (for all Selling Shareholders) prior to delivery of and payment for the Firm Stock if, prior to that time, any of the events described in Sections 6(m), 6(n) and 6(o) have occurred or if the Underwriters shall decline to purchase the Stock for any reason permitted under this Agreement.
9. Reimbursement of Underwriters’ Expenses. Notwithstanding anything to the contrary in this Agreement, if (a) this Agreement shall have been terminated pursuant to Section 8 or 10, (b) the Company or any Selling Shareholder shall fail to tender the Stock for delivery to the Underwriters for any reason not permitted under this Agreement, (c) the Underwriters shall decline to purchase the Stock for any reason permitted under this Agreement or (d) the sale of the Stock is not consummated because any condition to the obligations of the Underwriters set forth herein is not satisfied or because of the refusal, inability or failure on the part of the Company or any Selling Shareholder to perform any agreement herein or to satisfy any condition or to comply with the provisions hereof, then in addition to the payment of amounts in accordance with Section 5, the Company and each Selling Shareholder shall, pro rata based on the number of shares of Stock each agreed to sell hereunder, reimburse the Underwriters for the actual, out-of-pocket expenses, including, without limitation, the actual fees and expenses of Underwriters’ counsel and for such other out-of-pocket expenses as shall have been reasonably incurred by them in connection with this Agreement and the proposed purchase of the Stock consistent with Section 5, and upon demand the Company and the Selling Shareholders shall pay the full amount thereof to the Cowen; provided that if this Agreement is terminated pursuant to Section 10 by reason of the default of one or more Underwriters, neither the Company nor any Selling Shareholder shall be obligated to reimburse any defaulting Underwriter on account of expenses to the extent incurred by such defaulting Underwriter; provided further that the foregoing shall not limit any reimbursement obligation of the Company to any non-defaulting Underwriter under this Section 9.
10. Substitution of Underwriters. If any Underwriter or Underwriters shall default in its or their obligations to purchase shares of Stock hereunder on any Closing Date and the aggregate number of shares which such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed ten percent (10%) of the total number of shares to be purchased by all Underwriters on such Closing Date, the other Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the shares which such defaulting Underwriter or Underwriters agreed but failed to purchase on such Closing Date. If any Underwriter or Underwriters shall so default and the aggregate number of shares with respect to which such default or defaults occur is more than ten percent (10%) of the total number of shares to be purchased by all Underwriters on such Closing Date and arrangements satisfactory to the Representatives and the Company for the purchase of such shares by other persons are not made within forty eight (48) hours after such default, this Agreement shall terminate.
     If the remaining Underwriters or substituted Underwriters are required hereby or agree to take up all or part of the shares of Stock of a defaulting Underwriter or Underwriters on such Closing Date as provided in this Section 10, (i) the Company and the Selling Shareholders shall have the right to postpone such Closing Dates for a period of not more than five (5) full business days in order that the Underwriters, the Company and the Selling Shareholders may effect whatever changes may thereby be made necessary in the Registration Statements or the Prospectus, or in any other documents or arrangements, and the Company agrees promptly to file any amendments to the Registration Statements or supplements to the Prospectus which may thereby be made necessary, and (ii) the respective numbers of shares to be purchased by the remaining Underwriters or substituted Underwriters shall be taken as the basis of their underwriting obligation for all purposes of this Agreement. Nothing herein contained shall relieve any defaulting Underwriter of its liability to the Company, the Selling Shareholders or the other Underwriters for damages occasioned by its default hereunder. Any termination of this Agreement pursuant to this Section 10 shall be without liability on the part of any non-defaulting Underwriter, the Selling Shareholders or the Company, except that the representations, warranties, covenants, indemnities,

 

 

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agreements and other statements set forth in Section 2, the obligations with respect to expenses to be paid or reimbursed pursuant to Sections 5 and 9 and the provisions of Section 7 and Sections 11 through 21, inclusive, shall not terminate and shall remain in full force and effect.
11. Absence of Fiduciary Relationship. The Company and the Selling Shareholders acknowledge and agree that:
(a) each Underwriter’s responsibility to the Company and the Selling Shareholders are solely contractual in nature, the Representatives are acting solely as underwriters in connection with the sale of the Stock and no fiduciary, advisory or agency relationship between the Company of the Selling Shareholders and the Representatives has been created in respect of any of the transactions contemplated by this Agreement, irrespective of whether any of the Representatives has advised or is advising the Company or the Selling Shareholders on other matters;
(b) the price of the Stock set forth in this Agreement was established by the Company and the Selling Shareholders following discussions and arms-length negotiations with the Representatives, and the Company and the Selling Shareholders is capable of evaluating and understanding, and understands and accepts, the terms, risks and conditions of the transactions contemplated by this Agreement;
(c) they have been advised that the Representatives and their affiliates are engaged in a broad range of transactions which may involve interests that differ from those of the Company and the Selling Shareholders and that the Representatives have no obligation to disclose such interests and transactions to the Company or the Selling Shareholders by virtue of any fiduciary, advisory or agency relationship; and
(d) they waive, to the fullest extent permitted by law, any claims they may have against the Representatives for breach of fiduciary duty in connection with the transactions contemplated by this Agreement and agree that the Representatives shall have no liability (whether direct or indirect) to the Company or the Selling Shareholders in respect of such a fiduciary duty claim or to any person asserting a fiduciary duty claim on behalf of or in right of the Company or the Selling Shareholders, including stockholders, employees or creditors of the Company or the Selling Shareholders.
12. Successors; Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the several Underwriters, the Company and the Selling Shareholders and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, other than the persons mentioned in the preceding sentence, any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person; except that the representations, warranties, covenants, agreements and indemnities of the Company and the Selling Shareholders contained in this Agreement shall also be for the benefit of the Underwriter Indemnified Parties, and the indemnities of the several Underwriters shall be for the benefit of the Company Indemnified Parties and the Selling Shareholders. It is understood that each Underwriter’s responsibility under this Agreement to the Company and the Selling Shareholders is solely contractual in nature and the Underwriters do not owe the Company, or any other party, any fiduciary duty as a result of this Agreement. No purchaser of any of the Stock from any Underwriter shall be deemed to be a successor or assign by reason merely of such purchase.
13. Survival of Indemnities, Representations, Warranties, etc. The respective indemnities, covenants, agreements, representations, warranties and other statements of the Company and the Selling

 

 

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Shareholders and the several Underwriters, as set forth in this Agreement or made by them respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter, the Selling Shareholders, the Company or any person controlling any of them and shall survive delivery of and payment for the Stock. Notwithstanding any termination of this Agreement, including without limitation any termination pursuant to Section 8 or Section 10, the indemnities, covenants, agreements, representations, warranties and other statements forth in Sections 2, 5, 7 and 9 and Sections 11 through 21, inclusive, of this Agreement shall not terminate and shall remain in full force and effect at all times.
14. Notices. All statements, requests, notices and agreements hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, facsimile transmission or email to Cowen and Company, LLC, Attention:                     , Fax: 212-                     and email                     @cowen.com; and
(b) if to the Company shall be delivered or sent by mail, facsimile transmission or email to                      Attention:                     , Fax:                     , email                       ; and
(c) if to any Selling Shareholders, shall be delivered or sent by mail, facsimile transmission or email to the Attorneys-in-fact or such Selling Shareholder at the address set forth on Schedule B hereto;
provided, however, that any notice to an Underwriter pursuant to Section 7 shall be delivered or sent by mail or facsimile transmission to such Underwriter at its address set forth in its acceptance notice to the Representatives, which address will be supplied to any other party hereto by the Representatives upon request. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof, except that any such statement, request, notice or agreement delivered or sent by email shall take effect at the time of confirmation of receipt thereof by the recipient thereof.
15. Definition of Certain Terms. For purposes of this Agreement, (a) “business day” means any day on which the New York Stock Exchange, Inc. is open for trading and (b) “subsidiary” has the meaning set forth in Rule 405 of the Rules and Regulations.
16. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, including without limitation Section 5-1401 of the New York General Obligations. The Company and each Selling Shareholder irrevocably (a) submits to the non-exclusive jurisdiction and venue of the Federal and state courts in the Borough of Manhattan in The City of New York for the purpose of any suit, action or other proceeding arising out of this Agreement or the transactions contemplated by this Agreement, the Registration Statements and any Preliminary Prospectus or the Prospectus, (b) agrees that all claims in respect of any such suit, action or proceeding may be heard and determined by any such court, (c) waives to the fullest extent permitted by applicable law, any immunity from the jurisdiction and venue of any such court or from any legal process, (d) agrees not to commence any such suit, action or proceeding other than in such courts, and (e) waives, to the fullest extent permitted by applicable law, any claim that any such suit, action or proceeding is brought in an inconvenient forum.
17. Underwriters’ Information. The parties hereto acknowledge and agree that, for all purposes of this Agreement, the Underwriters’ Information consists solely of the following information in the Prospectus: (i) the last paragraph on the front cover page concerning the terms of the offering by the Underwriters; and (ii) the statements concerning the Underwriters and the distribution of the Stock contained in the                      under the heading “Underwriting.”

 

 

36
18. Authority of The Representatives. In connection with this Agreement, you will act for and on behalf of the several Underwriters, and any action taken under this Agreement by the Representatives, will be binding on all the Underwriters; and any action taken under this Agreement by any of the Attorneys in fact will be binding on all the Selling Shareholders.
19. Partial Unenforceability. The invalidity or unenforceability of any Section, paragraph, clause or provision of this Agreement shall not affect the validity or enforceability of any other Section, paragraph, clause or provision hereof. If any Section, paragraph, clause or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable.
20. General. This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof. In this Agreement, the masculine, feminine and neuter genders and the singular and the plural include one another. The section headings in this Agreement are for the convenience of the parties only and will not affect the construction or interpretation of this Agreement. This Agreement may be amended or modified, and the observance of any term of this Agreement may be waived, only by a writing signed by the Company, the Attorneys-in-fact on behalf of the Selling Shareholders and the Representatives.
21. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
Any person executing and delivering this Agreement as Attorney in fact for the Selling Shareholders represents by so doing that he has been duly appointed as Attorney in fact by such Selling Shareholder pursuant to a validly existing and binding Power of Attorney which authorizes such Attorney in fact to take such action.

 

 

37
If the foregoing is in accordance with your understanding of the agreement between the Company, the Selling Shareholders and the several Underwriters, kindly indicate your acceptance in the space provided for that purpose below.
                 
    Very truly yours,    
 
                
    DOUBLE-TAKE SOFTWARE, INC.    
 
                
 
      By:        
 
               
 
      Name:        
 
      Title:        
 
                
    SELLING SHAREHOLDERS LISTED
IN SCHEDULE B		    
 
                
 
  By:            
             
 
                
 
      By:        
 
               
 
                
    Attorney-in-fact
Acting on behalf of the Selling
Shareholders listed in Schedule B.		    
Accepted as of
the date first above written:
Cowen and Company, LLC
Thomas Weisel Partners LLC
Cibc World Markets Corp.
Pacific Crest Securities
Acting on their own behalf
and as Representatives of several
Underwriters referred to in the
foregoing Agreement.

 

 

         
By: Cowen and Company, LLC    
 
        
     By:
        
 
       
     Name:
        
     Title:
        
 
        
By: Thomas Weisel Partners, LLC    
 
        
     By:
        
 
       
     Name:
        
     Title:
        

 

 

SCHEDULE A
                 
    Number of Shares of     Number of Shares of  
    Firm Stock to be     Optional Stock to  
Name   Purchased     be Purchased  
Cowen and Company, LLC
                
 
            
Thomas Weisel Partners LLC
               
CIBC World Markets Corp.
                
Pacific Crest Securities Inc.
                
Total
                
 
            

 

 

SCHEDULE B
                 
            Number of Shares of  
    Number of Shares of     Optional Stock to be  
Selling Shareholders   Firm Stock to be Sold     Sold  
 
                
 
            
Total
                
 
            

 

 

SCHEDULE C

 

 

SCHEDULE D

 

 

SCHEDULE E

 

 

Exhibit I
Form of Lock Up Agreement
July __, 2006
Cowen and Company, LLC
Thomas Weisel Partners LLC
CIBC World Markets Corp.
Pacific Crest Securities
     As representatives of the
     several Underwriters
c/o Cowen and Company, LLC
1221 Avenue of the Americas
New York, New York 10020
c/o Thomas Weisel Partners LLC
Lever House
390 Park Avenue, 2nd Floor
New York, New York 10022
Re:      Double-Take Software Registration Statement on Form S-1 for Shares of Common Stock
Dear Sirs:
      This Agreement is being delivered to you in connection with the proposed Underwriting Agreement (the “Underwriting Agreement”) between Double-Take Software, Inc., a Delaware Corporation, formerly known as NSI Software, Inc., (the “Company”) and Cowen and Company, LLC (“Cowen”), Thomas Weisel Partners LLC (“Thomas Weisel”), CIBC World Markets Corp. and Pacific Crest Securities, as representatives of a group of underwriters (collectively, the “Underwriters”), to be named therein, and the other parties thereto (if any), relating to the proposed public offering (the “Offering”) of shares of common stock, par value $0.001 per share (the “Common Stock”) of the Company.
      In order to induce you and the other Underwriters to enter into the Underwriting Agreement, and in light of the benefits that the offering of the Common Stock will confer upon the undersigned in its capacity as a securityholder and/or officer, director or employee of the Company, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with each Underwriter that, during the period beginning on and including the date hereof through and including the date that is one hundred eighty (180) days following the date of the Underwriting Agreement (the “Lock-Up Period”), the undersigned will not, without the prior written consent of Cowen and Thomas Weisel, directly or indirectly,
      (i) offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of, or announce the intention to otherwise dispose of, any shares of Common Stock (including, without limitation, Common Stock which may be deemed to be beneficially owned by the undersigned in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as the same may be amended or supplemented from time to time (such shares, the “Beneficially Owned Shares”)) or securities convertible into or exercisable or exchangeable into Common Stock or Beneficially Owned Shares, (ii) enter into any swap, hedge or similar agreement or arrangement that transfers in whole or in part, the economic risk of ownership of the Beneficially Owned Shares or securities convertible into or exercisable or exchangeable into Common Stock, whether now owned or hereafter acquired by the undersigned or

 

 

with respect to which the undersigned has or hereafter acquires the power of disposition, or (iii) engage in any short selling of the Common Stock.
      The restrictions set forth in the immediately preceding paragraph shall not apply to:
     (1) if the undersigned is a natural person, any transfers made by the undersigned (a) as a bona fide gift to any member of the immediate family (as defined below) of the undersigned or to a trust the direct or indirect beneficiaries of which are exclusively the undersigned or members of the undersigned’s immediate family, (b) by will or intestate succession upon the death of the undersigned or (c) as a bona fide gift to a charity or educational institution,
     (2) if the undersigned is a corporation, partnership, limited liability company or other business entity, any transfers to any shareholder, partner or member of, or owner of a similar equity interest in, the undersigned, as the case may be, if, in any such case, such transfer is not for value, and
     (3) if the undersigned is a corporation, partnership, limited liability company or other business entity, any transfer made by the undersigned (a) in connection with the sale or other bona fide transfer in a single transaction of all or substantially all of the undersigned’s capital stock, partnership interests, membership interests or other similar equity interests, as the case may be, or all or substantially all of the undersigned’s assets, in any such case not undertaken for the purpose of avoiding the restrictions imposed by this agreement or (b) to another corporation, partnership, limited liability company or other business entity so long as the transferee is an affiliate (as defined below) of the undersigned and such transfer is not for value;
provided, however, that in the case of any transfer described in clause (1), (2) or (3) above, it shall be a condition to the transfer that (A) the transferee executes and delivers to Cowen and Thomas Weisel, acting on behalf of the Underwriters, not later than one business day prior to such transfer, a written agreement, in substantially the form of this agreement (it being understood that any references to “immediate family” in the agreement executed by such transferee shall expressly refer only to the immediate family of the undersigned and not to the immediate family of the transferee) and otherwise satisfactory in form and substance to Cowen and Thomas Weisel, and (B) if the undersigned is required to file a report under Section 16(a) of the Securities Exchange Act of 1934, as amended, reporting a reduction in beneficial ownership of shares of Common Stock or Beneficially Owned Shares or any securities convertible into or exercisable or exchangeable for Common Stock or Beneficially Owned Shares during the Lock-Up Period (as the same may be extended as described above), the undersigned shall include a statement in such report to the effect that, in the case of any transfer pursuant to clause (1) above, such transfer is being made as a gift or by will or intestate succession or, in the case of any transfer pursuant to clause (2) above, such transfer is being made to a shareholder, partner or member of, or owner of a similar equity interest in, the undersigned and is not a transfer for value or, in the case of any transfer pursuant to clause (3) above, such transfer is being made either (a) in connection with the sale or other bona fide transfer in a single transaction of all or substantially all of the undersigned’s capital stock, partnership interests, membership interests or other similar equity interests, as the case may be, or all or substantially all of the undersigned’s assets or (b) to another corporation, partnership, limited liability company or other business entity that is an affiliate of the undersigned and such transfer is not for value. For purposes of this paragraph, “immediate family” shall mean a spouse, child, grandchild or other lineal descendant (including by adoption), father, mother, brother or sister of the undersigned; and “affiliate” shall have the meaning set forth in Rule 405 under the Securities Act of 1933, as amended.
      If (i) the Company issues an earnings release or material news or a material event relating to the Company occurs during the last seventeen (17) days of the Lock-Up Period, or (ii) prior to the expiration of the Lock-Up Period, the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the Lock-Up Period, the Lock-Up Period shall be extended and the restrictions imposed by this Agreement shall continue to apply until the expiration of the eighteen (18)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, as applicable, unless Cowen and Thomas Weisel waive, in writing, such extension.
      The undersigned hereby acknowledges that the Company has agreed in the Underwriting Agreement to provide written notice of any event that would result in an extension of the Lock-Up Period pursuant to the previous paragraph to the undersigned (in accordance with Section 15 of the Underwriting Agreement) and agrees that any

 

 

such notice properly delivered will be deemed to have been given to, and received by, the undersigned. The undersigned hereby further agrees that, prior to engaging in any transaction or taking any other action that is subject to the terms of this Agreement during the period from the date hereof to and including the 34th day following the expiration of the Lock-Up Period, it will give notice thereof to the Company and will not consummate such transaction or take any such action unless it has received written confirmation from the Company that the Lock-Up Period (as such may have been extended pursuant to the previous paragraph) has expired.
      The undersigned further agrees that (i) it will not, during the Lock-Up Period (as the same may be extended as described above), make any demand or request for or exercise any right with respect to the registration under the Securities Act of 1933, as amended, of any shares of Common Stock or other Beneficially Owned Shares or any securities convertible into or exercisable or exchangeable for Common Stock or other Beneficially Owned Shares, and (ii) the Company may, with respect to any Common Stock or other Beneficially Owned Shares or any securities convertible into or exercisable or exchangeable for Common Stock or other Beneficially Owned Shares owned or held (of record or beneficially) by the undersigned, cause the transfer agent or other registrar to enter stop transfer instructions and implement stop transfer procedures with respect to such securities during the Lock-Up Period (as the same may be extended as described above). In addition, the undersigned hereby waives, other than as described in the registration statement in connection with the Offering, from the date hereof until the expiration of the one hundred eighty (180) day period following the date of the Underwriting Agreement and any extension of such period pursuant to the terms hereof, any and all rights, if any, to request or demand registration pursuant to the Securities Act of 1933, as amended, of any shares of Common Stock or securities convertible into or exercisable or exchangeable into Common Stock that are registered in the name of the undersigned or that are Beneficially Owned Shares.
      The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this agreement and that this agreement has been duly authorized (if the undersigned is not a natural person), executed and delivered by the undersigned and is a valid and binding agreement of the undersigned. This agreement and all authority herein conferred are irrevocable and shall survive the death or incapacity of the undersigned (if a natural person) and shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. If the Company decides to terminate the Offering, then upon written notice of such decision to the undersigned and the Underwriters this agreement shall terminate.
      The undersigned acknowledges and agrees that whether or not any public offering of Common Stock actually occurs depends on a number of factors, including market conditions.
         
  Very truly yours,
 		  
  By:      
    Name:      
    Title:      
 

 

EX-2.01 3 w23440a3exv2w01.htm EX-2.01 exv2w01
 

Exhibit 2.01
SHARES PURCHASE AGREEMENT
dated as of May 23, 2006
among
NSI SOFTWARE, INC.
and the
SHAREHOLDERS OF SUNBELT SYSTEM SOFTWARE S.A.S.

 

 

SHARES PURCHASE AGREEMENT
THIS SHARES PURCHASE AGREEMENT, dated as of May 23, 2006 (this “Agreement”), is entered into by and among NSI SOFTWARE, INC., a Delaware corporation with its principal place of business located at 257 Turnpike Road, Southboro, MA 01772, USA (“NSI”), and (i) SUNBELT INTERNATIONAL S.A.R.L., a limited liability company existing under the laws of the Republic of France, and (ii) Mr. Jo MURCIANO, residing at 7, Allée Jean Houdon, 92500 Rueil-Malmaison, France (collectively, the “Sunbelt Shareholders”) as the holders of all of the shares of SUNBELT SYSTEM SOFTWARE S.A.S., a société par actions simplifiée existing under the laws of the Republic of France, with a share capital of €37,000, having its corporate headquarters located at 116-118 avenue Paul Doumer 92500 Rueil-Malmaison, identified under number 389 300 690 RCS Nanterre (“Sunbelt”).
RECITALS
A. The Board of Directors of NSI and the Sunbelt Shareholders deem it advisable and in the best interests of each company and their respective stockholders that NSI acquire Sunbelt in order to advance the long-term business interests of NSI and Sunbelt;
B. The acquisition of Sunbelt by NSI shall be effected by the terms of this Agreement through a sale by the Sunbelt Shareholders of all the five hundred (500) shares of Sunbelt (the “Sunbelt Shares”) to NSI, in exchange for cash and cash payments to be earned over time based on Sunbelt’s performance from and after the consummation of the transaction described herein (such transaction, the “Sale”) pursuant to the terms of that certain Xcelerate Distributor Agreement dated as of July 30, 2001, by and between NSI and Sunbelt, as amended to date and as further modified hereby (the “Distribution Agreement”) and attached as Exhibit A;
C. As a condition and inducement to NSI’s willingness to enter into this Agreement, the closing of the Sale shall occur simultaneously with the execution of this Agreement and, accordingly the Sunbelt Shareholders have obtained all authorizations, consents and approvals required by French law to close the Sale.
NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below, the parties agree as follows:
ARTICLE I
THE SALE OF THE SHARES
Section 1.1 Purchase and Sale of Sunbelt Shares. Subject to the provisions of this Agreement:

- 1 -

 

     (a) On the terms and subject to the conditions set forth in this Agreement, the Sunbelt Shareholders hereby sell to NSI, and NSI hereby purchases, all of the Sunbelt Shares free and clear of all encumbrances of any kind.; and
     (b) As consideration for the Sale and subject to the terms and conditions set forth in this Agreement, NSI shall deliver to the Sunbelt Shareholders the consideration set forth in Article II of this Agreement on the dates provided for therein.
Section 1.2 The Closing. The Sale of the Sunbelt Shares (the “Closing”) is completed and becomes effective as of the date first written above. “Closing Date” means the date the Agreement is executed.
ARTICLE II
SALE CONSIDERATION
Section 2.1 Sale Consideration. On the Closing Date and contemporaneously with the execution of this Agreement, the Sunbelt Shareholders are delivering to NSI all of the Sunbelt Shares. The purchase price payable in respect of the Sunbelt Shares shall equal the sum of the Initial Purchase Price and the Earn-Out Payments, each as defined herein (such aggregate amount, the “Purchase Price”). The “Initial Purchase Price” shall be equal to €707,850 (seven hundred seven thousands eight hundred fifty euro) to be paid subject to Section 2.1(b) below, in whole or in part amount, by NSI to the Sunbelt Shareholders, pro rata in accordance with their respective ownership of the Sunbelt Shares on the Closing Date, as Mr. Jo Murciano shall direct, at such time or from time to time and to the extent that Sunbelt shall have a Positive Cash Balance (as defined below) at the time of payment. In addition, in accordance with and subject to the terms, provisions, and conditions of this Section 2.1, NSI will make monthly payments to the Sunbelt Shareholders (“Earn-Out Payments”) with respect to payments made to NSI under the Distribution Agreement during the two years beginning January 1, 2006 and ending December 31, 2007 (the “Earn-Out Period”), provided that, with respect to each Earn-Out Payment, (1) Sunbelt achieves Net Operating Income equal to or greater than zero for the respective Monthly Measuring Period (as defined below) in which the applicable Earn-Out Payment was earned, and (2) Sunbelt shall have a Positive Cash Balance as of the last day of the Monthly Measuring Period in which the applicable Earn-Out Payment was earned. The parties agree that the Earn-out Payments payable with respect to the three-months ended March 31, 2006 shall be equal to $656,826.25. Accordingly, on the Closing Date, NSI will (i) pay to the Sunbelt Shareholders, by wire transfer of immediate available funds to such accounts as Sunbelt Shareholders have designated in writing to NSI, pro rata in accordance with their respective ownership of the Sunbelt Shares on the Closing Date, the sum corresponding to 80% of the Earn-Out Payments accrued on March 31, 2006, in an aggregate of $525,461.00; and (ii) deposit on the Escrow Account the amount of $131,365.25, equivalent to 20% of the Earn-Out Payments accrued on March 31, 2006.

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     Capitalized terms used in this Section 2.1 and not otherwise defined herein shall have the meanings ascribed to such terms in the Distribution Agreement.
     (a) Subject to paragraph (b) below, NSI will pay Earn-Out Payments to the Sunbelt Shareholders, pro rata in accordance with their respective ownership of Sunbelt Shares on the Closing Date, in an amount equal to 50% of the Aggregate Dollar Value of the amounts paid by Sunbelt to NSI in respect of purchases made under the Distribution Agreement during each month commencing on January 1, 2006 and ending December 31, 2007 (each a “Monthly Measuring Period”). For purposes of explanation and not of limitation, amounts paid by Sunbelt to NSI will be credited in the Monthly Measuring Period that NSI actually receives payment, regardless of the Monthly Measuring Period in which the purchase was booked by NSI. “Aggregate Dollar Value” means the total dollar value (U.S.) of Licensed Software, Annual Maintenance Contracts, Pass Thru Training and Packaged Services ordered by Sunbelt, taking into account all applicable discounts and rebates applicable thereto under the Distribution Agreement; provided, however, that with respect to any amounts included in the Aggregate Dollar Value from the Annual Maintenance Contracts, only 75% of such amounts shall be included in the total, and provided further, that with respect to Annual Maintenance Contracts having a term of two years, Sunbelt will receive credit for only one additional year’s payment for contracts entered into from and after June 30, 2007, and with respect to Annual Maintenance Contracts having a term of three years, Sunbelt will receive credit for only one additional year’s payment for contracts entered into from and after December 31, 2006, and in any event, two- and three-year Annual Maintenance Contracts may not exceed 20% of sales of Annual Maintenance Contracts included in the calculation of any Earn-Out Payment. Notwithstanding the foregoing, if prior to the end of the Earn-Out Period the aggregate amount of Earn-Out Payments paid to the Sunbelt Shareholders equals U.S. $10 Million (less any amounts set off in accordance with Section 2.1(h))(the “Target Amount”), the percentage of the Aggregate Dollar Value used to calculate the amount of any remaining Earn-Out Payments shall be reduced from 50% to 15%.
     (b) NSI shall deposit in escrow an amount equal to 20% of the Initial Purchase Price and of each Earn-Out Payment otherwise due and payable to the Sunbelt Shareholders under paragraph (a) (the “Escrow Amount”) above pursuant to the provisions of an escrow agreement (the “Escrow Agreement”) in the form attached hereto as Exhibit B. The Escrow Amount shall be held in escrow and available to indemnify NSI for Damages payable pursuant to Article VIII hereof and as otherwise described therein.
     (c) If no Earn-Out Payment is made for any Monthly Measuring Period (a “Shortfall Month”) solely as a result of the failure of Sunbelt to achieve Net Operating Income equal to or greater than zero for the applicable period and/or to have a Positive Cash Balance at the end of

- 3 -

 

such period, the Earn-Out Payment that would have otherwise been payable for such Shortfall Month in the absence of such failure(s)(a “Missed Payment”) shall be paid as an Earn-Out Payment for the first succeeding Monthly Measuring Period thereafter in which the following conditions are satisfied: (i) if the Missed Payment was due to failure to achieve positive Net Operating Income in the Shortfall Month, then the Net Operating Income for the Shortfall Month, which added to the Net Operating Income for the succeeding Monthly Measuring Period(s) on a cumulative basis, must be equal to or greater than zero; and/or (ii) if the Missed Payment was due to the failure to have a Positive Cash Balance at the end of the Shortfall Month, Sunbelt must have a Positive Cash Balance as of the last day of such succeeding Monthly Measuring Period.
     (d) Mr. Jo Murciano, as representative of the Sunbelt Shareholders (the “Representative”), will provide NSI with monthly financial statements of Sunbelt within ten business days of the end of each month during the Earn-Out Period (consisting of an income statement, statement of cash flows and a balance sheet as of the end of such month), together with a certification of the Representative attesting as to whether Sunbelt has met the conditions entitling the Sunbelt Shareholders to receive an Earn-Out Payment for such month as set forth in this Section 2.1 and confirming that such monthly financial statements have been prepared in accordance with French GAAP, consistent with past practices (subject to the absence of footnotes and customary year-end adjustments)(such monthly financial statements and associated certification, a “Monthly Report”). NSI will review the Monthly Reports and notify the Representative of any disputes with respect to the reported information. All undisputed portions of the Earn-Out Payments will become due and payable within seven business days after the receipt of the Monthly Report. NSI will include along with any Earn-Out Payment a statement showing how that Earn-Out Payment was calculated. In the event of a dispute over the payment of, or amount of, an Earn-Out Payment, the parties shall meet and use their good faith efforts to resolve such dispute, however, if such dispute is not resolved within 30 days of written notice thereof detailing the basis for such dispute, NSI and the Representative will select a mutually acceptable accounting firm to resolve such dispute. If NSI and the Representative are unable to agree on the choice of an accounting firm, they will select by lot a nationally-recognized accounting firm in France (after excluding NSI’s and Sunbelt’s respective regular outside accounting firms). NSI and the Representative shall cause such accounting firm, within 20 days after its selection, to resolve such disagreement, which resolution will be conclusive and binding upon the parties. If the parties submit any disputes to an accounting firm for resolution as provided in this Section 2.1(d), the fees and expenses of the accounting firm shall be borne one-half by NSI and one-half by the Sunbelt Shareholders, provided that (i) if the Earn-Out Payment calculated by NSI is less than the accounting firm’s determination by an amount equal to or greater than $50,000, such fees and expenses shall be borne entirely by NSI and (ii) if the Earn-Out Payment calculated by Representative is greater than the accounting firm’s determination by an amount equal to or greater than $50,000, such fees and expenses shall be borne entirely by the Sunbelt Shareholders.

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     (e) Prior to the expiration of the Earn-Out Period, if the aggregate Earn-Out Payments paid to the Sunbelt Shareholders are less than the Target Amount, NSI shall have the right, but not the obligation, to pay to the Sunbelt Shareholders, on one occasion, an amount equal to the difference between the Target Amount and the aggregate Earn-Out Payments that have been paid to the Sunbelt Shareholders, which payment would then be the final amount paid to the Sunbelt Shareholders with respect to amounts owing under this Section 2.1. Notwithstanding the foregoing, NSI may not exercise this right between the thirteen-month anniversary of the Closing Date and the end of the Earn-Out Period if, as of the date on which NSI wishes to so exercise, the ratio expressed as the difference between the Target Amount and the aggregate Earn-Out Payments previously paid to the Sunbelt Shareholders, divided by the Target Amount, is less than 50% of the number of months remaining in the Earn-Out Period divided by 24. By way of illustration, if the Sunbelt Shareholders have received $8 million in aggregate Earn-Out Payments and 14 months have elapsed since the Closing Date, with ten months remaining in the Earn-Out Period, NSI would not be able to exercise the early purchase right, because 0.2 is less than 50% of 0.41667.
     (f) In the event that prior to the expiration of the Earn-Out Period, there shall occur (i) the acquisition of NSI by another entity, person or group by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation whether of NSI with or into any other corporation or corporations or of any other corporation or corporations with or into NSI but excluding any merger effected exclusively for the purpose of changing the domicile of NSI or any change in ownership resulting from the issuance of capital stock in a public offering of securities where no one entity, person or group shall acquire control of NSI), or (ii) a sale of all or substantially all of the assets of NSI, excluding in each case a transaction as a result of which the holders of capital stock of NSI immediately prior to such transaction (by reason of such holdings) own 50% or more of the voting power of the corporation surviving such transaction (or other corporation which is the issuer of the capital stock into which the capital stock of NSI is converted or exchanged in such transaction) (any such event, a “Change of Control”), then, as a condition to the consummation of the Change of Control Transaction, the Sunbelt Shareholders shall be paid an amount equal to the lesser of (x) the difference between the Target Amount and the aggregate Earn-Out Payments that have been paid to the Sunbelt Shareholders, and (y) U.S. $2,500,000, such amount to be set off on a pro rata basis against any Earn-Out Payments earned and payable in the month in which the Change of Control is consummated and in each of the succeeding five months (or such lesser period if the Earn-Out Period shall expire prior to the end of such period).

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     (g) In the event that prior to the expiration of the Earn-Out Period, Mr. Jo Murciano shall be terminated as President of Sunbelt without Cause (as defined below), at the option of the Representative, the Sunbelt Shareholders shall be paid an amount equal to the average Earn-Out Payment made or payable with respect to the Monthly Measuring Periods preceding Mr. Murciano’s termination (calculated by dividing the aggregate payments made or payable divided by number of Monthly Measuring Periods for which payments have been made or become payable), multiplied by the number of months remaining in the Earn-Out Period (the “Termination Payment”). For purposes of this Section 2.1(g), “Cause” shall mean Mr. Murciano shall commit a criminal act (other than a traffic offense or a délit not involving fraud, dishonesty), fail to spend his working time on Sunbelt duties and responsibilities consistent with past practice or fail or refuse to perform any material obligation reasonably required by NSI in connection with his job responsibilities, and such failure or refusal shall continue during the ten (10) day period following the receipt by Mr. Murciano of written notice from NSI of such failure or refusal, commit any act of gross negligence in the performance of his duties hereunder and fail to take appropriate corrective action during the ten (10) day period following the receipt by Mr. Murciano of written notice from NSI of such gross negligence, or commit any act of willful misconduct materially injurious to Sunbelt or NSI. In the event that Jo Murciano resigns as President of Sunbelt prior to the expiration of the Earn-Out Period as a result of any of the following actions by NSI or Sunbelt, then such resignation shall be deemed to be a termination by NSI or Sunbelt without Cause for purposes of this paragraph: (a) if NSI or Sunbelt changes Jo Murciano’s title or materially changes his duties or responsibilities (it being understood and agreed that the addition of personnel by NSI to assist in the management of Sunbelt shall not be deemed to be a material change to Jo Murciano’s duties or responsibilities for purposes of this paragraph), (b) if Jo Murciano’s office or the headquarters of Sunbelt are moved outside of Ille de France, or (c) if there is any decrease in Jo Murciano’s base salary or variation in the method by which his bonus compensation is calculated. The Representative shall deliver notice (the “Election Notice”) to NSI within ten business days of his last day as President of Sunbelt (or, if later, within ten business days of his receipt of notice of termination as President) of the election to receive the Termination Payment, and NSI shall deliver the Termination Payment to the Sunbelt Shareholders within five business days of receipt of the notice, whereupon all obligations of NSI to make further Earn-Out Payments to the Sunbelt Shareholders shall cease. If Mr. Murciano is terminated for Cause or if no Election Notice shall be delivered within the time prescribed above, there shall be no acceleration of any payments otherwise required to be paid hereunder, but this Agreement shall continue in full force and effect, and Earn-Out Payments shall continue to be payable in accordance with this Agreement.
     (h) At any time until the termination of the Earn-Out Period, if NSI believes it is entitled to indemnification for Damages pursuant to Article VIII hereof and such Damages are disputed by the Representative, NSI may, at NSI’s sole discretion, set-off any payment of any

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Earn-Out Payment by an amount up to the amount of the Damages by placing the amount of such set-off in the escrow account to be established pursuant to the terms of the Escrow Agreement to the extent the then current balance in the Escrow Account is not sufficient to pay in full such Damages. NSI covenants and agrees to withdraw funds from the Escrow Account (as defined in the Escrow Agreement) only in accordance with the terms and conditions of the Escrow Agreement. Notwithstanding anything to the contrary herein, Earn-Out Payments (including payments made pursuant to paragraphs (e), (f) and (g) above) may be reduced by any undisputed amounts owed by the Sunbelt Shareholders to NSI under Article VIII hereof.
     (i) During the Earn-Out Period, the parties agree that there will be no change to Sunbelt’s accounting policies that would affect in any material way the calculation of the Earn-Out Payments or the payment of the Initial Purchase Price without the mutual agreement of NSI and the Sunbelt Shareholders unless such change is required to be made in accordance with French GAAP. Notwithstanding the foregoing, the parties acknowledge and agree that NSI may direct Sunbelt to take such actions from and after Closing to maximize Sunbelt’s tax efficiencies as may be appropriate or to comply with SEC or listing exchange requirements in connection with a public offering, provided that if any such actions would adversely affect in any material way the calculation of the Earn-Out Payment or the payment of the Initial Purchase Price, then such actions will be disregarded when calculating the Earn-Out Payments and determining whether the Sunbelt Shareholders are entitled to Earn-Out Payments and Initial Purchase Price payments.
     (j) As used in this Section 2.1, each of the following terms shall have the meaning set forth below:
     “Expenses” shall mean the sum of all expenses of Sunbelt allocable to Revenue for any period.
     “French GAAP” means generally accepted accounting principles as in effect in France from time to time.
     “Net Operating Income” or “NOI” for any period shall mean the operating income (loss) (résultat d’exploitation) of Sunbelt calculated in accordance with French GAAP.
     “Positive Cash Balance” shall mean, as of any determination date, that Sunbelt has a cash balance greater than zero on such determination date and there occurred no cash shortfalls during the relevant period requiring borrowings or capital contributions (other than Shortfall Loans (as defined in Section 2.1(k)) or trade credit), provided that (i) all financial debts (dettes financières), including any shareholder cash contribution or advance (compte courant d’associé),

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made after Closing; and (ii) any Expenses that Sunbelt has not paid prior that date that would otherwise have been paid if Sunbelt had paid its Expenses from available cash in the Ordinary Course of Business prior to the determination date, shall be subtracted from the cash balance for purposes of making this determination (except that Shortfall Loans will not be so subtracted). For purposes of this paragraph, “financial debts” shall not include the shareholder loan to be made by NSI after closing in an amount not to exceed 726,000 Euro (the “Loan”) or any portion of that Loan that remains unpaid as of any date of determination; provided, however, that any future shareholder loans shall be included in the term “financial debts.”
     “Revenue” shall mean the total revenue for Sunbelt in any period relating to Sunbelt’s business, net of any bad debt expense.
     (k) In addition to the covenants set forth in Section 5.5 hereof, for purposes of determining whether the Sunbelt Shareholders shall be entitled to an Earn-Out Payment for any Monthly Measuring Period:
     (i) Net Operating Income will be calculated on a basis consistent with past practice except and to the extent of any changes required by French GAAP, and the following shall be excluded from the calculation of Net Operating Income: (A) any management fee or other fee, charge, or expense paid or payable by Sunbelt to, or otherwise allocated to Sunbelt by, NSI or any Affiliate of NSI (except for any such fees, charges or expenses paid in the Ordinary Course of Business by Sunbelt prior to December 31, 2005)(“Special Charges and Expenses”), (B) any operating expenses that are attributable to an increase in operating expenses in excess of the ordinary and customary increases historically made by Sunbelt prior to the Closing Date in response to increased sales or sales forecasts, unless such increase is directed by the Representative (“Extraordinary Operating Expenses”)(it being understood and agreed that as soon as practicable following the Closing, Sunbelt shall hire a bilingual (French and English) person satisfactory to NSI, in its sole discretion, with expertise in US and French accounting practices and such person’s compensation shall not be deemed to be an Extraordinary Operating Expense), and (C) any depreciation or amortization expense associated with capital assets acquired by Sunbelt subsequent to the Closing Date other than acquisitions in the Ordinary Course of Business and other than acquisitions directed by the Representative (“Extraordinary Capital Purchases”). For purposes of clarification, any incremental accounting and finance costs and expenses that result from NSI’s accounting review or audit of Sunbelt’s historical financial statements and records, shall be deemed to be “Extraordinary Operating Expenses.” Notwithstanding the foregoing, if the Representative shall voluntarily resign as President of Sunbelt prior to the expiration of the Earn-Out Period, any Extraordinary Operating Expenses or

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Extraordinary Capital Purchases authorized or made in good faith at the direction of the succeeding President or Chairman and directly relating to the business of Sunbelt (other than IPO-related Expenses) shall be deemed to be directed by the Representative.
     (ii) Sunbelt will be deemed to have a Positive Cash Balance as of any determination date if the failure to have a Positive Cash Balance is attributable solely to any Special Charges and Expenses, Extraordinary Operating Expenses, Extraordinary Capital Purchases, and/or any post-Closing dividends or other shareholder distributions by Sunbelt in excess of an amount equal to 102.5% of the Initial Purchase Price paid to the Sunbelt Shareholders prior to the determination date .
     (iii) If Sunbelt shall not have a Positive Cash Balance as of any determination date and such failure is the sole reason that no Earn-Out Payment shall be made for the applicable Monthly Measuring Period, the Representative shall have the right, but not the obligation, to direct the Escrow Agent to pay to Sunbelt from the Escrow Account the amount of any such shortfall plus such amount, if any, as the Representative shall deem necessary or advisable to fund Sunbelt’s operations (a “Shortfall Loan”). Such amount shall be treated as a loan to Sunbelt from the Escrow Account and may be repaid to the Escrow Account at the direction of the Representative to the extent that Sunbelt has sufficient cash on hand at the time of repayment such that immediately after making such payment, Sunbelt shall have a Positive Cash Balance. Any Shortfall Loans outstanding at the expiration of the Earn-Out Period shall be treated as claims against the Escrow Account in accordance with the Escrow Agreement and shall be characterized as capital contributions by NSI. Notwithstanding the foregoing, the aggregate amount of Shortfall Loans that may be outstanding at any time may not exceed $532,000.
     (iv) In calculating the amount of the Earn-Out Payment, if any, payable for the Monthly Measuring Period ended December 31, 2007, amounts paid to the Sunbelt Shareholders in respect of Licensed Software in Sunbelt’s inventory and not sold as of such date shall be deducted from such Earn-Out Payment, and any shortfall resulting therefrom shall be paid to NSI from the Escrow Account.
Section 2.2 Allocation of Sale Consideration. The Sunbelt Shareholders have delivered to NSI a schedule of the final allocation of the Sale consideration among them (the “Sale Consideration Allocations Schedule”, attached hereto as Schedule 3.2.(a)), which sets forth for each Sunbelt Shareholder the percentage of the Initial Purchase Price and each Earn-Out Payment such Sunbelt Shareholder is entitled to receive in the Sale as determined in accordance with Section 2.1 and this Section 2.2. NSI and the Sunbelt Shareholders covenant and agree to file all Tax Returns or other tax forms consistent with such allocation and further covenant and agree not to take any position before any governmental authority or in any judicial proceeding

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that is in any way inconsistent with such allocation, unless otherwise required by law.
Section 2.3 Share Transfer at Closing.
     At the Closing, the Sunbelt Shareholders have delivered to NSI (i) duly executed share transfer forms (“ordres de mouvements”) and in proper form for the transfer of the Sunbelt Shares to NSI, a copy of which is attached as Schedule 2.3(i), (ii) the share transfer registry and the individual shareholders accounts of Sunbelt in which the transfer of the Sunbelt Shares to NSI have been duly registered, a copy of which is attached as Schedule 2.3(ii), and (iii) a duly filled and executed versions of CERFA form N°10408x05 on sale of shares, a copy of which is attached as Schedule 2.3(iii).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SUNBELT
As of the Closing Date (except where the representation or warranty is expressly made as of another date, in which case such representation or warranty is made only as of such other date), the Sunbelt Shareholders represent and warrant to NSI that the statements contained in this Article III are true and correct, except as expressly set forth in the disclosure schedule delivered by the Sunbelt Shareholders to NSI (the “Sunbelt Disclosure Schedule” attached hereto as Schedule 3), which exceptions are numbered to specifically identify the Section hereof to which such exception relates (provided that any exception or other item disclosed in the Sunbelt Disclosure Schedule shall also be deemed to be disclosed for purposes of all other Sections hereof to which the exception or item may on its face be relevant). All schedules referred to in this Article III that are numbered with reference to a section of this Article III shall be deemed to be a part of the Disclosure Schedule. For purposes of this Article III, the term Sunbelt shall mean, except as otherwise noted, Sunbelt and Sunbelt System Software UK Limited (“Sunbelt UK”).
Section 3.1 Organization of Sunbelt. On March 17, 2006, Sunbelt, which was initially created as a SARL (société à responsabilité limitée) was duly and validly transformed into a SAS (société par actions simplifiée) in compliance with all applicable rules. Sunbelt is a limited liability corporation (société par actions simplifiée) duly organized, validly existing and in good standing under the laws of the Republic of France, has all requisite company power to own, lease and operate its property and to carry on its business as now being conducted, and is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or ownership or leasing of properties makes such qualification or licensing necessary and where the failure to be so qualified or licensed could reasonably be expected to result in a Material Adverse Effect on Sunbelt. Sunbelt UK is a limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction in which it

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was formed, has all requisite company power to own, lease and operate its property and to carry on its business as now being conducted and is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or ownership or leasing of properties makes such qualification or licensing necessary and where the failure to be so qualified or licensed could reasonably be expected to result in a Material Adverse Effect on Sunbelt. As used in this Agreement, “Material Adverse Effect” shall mean any change, effect or circumstance that (i) is reasonably likely to be materially adverse to the business, assets (including intangible assets), liabilities, condition (financial or otherwise) or results of operations of Sunbelt or (ii) would reasonably be expected to materially impair the ability of NSI to operate the business of Sunbelt immediately after the Closing. Schedule 3.1 sets forth a true and complete listing of the locations of all sales offices, manufacturing facilities, any other offices or facilities of Sunbelt and a true and complete list of all states in which Sunbelt maintains any employees and a true and complete list of all states in which Sunbelt is duly qualified or licensed to transact business as a foreign corporation.
Section 3.2 Sunbelt Capital Structure.
     (a) The authorized capital of Sunbelt consist of five hundred (500) shares, and there are no other authorized equity interests of Sunbelt. As of the date of this Agreement, there are (i) five hundred (500) Sunbelt Shares issued and outstanding, all of which are validly issued, fully paid and none of which are subject to repurchase rights, (ii) no warrants to purchase any Sunbelt Shares; (iii) no issued and outstanding Sunbelt stock options; (iv) no Sunbelt Shares reserved for future issuance pursuant to any warrants or other rights to purchase Sunbelt Shares; and (v) no issued and outstanding warrants or other rights to purchase Sunbelt Shares. The issued and outstanding Sunbelt Shares are held of record by the shareholders of Sunbelt as set forth and identified in Schedule 3.2(a) which accurately sets forth for each such shareholder of record such shareholder ‘s address (including such shareholder ‘s country and state of residence). All outstanding Sunbelt Shares were issued in compliance with French law. Except as set forth in Schedule 3.2(b), there are no obligations, contingent or otherwise, of Sunbelt to repurchase, redeem or otherwise acquire any Sunbelt Shares or make any investment (in the form of a loan, capital contribution or otherwise) in any other entity.
     (b) Except as set forth in Section 3.2(a), there are no equity securities of any class or series of Sunbelt, or any security exchangeable into or exercisable for such equity securities, issued, reserved for issuance or outstanding. Except as set forth in Section 3.2(a), there are no options, warrants, equity securities, calls, rights, commitments, understandings or agreements of any character to which Sunbelt is a party or by which it is bound obligating Sunbelt to issue, deliver or sell, or cause to be issued, delivered or sold, additional equity interests of Sunbelt or obligating Sunbelt to grant, extend, accelerate the vesting of or enter into any such option,

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warrant, equity security, call, right, commitment or agreement. Except as set forth in the Sunbelt Disclosure Schedule, Sunbelt is not in active discussion, formal or informal, with any Person regarding the issuance of any form of additional Sunbelt equity that has not been issued or committed to prior to the date of this Agreement. Except as provided in this Agreement or any transaction contemplated hereby or thereby, there are no voting trusts, proxies or other agreements or understandings with respect to the voting of the shares of Sunbelt.
“Person” means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Entity.
     (c) Except as set forth in Schedule 3.2(c), Sunbelt has never declared, set aside nor paid any dividends to its shareholders and has never authorized the payment of any advance dividends to its shareholders.
Section 3.3 Authority; No Conflict; Required Filings and Consents.
     (a) The Sunbelt Shareholders have all requisite company power and authority to enter into this Agreement and all Transaction Documents to which they are or will become a party and to consummate the transactions contemplated by this Agreement and such Transaction Documents. The execution and delivery of this Agreement and such Transaction Documents and the consummation of the transactions contemplated by this Agreement and such Transaction Documents have been duly authorized by all necessary company action on the part of the Sunbelt Shareholders. This Agreement has been and such Transaction Documents have been duly executed and delivered by the Sunbelt Shareholders. This Agreement and each of the Transaction Documents to which the Sunbelt Shareholders are a party constitute, assuming the due authorization, execution and delivery by the other parties hereto and thereto, the valid and binding obligation of the Sunbelt Shareholder, enforceable against them in accordance with their respective terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors’ rights generally. For purposes of this Agreement, “Transaction Documents” means all documents or agreements required to be delivered by any party under this Agreement including, but not limited to, this Agreement and the Escrow Agreement.
     (b) The execution and delivery by the Sunbelt Shareholders of this Agreement and the Transaction Documents to which they are or will become a party does not and the performance by the Sunbelt Shareholders of their obligations under this Agreement and the consummation of the transactions contemplated by this Agreement and the Transaction Documents to which they are or will become a party will not, (i) conflict with, or result in any violation or breach of any provision of the bylaws of Sunbelt and Sunbelt International SARL in

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effect prior to the Closing, (ii) result in any violation or breach of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, contract or other agreement, instrument or obligation (each a “Contract” and, collectively, the “Contracts”) to which Sunbelt is a party or by which it or any of its properties or assets (whether tangible or intangible) is subject, or (iii) conflict or violate any permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Sunbelt or any of its properties or assets (any such event described in (i), (ii), or (iii), a “Conflict”). Sunbelt has obtained prior to the Closing, all necessary consents, waivers and approvals of parties to any Contract as are required thereunder in connection with the Sale, or for any such Contract to remain in full force and effect without limitation, modification or alteration after the Closing Date, which are set forth on Schedule 3.3(b). Following the Closing Date, NSI will be permitted to exercise all of its rights under the Contracts without the payment of any additional amounts or consideration other than ongoing fees, royalties or payments which Sunbelt would otherwise be required to pay pursuant to the terms of such Contracts had the transactions contemplated by this Agreement not occurred.
     (c) None of the execution and delivery by the Sunbelt Shareholders of this Agreement or of any other Transaction Document to which they are or will become a party or the consummation of the transactions contemplated by this Agreement or such Transaction Document requires any consent, approval, order or authorization of, or registration, declaration or filing with, court, administrative agency or commission or other governmental authority or instrumentality (“Governmental Entity”) or any third party (so as not to trigger a Conflict), except for (i) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable laws, and (ii) such other consents, authorizations, filings, approvals and registrations which are listed in Schedule 3.3(c).
Section 3.4 Financial Statements; Absence of Undisclosed Liabilities; Working Capital.
     (a) Sunbelt has delivered to NSI copies of Sunbelt’s audited balance sheet as of December 31, 2005, and the related audited statements of operations for December 31, 2005 (the “Audited Financial Statements”). Schedule 3.4 lists those material historical accounting practices of Sunbelt that are not in accordance with French GAAP and describes how such Sunbelt historical accounting practices materially deviate from French GAAP and the effect of such material deviation on the Audited Financial Statements. For avoidance of doubt, it is expressly specified that the Audited Financial Statements shall include the above-mentioned documents for each of Sunbelt and Sunbelt UK.
     (b) The Audited Financial Statements are accurate and complete, in accordance with

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the books and records of Sunbelt, and fairly present the financial position of Sunbelt as of December 31, 2005 and the results of operations and cash flows of Sunbelt for the periods covered thereby. The Audited Financial Statements have been prepared in accordance with historical accounting practices of Sunbelt applied on a basis consistent with prior periods.
     (c) Sunbelt has no material debt, liability, or obligation of any nature, whether accrued, absolute, contingent, or otherwise, and whether due or to become due, that is not reflected or reserved against in the Audited Financial Statements, except for those that may have been incurred after the date of the Audited Financial Statements. All debts, liabilities, and obligations incurred after the date of the Audited Financial Statements were incurred in the Ordinary Course of Business.
     (d) Sunbelt maintains accurate books and records reflecting its assets and liabilities and maintains proper and adequate internal accounting controls which provide assurance that: (i) transactions are executed with management’s authorization (ii) access to the assets of Sunbelt is permitted only in accordance with management’s authorization; (iii) the reporting of the assets of Sunbelt is compared with existing assets at regular intervals; and (iv) accounts, notes and other receivables are recorded accurately, and proper and adequate procedures are implemented to effect the collection thereof on a current and timely basis.
     (e) Sunbelt’s Working Capital Balance as of December 31, 2005 was not less than €2,326,000. “Working Capital Balance” means the excess of the current assets of Sunbelt and its Subsidiaries over the current liabilities of Sunbelt and its Subsidiaries, all as determined in accordance with French GAAP (to the extent not inconsistent with this Agreement).
Section 3.5 Inventory. All inventory of Sunbelt, whether or not reflected in the Audited Financial Statements, consists of a quality and quantity usable and salable in the Ordinary Course of Business, except for obsolete items and items of below-standard quality, all of which have been written off or written down to net realizable value in the Audited Financial Statements or on the accounting records of Sunbelt as of the Closing Date, as the case may be. All inventories not written off have been priced at the lower of cost or market on a last in, first out basis. The quantities of each item of inventory (whether raw materials, work-in-process, or finished goods) are not excessive, but are reasonable in the present circumstances of Sunbelt.
     “Ordinary Course of Business” means an action taken by a Person only if: (A) such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person; and (B) such action is similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors (or by any Person or group of Persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other Persons that are in substantially similar lines of business as such Person.

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Section 3.6 Tax Matters.
     (a) For purposes of this Section 3.6 and other provisions of this Agreement relating to Taxes, the following definitions shall apply:
          (i) The term “Taxes” shall mean all taxes, however denominated, including any interest, penalties or other additions to tax that may become payable in respect thereof, (A) imposed by any national, federal, territorial, provincial, state, local or foreign government or any agency or political subdivision of any such government, which taxes shall include, without limiting the generality of the foregoing, all income or profits taxes (including but not limited to corporate income taxes and franchise taxes), payroll and employee withholding taxes, unemployment insurance, social security taxes, V.A.T. (value added taxes) and other sales or use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business license taxes, occupation taxes, real and personal property taxes, stamp taxes, environmental taxes, ozone depleting chemicals taxes, transfer taxes, workers’ compensation, and other governmental charges, and other obligations of the same or of a similar nature to any of the foregoing, which are required to be paid, withheld or collected, (B) any liability for the payment of amounts referred to in (A) as a result of being a member of any affiliated, consolidated, combined or unitary group, or (C) any liability for amounts referred to in (A) or (B) as a result of any obligations to indemnify another person.
          (ii) The term “Returns” shall mean all reports, estimates, declarations of estimated tax, information statements and returns relating to, or required to be filed in connection with, any Taxes, including information returns or reports with respect to backup withholding and other payments to third parties.
          (iii) Except with respect to subsections (b) and (i) hereof, references in this Section 3.6 to “Sunbelt” refer as well to each subsidiary of Sunbelt.
     (b) Sunbelt is, and has been since its formation, an entity treated as a limited liability company for all tax purposes under the laws of the Republic of France; for French tax purposes, Sunbelt is not a “look through” entity.
     (c) All Returns required to be filed prior to the date hereof by or on behalf of Sunbelt have been duly filed on a timely basis, and such Returns are true, complete and correct. All Taxes shown to be payable on such Returns or on subsequent assessments with respect thereto, and all Taxes (whether or not reportable on Returns) and estimated Taxes required to be paid prior to the date hereof by or on behalf of Sunbelt have been paid in full on a timely basis, and no

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other Taxes are payable by Sunbelt with respect to items or periods covered by such Returns (whether or not shown on or reportable on such Returns). Sunbelt has withheld and paid over all Taxes required to have been withheld and paid over prior to the date hereof, and complied with all information reporting and backup withholding requirements, including maintenance of required records with respect thereto, in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party. There are no liens on any of the assets of Sunbelt with respect to Taxes, other than liens for Taxes not yet due and payable. Sunbelt has not at any time been (i) a member of an affiliated group of entities filing consolidated, combined or unitary income or franchise tax returns, or (ii) a member of any partnership or joint venture for a period for which the statute of limitations for any Tax potentially applicable as a result of such membership has not expired.
     (d) The amount of Sunbelt’s liability for unpaid Taxes (whether actual or contingent) for all periods through the date of the Audited Financial Statements does not, in the aggregate, exceed the amount of the current liability accruals for Taxes reflected on the Audited Financial Statements, and the Audited Financial Statements reflects proper accrual in accordance with the historical accounting practices of Sunbelt applied on a basis consistent with prior periods of all liabilities for Taxes payable after the date of the Audited Financial Statements attributable to transactions and events occurring prior to such date. No liability for Taxes has been incurred since January 1st, 2006 other than in the Ordinary Course of Business.
     (e) NSI has been furnished by Sunbelt with true and complete copies of (i) relevant portions of income tax audit reports, statements of deficiencies, closing or other agreements pertaining to Sunbelt relating to Taxes, and (ii) all Tax Returns for the taxable years ended 2002, 2003, 2004 and 2005. Sunbelt does not do business in any jurisdiction other than jurisdictions for which Returns have been duly filed.
     (f) The Returns of or including Sunbelt have never been audited by a government or taxing authority, nor is any such audit in process, pending or threatened (either formally or informally). No deficiencies exist or have been asserted, and Sunbelt has not received notice that it has not filed a Return or that is has not paid Taxes required to be filed or paid. Sunbelt is not a party to any action or proceeding for assessment or collection of Taxes, nor has such an action or proceeding been asserted or threatened against Sunbelt or any of its assets. No waiver or extension of any statute of limitations is in effect with respect to Taxes or Returns of Sunbelt. Sunbelt has not received any notice of Tax reassessment nor has it otherwise been informed (in writing or orally) by any administrative authority of its intention to carry out any reassessment whatsoever.
     (g) Sunbelt has never been a party to any Tax sharing, indemnification or allocation agreement.

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     (h) Sunbelt has not entered into any agreement or transaction which might be reassessed, rejected or re-qualified on the grounds that Sunbelt has attempted to evade, circumvent or reduce its Tax obligations or that of another Person.
     (i) With the exception of Sunbelt UK, Sunbelt is and has always been exclusively registered in France for the purpose of Taxes; in respect of activities of Sunbelt outside France, Sunbelt does not have any establishment falling within article 209-1 of the French General Tax Code (Code Général des Impôts) in any country outside France, nor any center of economic interest referred to in the treaties on durable taxation entered into by France.
     (j) The sale by Sunbelt Shareholders of the Sunbelt Shares will not lead to imposition of Tax on Sunbelt or a loss or the placing into question of any Tax advantage or of any particular tax regime. Sunbelt has not obtained any Tax or social benefit (such as an exemption or a modification to the imposition) which could be withdrawn, lost, or questioned. Sunbelt complies with all provisions of all social and Tax benefits, all agreements or subsidies that it has received. All Tax credits (including any Tax concessions) have been used in accordance with the Tax Regulations.
Section 3.7 No Changes.
Since the date of the Audited Financial Statements, except as set forth in Schedule 3.7, there has not been, occurred or arisen any:
     (a) material commitment or transaction by Sunbelt except (i) in the Ordinary Course of Business as conducted on that date and (ii) as provided for under this Agreement;
     (b) amendments or changes to the bylaws of Sunbelt, other than those required by the transformation of Sunbelt into a SAS on March 17, 2006;
     (c) capital expenditures or capital commitments by Sunbelt, either individually exceeding $5,000 or in the aggregate exceeding $10,000;
     (d) payment, discharge or satisfaction by Sunbelt, in any amount in excess of $5,000 in any one case or $10,000 in the aggregate, of any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than payment, discharge or satisfaction in the Ordinary Course of Business of liabilities reflected or reserved against in the Audited Financial Statements or incurred in the Ordinary Course of Business since the date of the Audited Financial Statements;

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     (e) destruction of, damage to or loss of any assets (whether tangible or intangible) (whether or not covered by insurance) of Sunbelt in excess of $10,000 in the aggregate;
     (f) claim of wrongful discharge or other unlawful labor practice or action asserted against Sunbelt;
     (g) to the Knowledge of the Sunbelt Shareholders, any event or condition that has had or could be reasonably expected to have a Material Adverse Effect on Sunbelt;
     (h) any material change in accounting methods or practices (including any material change in depreciation or amortization policies or rates) by Sunbelt;
     (i) material change in any election with respect to Taxes (as defined in Section 3.6), adoption or change in any accounting method in respect of Taxes, agreement or settlement of any claim or assessment in respect of Taxes, extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes, filing of a Tax Return or amendment or change of any Tax Return;
     (j) declaration, setting aside or payment of a dividend or other distribution with respect to Sunbelt Shares, or any split, combination or reclassification in respect of any Sunbelt Shares, or any issuance or authorization of any issuance of any other securities in respect of, in lieu of or in substitution for Sunbelt Shares, or any direct or indirect redemption, repurchase or other acquisition by Sunbelt of any of Sunbelt Shares (or options, warrants or other rights convertible into, exercisable or exchangeable therefor);
     (k) material increase in the salary or other compensation payable or to become payable by Sunbelt to any of its officers, directors, employees or advisors or the declaration, payment or commitment or obligation of any kind for the payment, by Sunbelt, of a material severance payment, termination payment, bonus or other additional salary or compensation to any such Person except as otherwise contemplated by this Agreement;
     (l) termination, extension, amendment or modification of the terms of any material agreement, contract, covenant, instrument, lease, license or commitment to which Sunbelt is a party or by which it or any of its assets is bound other than in the Ordinary Course of Business; sale, lease, license or other disposition of any of the assets (tangible or intangible) or properties of Sunbelt other than in the Ordinary Course of Business;
     (m) loan by Sunbelt to or capital investment in any Person, incurring by Sunbelt of

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any indebtedness for borrowed money, guaranteeing by Sunbelt of any indebtedness for borrowed money, issuance or sale of any debt securities of Sunbelt or guaranteeing of any debt securities of others;
     (n) waiver or release of any material right or claim of Sunbelt, in excess of $10,000, including any write-off or other compromise of any account receivable of Sunbelt;
     (o) commencement or settlement of any lawsuit by Sunbelt, or commencement, settlement, notice or, the Knowledge of the Sunbelt Shareholders, threat of any lawsuit or proceeding or other investigation against Sunbelt, or the Knowledge of the Sunbelt Shareholders, any reasonable basis for any of the foregoing;
     (p) notice of any claim or, to the Knowledge of the Sunbelt Shareholders, potential claim of ownership by a third party of Sunbelt Proprietary Rights (as defined in Section 3.10 below) or of infringement by Sunbelt of any third party’s intellectual property rights or intellectual property;
     (q) issuance or sale, or contract or agreement to issue or sell, by Sunbelt of any of Sunbelt Shares or securities exchangeable, convertible or exercisable therefore, or of any other of its securities;
     (r)(i) transfer or license to or from any Person any material intellectual property rights (including any Sunbelt Proprietary Rights) or entry into or material amendment of any agreement with any Person regarding any material intellectual property rights (including any Sunbelt Proprietary Rights), (ii) agreement with respect to the development of any intellectual property with a third party or amendment of any such agreement, or (iii) material change in pricing or royalties set or charged by Sunbelt to its customers or licensees or in pricing or royalties set or charged by persons who have licensed intellectual property or intellectual property rights to Sunbelt;
     (s) material agreement or material modification to any agreement pursuant to which any other party was granted marketing, distribution, development or similar rights of any type or scope with respect to any products or services of Sunbelt or Sunbelt Proprietary Rights;
     (t) agreement by Sunbelt or any officer or employee on behalf of Sunbelt to do any of the things described in the preceding clauses (a) through (s).
For purposes of this Agreement, the term “Knowledge,” when used with respect to Sunbelt and

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the Sunbelt Shareholders, shall mean the knowledge, after due inquiry, of Jo Murciano or Gerald Capon.
Section 3.8 Restrictions on Business Activities. There is no agreement (non compete or otherwise), commitment, judgment, injunction, order or decree to which Sunbelt is a party or otherwise binding upon Sunbelt which has the effect of prohibiting or impairing any business practice of Sunbelt, any acquisition of property (tangible or intangible) by Sunbelt or the conduct of business by Sunbelt as conducted to the date of this Agreement or to compete with any Person, except as provided in its distribution or license agreements (or similar agreements) with its vendors. Without limiting the foregoing, Sunbelt has not entered into any agreement under which Sunbelt is restricted from selling, licensing or otherwise distributing any of its technology (including any Sunbelt Proprietary Rights) or products, or from providing services to, customers or potential customers, or any class of customers, in any geographic area, during any period of time or in any segment of the market.
Section 3.9 Title and Related Matters. Sunbelt has good and valid title to all its properties, interests in properties and assets, real and personal, free and clear of all mortgages, liens, pledges, charges or encumbrances of any kind or character, except the lien of current taxes not yet due and payable and minor imperfections of and encumbrances on title, if any, as do not materially detract from the value of or interfere with the present use of the property affected thereby. The equipment of Sunbelt used in the operation of its business is, taken as a whole, (i) adequate for the business conducted by Sunbelt and (ii) in good operating condition and repair, ordinary wear and tear excepted. All personal property leases to which Sunbelt is a party are valid, binding, enforceable against the parties thereto in all material provisions and in effect in accordance with their respective terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium, or other laws affecting the enforcement of creditors’ rights generally. There is not under any of such leases any existing default or event of default or event which, with notice or lapse of time or both, would constitute a default. Schedule 3.9 sets forth a description of all items of personal property with an individual net book value in excess of $2,500 and real property leased or owned by Sunbelt, describing its interest in said property. True and correct copies of Sunbelt’s real property and personal property leases have been provided to NSI.
Section 3.10 Proprietary Rights.
     (a) Except as set forth in Schedule 3.10(a), Sunbelt owns all right, title and interest in and to, or otherwise possesses legally enforceable rights, or is licensed to use, all patents, copyrights, technology, software, software tools, know-how, processes, trade secrets, trademarks, service marks, trade names, Internet domain names and other proprietary rights used in the conduct of Sunbelt’s business as conducted to the date of this Agreement including,

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without limitation, the technology, information, databases, data lists, data compilations, and all proprietary rights developed or discovered or used in connection with or contained in all versions and implementations of Sunbelt’s websites or any product which has been or is being distributed or sold by Sunbelt or currently is under development by Sunbelt or has previously been under development by Sunbelt (collectively, the “Sunbelt Products”), free and clear of all liens, claims and encumbrances (all of which are referred to as “Sunbelt Proprietary Rights”). No claims have been asserted or, to the Knowledge of the Sunbelt Shareholders, threatened against Sunbelt (and the Sunbelt Shareholders are not aware of any claims which are threatened against Sunbelt or which have been asserted or threatened against others relating to Sunbelt Proprietary Rights or Sunbelt Products) by any person challenging Sunbelt’s use, possession, manufacture, sale or distribution of Sunbelt Products under any Sunbelt Proprietary Rights or challenging or questioning the validity or effectiveness of any material license or agreement relating thereto or alleging a violation of any person’s or entity’s privacy, personal or confidentiality rights. Sunbelt knows of no valid basis for any claim of the type specified in the immediately preceding sentence which could in any material way relate to or interfere with the continued enhancement and exploitation by Sunbelt of any of the Sunbelt Products. To the Knowledge of the Sunbelt Shareholders, none of the Sunbelt Products nor the use or exploitation of any Sunbelt Proprietary Rights in Sunbelt’s current business infringes on the rights of or constitutes misappropriation of any proprietary information or intangible property right of any third person or entity, including without limitation any patent, trade secret, copyright, trademark or trade name, and Sunbelt has not been sued or, to the Knowledge of the Sunbelt Shareholders, named in any suit, action or proceeding which involves a claim of such infringement, misappropriation or unfair competition.
     (b) Sunbelt has not granted any third party any right to reproduce, distribute, market or exploit any of the Sunbelt Products or any adaptations, translations, or derivative works based on the Sunbelt Products or any portion thereof.
     (c) To the Knowledge of the Sunbelt Shareholders, no employee, contractor or consultant of Sunbelt is in violation in any material respect of any term of any written employment contract, patent disclosure agreement or any other written contract or agreement relating to the relationship of any such employee, consultant or contractor with Sunbelt or, to the Knowledge of the Sunbelt Shareholders, any other party because of the nature of the business conducted by Sunbelt or proposed to be conducted by Sunbelt.
     (d) Each person presently or previously employed by Sunbelt (including independent contractors, if any) has executed a confidentiality, non-disclosure and proprietary inventions assignment agreement pursuant to the form of agreement previously provided to NSI or its representatives.

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     (e) No product liability or warranty claims have been communicated in writing to or, to the Knowledge of the Sunbelt Shareholders, threatened against Sunbelt.
     (f) To the Knowledge of the Sunbelt Shareholders, there is no material unauthorized use, disclosure, infringement or misappropriation of any Sunbelt Proprietary Rights, or any Third Party Technology to the extent licensed by or through Sunbelt, by any third party, including any employee, former employee or independent contractor of Sunbelt. Sunbelt has not entered into any agreement to indemnify any other person against any charge of infringement of any Sunbelt Proprietary Rights.
     (g) Sunbelt has sufficient rights to all material intellectual property rights used in or necessary for the conduct of the Sunbelt business as it currently is conducted.
Section 3.11 Employees Benefit Plans
     (a) Schedule 3.11(a) lists, with respect to Sunbelt, only what is not mandatory under French law and the collective bargaining agreement (“convention collective”) applicable to the Sunbelt’s employees (i) all employee benefit plans, (ii) each loan to a non-officer employee, loans to officers and directors and any stock option, stock purchase, phantom stock, stock appreciation right, supplemental retirement, severance, sabbatical, “mutuelle” (private health plans) or “prévoyance” (disability or life insurance), life insurance or accident insurance plans, programs or arrangements, (iii) all bonus, pension, profit sharing (excluding profit sharing that is mandatory under French law), savings, deferred compensation or incentive plans, programs or arrangements, (iv) other fringe or employee benefit plans, programs or arrangements that apply to senior management of Sunbelt and that do not generally apply to all employees, and (v) any current or former employment or executive compensation or severance agreements, written or otherwise, for the benefit of, or relating to, any present or former employee, consultant or director of Sunbelt as to which (with respect to any of items (i) through (v) above) any potential liability is borne by Sunbelt (together, the “Sunbelt Employee Plans”).
     (b) Sunbelt has delivered or made available to NSI a copy of each of the Sunbelt Employee Plans and related plan documents (including trust documents, insurance policies or contracts, employee booklets, in-house or industry-wide collective bargaining agreements, summary plan descriptions and other authorizing documents, and, to the extent still in its possession, any material employee communications relating thereto) and warrants, with respect to each Sunbelt Employee Plan, that Sunbelt is in compliance with all its terms and conditions and that there is no claim or threat of claim regarding the implementation, execution and/or validity of any Sunbelt Employee Plan.

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     (c) Sunbelt does not have any liabilities whatsoever towards former employees or managers, and in particular, has complied with its obligations with respect to severance payments resulting from the termination of an employment or service contract, paid all indemnities that could have been owed for unfair dismissal or for not having respected any obligation to reinstate an employee. Except as set out in Schedule 3.11(c), the corporate officers of Sunbelt do not benefit from any employment and/or service contract with Sunbelt or from any particular benefit given by Sunbelt.
     (d) The consummation of the transactions contemplated by this Agreement will not (i) entitle any current or former employee or other service provider of Sunbelt to severance benefits or any other payment (including, without limitation, unemployment compensation, golden parachute or bonus), except as expressly provided in this Agreement, or (ii) accelerate the time of payment or vesting of any such benefits, or (iii) increase or accelerate any benefits or the amount of compensation due any such employee or service provider. There has been no amendment to, written interpretation or announcement (whether or not written) by Sunbelt relating to, or change in participation or coverage under, any Sunbelt Employee Plan which would materially increase the per capita expense of maintaining such Plan above the level of per capita expense incurred with respect to that Plan for the most recent fiscal year included in the Sunbelt Financial Statements.
Section 3.12 Bank Accounts. Schedule 3.12 sets forth the names and locations of all banks, trust companies, savings and loan associations, and other financial institutions at which Sunbelt maintains accounts of any nature and the names of all persons authorized to draw thereon or make withdrawals therefrom.
Section 3.13 Contracts.
     (a) Except as identified in Schedule 3.13:
          (i) Sunbelt has no agreements, contracts or commitments that provide for the sale, licensing or distribution by Sunbelt of any Sunbelt Products or Sunbelt Proprietary Rights. Without limiting the foregoing, Sunbelt has not granted to any third party (including, without limitation, original equipment manufacturers (“OEMs”) and site-license customers) any rights to reproduce, manufacture or distribute any of the Sunbelt Products, nor has Sunbelt granted to any third party any exclusive rights of any kind (including, without limitation, territorial exclusivity or exclusivity with respect to particular versions, implementations or translations of any of the Sunbelt Products), nor has Sunbelt granted any third party any right to market any of the Sunbelt Products under any private label or “OEM” arrangements, nor has Sunbelt granted any license of any Sunbelt trademarks or service marks;

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          (ii) Sunbelt has no agreement under which the consequences of a default or termination would reasonably be expected to have a Material Adverse Effect on Sunbelt;
          (iii) Sunbelt has no agreement containing a “most favored nation” pricing clause granted by Sunbelt, materially deviating from what is mandatory under French and EC laws;
          (iv) Sunbelt has no fidelity or surety bond or completion bond;
          (vi) Sunbelt has no lease of personal property having a value in excess of $5,000 individually or $10,000 in the aggregate;
          (vi) Sunbelt has no agreement, contract or commitment relating to the disposition or acquisition of assets or any interest in any business enterprise outside the Ordinary Course of Business;
          (vii) Sunbelt has no outstanding agreements, contracts or commitments with officers, employees, agents, consultants, advisors, independent salesmen, independent sales representatives, distributors or dealers
          (viii) Sunbelt has no employment agreements providing for a notice period longer than, or for a severance or termination payment more important than, what is mandatory under French law or provided for in the applicable collective bargaining agreement
          (ix) Sunbelt has no independent contractor or similar agreement, contract or commitment that is not terminable on thirty (30) days’ notice or less without penalty, liability or premium of any type, including, without limitation, severance or termination pay, except as otherwise required by French law;
          (x) Sunbelt is not subject to any effective collective bargaining or union agreements, contracts or commitments;
          (xi) Sunbelt is not restricted by agreement from competing with any Person or from carrying on its business anywhere in the world, except as provided in its distribution or license agreements (or similar agreements) with its vendors;
          (xii) Sunbelt has not guaranteed any obligations of other Persons or made any agreements to acquire or guarantee any obligations of other Persons;
          (xiii) Sunbelt has no outstanding loan or advance to any Person, including any

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loan or advance to or from a shareholder; nor is it party to any line of credit, standby financing, revolving credit or other similar financing arrangement of any sort which would permit the borrowing by Sunbelt of any sum;
          (xiv) Sunbelt has no agreements pursuant to which Sunbelt has agreed to manufacture for, supply to or distribute to any third party any Sunbelt Products or Sunbelt Components; and
          (xv) Except for agreements with employees, Sunbelt has no other agreement, contract or commitment that involves an expenditure by Sunbelt in an amount exceeding $10,000 individually or $50,000 in the aggregate or more and is not cancelable by Sunbelt without penalty within thirty (30) days.
The agreements, documents and instruments set forth on Schedule 3.13 are referred to herein as “Material Contracts.” True and correct copies of each document or instrument listed on Schedule 3.13 have been provided to NSI.
     (b) All of the Material Contracts listed on Schedule 3.13(a) are valid, binding, in full force and effect, and enforceable by Sunbelt in accordance with their respective terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors’ rights generally. No Material Contract contains any liquidated damages, penalty or similar provision. To the Knowledge of the Sunbelt Shareholders, no party to any such Material Contract intends to cancel, withdraw, modify or amend such contract, agreement or arrangement.
     (c) Sunbelt is not in default under or in breach or violation of, nor, to the Knowledge of the Sunbelt Shareholders, is there any valid basis for any claim of default by Sunbelt under, or breach or violation by Sunbelt of, any material provision of any Material Contract. To the Knowledge of the Sunbelt Shareholders, no other party is in default under or in breach or violation of, nor is there any valid basis for any claim of default by any other party under or any breach or violation by any other party of, any Material Contract.
     (d) Except as specifically indicated in Schedule 3.13,, none of the Material Contracts provides for indemnification by Sunbelt of any third party. No claims have been made or, to the Knowledge of the Sunbelt Shareholders, threatened that could require indemnification by Sunbelt, and Sunbelt has not paid any amounts to indemnify any third party as a result of indemnification requirements of any kind.
Section 3.14 Customers. Schedule 3.14 lists all the customers, distributors and agents, from and after January 1, 2003 until the date of this Agreement, of the products sold and services performed by or for Sunbelt.

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Section 3.15 Orders, Commitments and Returns. All accepted advertising arrangements entered into by Sunbelt, and all material agreements, contracts, or commitments for the purchase of supplies by Sunbelt, were made in the Ordinary Course of Business. There are no oral contracts or arrangements for the sale of advertising or any other product or service by Sunbelt.
Section 3.16 Compliance With Law.
     (a) Sunbelt and the operation of its business are in compliance with all applicable laws and regulations material to the operation of its business. Neither Sunbelt nor, to the Knowledge of the Sunbelt Shareholders, any of its employees has directly or indirectly paid or delivered any fee, commission or other sum of money or item of property, however characterized, to any finder, agent, government official or other party in the United States or any other country, that was or is in violation of any federal, state, or local statute or law or of any statute or law of any other country having jurisdiction. Sunbelt has not participated directly or indirectly in any boycotts or other similar practices affecting any of its customers. Sunbelt has complied in all material respects at all times with any and all applicable federal, state and foreign laws, rules, regulations, proclamations and orders relating to the importation or exportation of its products. Sunbelt has all licenses, permits, approvals, registrations, qualifications, certificates and other governmental authorizations that are necessary and material for the operations of Sunbelt as they are currently conducted.
     (b) Sunbelt complies and has always complied, notably with respect to Sunbelt Employee Plan, with all provisions of labor law and all applicable social security provisions in particular in respect of working donation regulations, working time regulations and health and safety in the workplace. Sunbelt complies and has always complied with the provisions of collective bargaining agreement implemented within Sunbelt.
Section 3.17 Labor Difficulties; No Discrimination.
     (a) To the Knowledge of the Sunbelt Shareholders, Sunbelt is not in material violation of any applicable laws in connection with employment and employment practices, terms and conditions of employment, wages and working time regulations and agreements. There is no unfair labor practice complaint against Sunbelt actually pending or, to the Knowledge of the Sunbelt Shareholders, threatened before any labor courts (“conseil de Prud’hommes”) or labor sections of any courts of appeals or Supreme Court (“chambres sociales d’une cour d’appel ou de la Cour de Cassation”). There is no strike, labor dispute,

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slowdown, or stoppage actually pending or, to the Knowledge of the Sunbelt Shareholders, threatened against Sunbelt. To the Knowledge of the Sunbelt Shareholders, no grievance nor any arbitration proceeding arising out of or under any collective bargaining agreement is pending and, to the Knowledge of the Sunbelt Shareholders, no claims therefore exist.
     (b) There is and has not been any claim against Sunbelt or its officers or employees, or to the Knowledge of the Sunbelt Shareholders, threatened against Sunbelt or its officers or employees, based on actual or alleged race, age, sex, disability or other harassment or discrimination, or similar tortious conduct, or based on actual or alleged breach of contract with respect to any person’s employment by Sunbelt, nor, to the Knowledge of the Sunbelt Shareholders, is there any basis for any such claim.
Section 3.18 Trade Regulation. All of the prices charged by Sunbelt in connection with the marketing or sale of any products or services have been in compliance with all applicable laws and regulations. No claims have been communicated or threatened in writing against Sunbelt with respect to wrongful termination of any dealer, distributor or any other marketing entity, discriminatory pricing, price fixing, unfair competition, false advertising, or any other violation of any laws or regulations relating to anti-competitive practices or unfair trade practices of any kind and to the Knowledge of the Sunbelt Shareholders, no specific situation, set of facts, or occurrence provides any basis for any such claim against Sunbelt.
against Sunbelt.
Section 3.19 Insider Transactions. Other than as described in detail in Schedule 3.19, , no officer, director or shareholder of Sunbelt (nor any affiliate of any of the foregoing), has any interest in any equipment or other property, real or personal, tangible or intangible of Sunbelt, including, without limitation, any Sunbelt Proprietary Rights or, to the Knowledge of the Sunbelt Shareholders, any creditor, supplier, customer, manufacturer, agent, representative, or distributor of products or services to Sunbelt or of Sunbelt Products.
Section 3.20 Employees, Independent Contractors and Consultants.
     (a) Schedule 3.20 lists all currently effective written or oral consulting, independent contractor and/or employment agreements whether or not material and other material agreements concluded with individual employees, independent contractors or consultants to which Sunbelt is a party. With regard to employment agreements, this list specifies the legal entity employing the employee and the Law applicable to the employment agreement. True and correct copies of all such written agreements have been provided to NSI. All independent contractors have been properly classified as independent contractors for the purposes of federal and applicable state tax laws, laws applicable to employee benefits and other applicable law and all salaries and wages

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paid by Sunbelt are in compliance in all material respects with applicable federal, state and local laws. Schedule 3.20 (a) also sets forth the names, positions and salaries or rates of pay, including bonuses, of all persons presently employed by, or performing contract services for, Sunbelt. No bonus or other payment will become due to Sunbelt employees or contractors as a result of the Sale.
     (b) No undertaking to employ an additional Person has been given by Sunbelt. Moreover, none of the executives or manager of Sunbelt employed at the date of this Agreement has resigned or been dismissed or made redundant from its functions within Sunbelt, or has made known his intention to resign.
Section 3.21 Insurance. Schedule 3.21 sets forth a list of the principal policies of fire, liability and other forms of insurance currently held by Sunbelt, and all claims made by Sunbelt under such policies. Sunbelt has delivered or made available to NSI copies of each insurance policy (including policies providing property, casualty, liability, and workers’ compensation coverage and bond and surety arrangements) with respect to which Sunbelt or any of its affiliates is a party, a named insured, or otherwise the beneficiary of coverage. Sunbelt has not done anything, either by way of action or inaction, that might invalidate such policies in whole or in part. There is no claim pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and Sunbelt is otherwise in compliance with the terms of such policies and bonds in all material respects. There does not exist any threatened termination of, or material premium increase with respect to, any of such policies.
Section 3.22 Accounts Receivable. All accounts receivable of Sunbelt that are reflected in the Audited Financial Statements or on the accounting records of Sunbelt as of the Closing Date (collectively, the “Accounts Receivable”) represent or will represent valid obligations arising from sales actually made or services actually performed in the Ordinary Course of Business. Unless paid prior to the Closing Date, the Accounts Receivable are or will be as of the Closing Date current and collectible net of the respective reserves shown in the Audited Financial Statements or on the accounting records of Sunbelt as of the Closing Date (which reserves are adequate and calculated consistent with past practice and, in the case of the reserves as of the Closing Date, will not represent a greater percentage of the Accounts Receivable as of the Closing Date than the reserves reflected in the Current Balance Sheet represented of the Accounts Receivable reflected therein and will not represent a material adverse change in the composition of such Accounts Receivable in terms of aging). To the Knowledge of the Sunbelt Shareholders, there is no contest, claim, or right of set-off, other than returns in the Ordinary Course of Business, under any contract with any obligor of an Accounts Receivable relating to

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the amount or validity of such Accounts Receivable. Schedule 3.22 contains a complete and accurate list of all Accounts Receivable as of the most recent practicable date, which list sets forth the aging of such Accounts Receivable and designates those Accounts Receivable which Sunbelt has reason to believe will be unlikely or difficult to be collected in full.
Section 3.23 Litigation.
     (a) There is no private or governmental action, suit, proceeding, claim, arbitration or, to the Knowledge of the Sunbelt Shareholders, investigation pending before any agency, court or tribunal, foreign or domestic, or to the Knowledge of the Sunbelt Shareholders, threatened against Sunbelt or any of its properties or any of its officers or directors (in their capacities as such). There is no currently outstanding judgment, decree or order against Sunbelt, or any of its directors or officers (in their capacities as such). No Governmental Entity has challenged or questioned in a writing delivered to Sunbelt or otherwise brought to the attention of Sunbelt the legal right of Sunbelt to conduct its operations as presently conducted.
     (b) There has not been any personnel conflict within Sunbelt and, to the Knowledge of Sunbelt, there exists no threat of such conflict.
     (c) There are no pending litigations (or threat of such litigations) in relation to social security aspects, or in relation to the personnel of Sunbelt, particularly concerning the implementation of the 35 hour week regulations, or the provisions of employment agreements. Moreover, no circumstances exist that could reasonably be expected to result in a claim against Sunbelt as a result of the former or current use of temporary employees or employees employed under a fixed term employment agreement.
Section 3.24 Subsidiaries. Other than Sunbelt UK, Sunbelt has no, and has never had, any Subsidiaries and has not agreed to acquire an interest in or merge or consolidate with, a corporate body or any Person. As used in this Agreement, “Subsidiary” means any Person or Persons in which Sunbelt or NSI, as the context requires, directly or indirectly through Subsidiaries or otherwise, beneficially own at least fifty percent (50%) of either the equity interest in, or the voting control of, such Person. Sunbelt is the sole owner, beneficial or otherwise, of all of the memberships interests of Sunbelt UK. As of the date of this Agreement, there are (i) one hundred thousand (100,000) authorized Sunbelt UK shares, 5,000 of which shares are issued and outstanding, all of which are validly issued, fully paid and nonassessable and none of which are subject to repurchase rights, (ii) no warrants to purchase any Sunbelt UK ordinary shares; (iii) no issued and outstanding Sunbelt UK stock options; (iv) no Sunbelt UK ordinary shares reserved for future issuance pursuant to any warrants or other rights to purchase Sunbelt UK ordinary shares; and (v) no issued and outstanding warrants or other rights to purchase Sunbelt UK ordinary shares.

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Section 3.25 Compliance with Environmental Requirements. Sunbelt is in compliance in all material respects with all laws and regulations applicable to it and relating to pollution or protection of the environment, including laws or provisions which are intended to assure the safety of employees, workers or other persons. There are no conditions, circumstances, activities, practices, incidents, or actions known to Sunbelt which could reasonably be expected to form the basis of any claim, action, suit, proceeding, hearing, or investigation of, by, against or relating to Sunbelt, relating to the safety of employees, workers or other persons.
Section 3.26 Corporate Documents. Sunbelt has furnished to NSI or its representatives: (a) copies of its Bylaws, as amended to date; (b) its minute books containing consents, actions, and meetings of the shareholders; (c) its share transfer registry and individual shareholders accounts (d) all material permits, orders, and consents issued by any regulatory agency with respect to Sunbelt, or any securities of Sunbelt, and all applications for such permits, orders, and consents; (e) copies of any transfer agreement pertaining to the transfer of shares of Sunbelt before its transformation into an SAS that have been notified to Sunbelt at the time it was existing as an SARL, and (f) all corporate documents prepared in connection with the transformation of Sunbelt into a SAS. The corporate minute books and other corporate records of Sunbelt are complete and accurate, and the signatures appearing on all documents contained therein are the true or facsimile signatures of the persons purporting to have signed the same. The minute books of Sunbelt contain a reasonably accurate summary of each meeting and actions by written consent of the shareholders of Sunbelt between the time of organization of Sunbelt and the date hereof.
Section 3.27 No Brokers. Neither Sunbelt nor any Sunbelt Shareholder is obligated for the payment of fees or expenses of any broker or finder in connection with the origin, negotiation or execution of this Agreement or the other Transaction Documents or in connection with any transaction contemplated hereby or thereby.
Section 3.28 Disclosure. No statements by the Sunbelt Shareholders contained in this Agreement, its exhibits and schedules nor in any of the certificates or documents, including any of the Transaction Documents, delivered or required to be delivered by the Sunbelt Shareholders to NSI under this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made.

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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NSI
NSI represents and warrants that the statements contained in this Article IV are true and correct, except as expressly set forth in the disclosure schedule delivered by NSI as of the Closing Date (the “NSI Disclosure Schedule”).
Section 4.1 Organization of NSI. NSI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate or company power to own, lease and operate its property and to carry on its business as now being conducted and is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the failure to be so qualified or licensed could reasonably be expected to have a Material Adverse Effect on NSI.
Section 4.2 Authority; No Conflict; Required Filings and Consents.
     (a) NSI has all requisite corporate power and authority to enter into this Agreement and the other Transaction Documents to which it is or will become a party and to consummate the transactions contemplated by this Agreement and such Transaction Documents. The execution and delivery of this Agreement and such Transaction Documents and the consummation of the transactions contemplated by this Agreement and such Transaction Documents have been duly authorized by all necessary corporate action on the part of NSI. This Agreement and such Transaction Documents have been or, to the extent not executed as of the date hereof, will be duly executed and delivered by NSI. This Agreement and each of the Transaction Documents to which NSI is a party constitutes, and each of the Transaction Documents to which NSI will become a party when executed and delivered by NSI will constitute, a valid and binding obligation of NSI, enforceable by Sunbelt against NSI in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors’ rights generally and by general principles of equity, regardless of whether such enforceability is considered.
     (b) The execution and delivery by NSI of this Agreement and the Transaction Documents to which it is or will become a party does not, and consummation of the transactions contemplated by this Agreement or the Transaction Documents to which it is or will become a party will not, (i) conflict with, or result in any violation or breach of any provision of the Certificate of Incorporation or Bylaws of NSI, (ii) result in any violation or breach of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any material benefit) under any of the terms, conditions or provisions of any Contract to which NSI is a party or by which either of them or any of their properties or assets may be bound, or (iii) conflict or violate any permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to NSI or any of its properties or assets.

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     (c) Neither the execution and delivery of this Agreement by NSI of the Transaction Documents to which NSI is or will become a party or the consummation of the transactions contemplated hereby or thereby will require any consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity, except for (i) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws and the laws of any foreign country, and (ii) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, could be expected to have a Material Adverse Effect on NSI and its Subsidiaries, taken as a whole.
Section 4.3. No Knowledge of Breach by Sunbelt. As of the date of this Agreement, NSI does not have actual Knowledge of any breach by Sunbelt of any representation or warranty of Sunbelt or the Sunbelt Shareholders under Article III hereof.
ARTICLE V
OTHER AGREEMENTS
Section 5.1 No Public Announcement. The parties shall make no public announcement concerning this Agreement, their discussions or any other memoranda, letters or agreements between the parties relating to the Sale; provided, however, that either of the parties, but only after reasonable consultation with the other, may make disclosure if required under applicable law or by any order or decision rendered by any court; and provided further, however, that following execution of this Agreement and consummation of the Sale, NSI may, in its sole discretion, make a public announcement regarding the Sale and the integration of Sunbelt’s business into that of NSI.
Section 5.2 Further Assurances. Following the Closing, each Party agrees to cooperate fully with the other party and to execute such further instruments, documents and agreements and to give such further written assurances, as may be reasonably requested by any other party to better evidence and reflect the transactions described herein and contemplated hereby and to carry into effect the intents and purposes of this Agreement.
Section 5.3 Certain Tax Matters. Any stamp, transfer, documentary, sales and use, value added, registration, and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement or the transactions contemplated herein shall be paid by NSI.
Section 5.4 Cooperation on Tax Matters. After the Closing Date, the Sunbelt Shareholders shall, and NSI shall (and shall cause its affiliates) to (i) cooperate to the extent commercially

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reasonably necessary in preparing for any Audits of Sunbelt; (ii) make available to the other and to any Tax authority as reasonably requested all information, records, and documents within its possession or control relating to Taxes imposed on Sunbelt or its assets; and (iii) furnish the other with copies of all correspondence received from any Tax authority in connection with any Audit or information request with respect to any taxable period that ends on or before the Closing Date or which includes the Closing Date.
Section 5.5 Conduct of Business During Earn-Out Period. During the Earn-Out Period, (a) Sunbelt shall continue to be operated in the Ordinary Course of Business by NSI (which Ordinary Course of Business shall not preclude the public offering of NSI securities) without impairing the long-term growth of the business, and (b) the Distribution Agreement may not be terminated or amended in any material respect without the consent of the Representative and NSI.
Section 5.6 Access to Books and Record. At all times following the Closing (regardless of whether the Representative continues to be President of Sunbelt), NSI shall permit the Representative and his representatives and advisors to examine any books, records, and accounts of Sunbelt and NSI (and to make copies thereof and extracts therefrom) that may be relevant to the correct calculation of any Earn-out Payments hereunder and whether the conditions for such Earn-Out Payments are satisfied, provided that such examination must be upon reasonable prior notice and during normal business hours, in a manner calculated not to disrupt ongoing business activities. In addition, at any time following the Closing during which the Representative is no longer serving as President but during which the Sunbelt Shareholders may continue to be entitled to Earn-Out Payments, NSI shall provide to the Representative the same Monthly Report that the Representative would otherwise be required to provide to NSI pursuant to Section 2.1(d)(and within the same time frames specified therein).
Section 5.7. Title and Compensation of Jo Murciano. NSI agrees that, after the Closing, Jo Murciano will remain as President of Sunbelt and will continue to manage in this capacity the Business of Sunbelt until his tenure as President comes to an end pursuant to Section 17 paragraph 10 of the by-laws of Sunbelt. As President of Sunbelt, Jo Murciano will continue to be compensated in the amount and with the compensation plan in effect prior to the Closing Date as set forth in Schedule 5.7. As the sole shareholder of Sunbelt after the Closing, NSI agrees that it will not take any action pursuant to Section 17 of the by-laws of Sunbelt or otherwise (including any amendment to such by-laws) that would change Jo Murciano’s position or duties as President or decrease Jo Murciano’s compensation amount or compensation plan unless and until NSI chooses to make a termination to which the provisions of Section 2.1(g) shall be applicable.
Section 5.8. Loan Repayment. Until such time as the Initial Purchase Price has been paid in full, the parties agree that the Loan (as defined in Section 2.1(j)) will not be repaid, in whole or

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in part, until a corresponding amount of payment of the Initial Purchase Price has first been made to the Sunbelt Shareholders. For example, if the Sunbelt Shareholders have been paid 100,000 Euro of the Initial Purchase Price, then a repayment of up to 102,500 Euro can be made by Sunbelt to NSI on the Loan.
ARTICLE VI
FULFILLMENT OF CONDITIONS TO SALE
Section 6.1 Fulfillment of Conditions to Obligations of NSI. As a condition and inducement to NSI’s willingness to enter into this Agreement Sunbelt Shareholders hereby represent and warrant to NSI that each condition below has been fulfilled or complied with by Sunbelt or the Sunbelt Shareholders, as the case may be:
     (a) Representations and Warranties. The representations and warranties of the Sunbelt Shareholders set forth in this Agreement are true and correct in all material respects as of the Closing Date.
     (b) Performance of Obligations of Sunbelt. The Sunbelt Shareholders have performed in all material respects all obligations required to be performed by them under this Agreement.
     (c) No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Sale or limiting or restricting the conduct or operation of the business of Sunbelt by NSI after the Sale have been issued, nor any proceeding brought by a domestic administrative agency or commission or other domestic Governmental Entity or other third party, seeking any of the foregoing is pending; nor there is any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Sale which makes the consummation of the Sale illegal.
     (d) Escrow Agreement. The Escrow Agent and the Sunbelt Shareholders have executed and delivered to NSI the Escrow Agreement and such agreement shall remain in full force and effect.
     (e) Approvals. All authorizations, consents, or approvals of, or notifications to any third party, required by Sunbelt’s contracts, agreements or other obligations in connection with the consummation of the Sale have occurred or been obtained.
     (f) Employees/Employment Matters. No executive officer, key employee or group of

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employees has ceased to be employed by Sunbelt or expressed an intention to terminate his or her employment with Sunbelt. All employment practices by Sunbelt or Sunbelt UK prior to the Closing Date which were not in accordance with the relevant employment laws and regulations of the Republic of France or the United Kingdom have been corrected so that as of the Closing Date any such violation has been cured.
     (h) Remittance of documents. Sunbelt has delivered to NSI: (i) with respect to Sunbelt, (A) a duly certified copy of its articles of association, as amended to date; (B) a duly certified copy of an up-to-date certificate of incorporation (extrait K-bis); (C) its minute book containing meetings of the shareholders, including the minutes of the ordinary shareholders meeting dated May 16, 2006 approving the accounts of Sunbelt corresponding to the fiscal year ending on December 31, 2005 and declaring a dividend in favor of the Sunbelt Shareholders in an aggregate amount of €1,600,000 (one million six hundred thousands euro); (D) duly executed share transfer forms (“ordres de mouvements”) and in proper form for the transfer of the Sunbelt Shares to NSI; (E) the share transfer registry and the individual shareholders accounts of Sunbelt in which the transfer of the Sunbelt Shares to NSI shall have been duly registered; (F) a duly executed tax share transfer form with respect to the Sunbelt Shares, and (ii) with respect to Sunbelt UK, (A) the common seal (if any); (B) each register, minute book, and other book required to be kept by Sunbelt UK, made up to the Closing Date; (C) the certificate of incorporation and certificate of incorporation on change of name; and (D) share certificates for all the issued shares in the capital of Sunbelt UK;
     (i) Disclosure Schedules. Sunbelt has delivered to NSI a complete set of the Sunbelt Disclosure Schedules of exceptions to the representations and warranties of Sunbelt set forth in Article III.
     (j) Closing Balance Sheet. At the Closing, the Sunbelt Shareholders has delivered to NSI a balance sheet as of a date within five days of the Closing Date that is accurate based on the information then available to Sunbelt (the “Closing Balance Sheet”). The Closing Balance Sheet includes: an itemized schedule of all of its outstanding debt obligations, liabilities and trade payables, (collectively, the “Outstanding Liabilities”), an itemized schedule of its accounts payable, and the amount of its cash and cash equivalents, including all supporting data used in calculating such amounts.
     (k) Release of Liens and Security Interests. All liens against, and all security interests in, Sunbelt or any of its assets or properties (including the Sunbelt Proprietary Rights), other than liens or security interests held by NSI, have been released except for those permitted liens specified in Schedule 3.9.
     (l) Consent of the Shareholders. Sunbelt Shareholders shall deliver to NSI at Closing

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evidence of the consent of the shareholders of Sunbelt to the sale of the Sunbelt Shares contemplated in this Agreement, in accordance with Section 11 of the by-laws of Sunbelt.
Section 6.2 Fulfillment of Conditions to Obligations of the Sunbelt Shareholders. As a condition and inducement to the Sunbelt Shareholders’ willingness to enter into this Agreement, NSI hereby represents and warrants to the Sunbelt Shareholders that each condition below has been complied with by NSI:
          (a) Representations and Warranties. The representations and warranties of NSI set forth in this Agreement are true and correct in all material respects as of the Closing Date.
          (b) Performance of Obligations of NSI. NSI has performed in all material respects all obligations required to be performed by them under this Agreement.
          (c) Escrow Agreement. The Escrow Agent and NSI have executed and delivered to the Sunbelt Shareholders the Escrow Agreement, and such agreement shall remain in full force and effect.
          (d) Approvals. All authorizations, consents, or approvals of, or notifications to any third party, required by Sunbelt’s contracts, agreements or other obligations in connection with the consummation of the Sale have occurred or been obtained.
          (e) Disclosure Schedules. NSI has delivered to the Sunbelt Shareholders a complete set of the NSI Disclosure Schedules of exceptions to the representations and warranties of NSI set forth in Article IV.
          (f) Distribution Agreement Amendment. Each of NSI and Sunbelt has executed and delivered an Addendum to the Distribution Agreement extending the term thereof to the end of the Earn-Out Period.
ARTICLE VII
NON-COMPETITION
Section 7.1 Covenant Not to Compete. The parties acknowledge that, pursuant to the Sale, the Sunbelt Shareholders are transferring their interests in Sunbelt’s business of sales and marketing (the “Business”) together with the goodwill associated therewith. In order to protect such goodwill of the Business of Sunbelt, as contributed by the Sunbelt Shareholders, each of the Sunbelt Shareholders agrees to comply with, and agrees to cause its Affiliates to comply with, the restrictive covenants set forth in this Section 7.1. Except as provided in the last paragraph of

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this Section 7.1, each Sunbelt Shareholder will not, for three (3) years from the Closing Date, directly or indirectly, as an owner, partner, shareholder, joint venturer, corporate officer, director, employee, manager, consultant, principal, trustee or licensor of or for any Person, firm, partnership, company, corporation or other entity (other than NSI or any of its Affiliates):
     (a) acquire, own more than 5% of any equity interest in, manage, control, participate in, consult with or render services for, engage in or represent any business that is engaged in the business of selling, marketing, and distributing software and projects which compete with NSI’s software and products in existence as of the date hereof (“Competitive Products”); or
     (b) solicit, divert or take away, or attempt to solicit, divert or take away, the business, account or patronage of any of the clients, customers or suppliers of NSI; or
     (c) lend or allow its name or reputation to be used by or otherwise allow its skill, knowledge or experience to be used by any business that competes with the Business; or
     (d) induce, or attempt to induce, any customer, salesperson, distributor, supplier, vendor, manufacturer, representative, agent, jobber, licensee or other Person transacting business with NSI or any Affiliate thereof to reduce or cease doing business with NSI or any Affiliate thereof, or in any way to interfere with the relationship between any such customer, salesperson, distributor, supplier, vendor, manufacturer, representative, agent, jobber, licensee or business relation, on the one hand, and NSI or any Affiliate thereof, on the other hand.
Notwithstanding the foregoing, any Sunbelt Shareholder is permitted to own, individually, as a passive investor up to a 5% interest in any publicly-traded entity. The restrictions in this Section 7.1 will be effective in North America and Europe (the “Location”). The Sunbelt Shareholders acknowledge that the Business is international, rather than local, in scope. In addition, for purposes of clarifying the foregoing, it is agreed that nothing set forth in this Agreement shall prohibit the Sunbelt Shareholders or their Affiliates from owning or operating, either directly or indirectly, any business that sells software or other products (including non-NSI products currently sold by Sunbelt, but excluding Competitive Products) to parties who are customers of Sunbelt as of the date hereof or any other parties. In addition, the Sunbelt Shareholders shall have the right to use the “Sunbelt Software” trademark and trade name for purposes of owning and operating any such business and selling any such products, and Sunbelt hereby assigns and transfers all right, title and interest in and to such trademark and trade name to Sunbelt International S.A.R.L., subject to the right of NSI to continue to utilize such same in the Business without the payment of any royalty for a period not to exceed one year after the Closing Date. NSI hereby agrees that, within six (6) months of the Closing Date, it will change the legal name of Sunbelt to another name that does not include the word “Sunbelt.” In addition, Jo Murciano shall all times be permitted to continue to serve as a director, chief executive officer,

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or in any other capacity of Sunbelt Software Distribution, Inc., and he will not be deemed to be in violation on this Article VII to the extent that he is acting as an officer, employee, or representative for Sunbelt Software Distribution, Inc.
The term “Affiliates” means any Person, firm, or corporation which directly, or indirectly through one or more of intermediaries, controls, is controlled by, or is under common control with, the Person specified.
Section 7.2 Restrictions on Soliciting Employees. Each Sunbelt Shareholder will not, for three years following the Closing Date, directly or indirectly, induce or attempt to induce, or cause any employee of NSI or any Affiliate thereof during the last six months of his or her own employment to leave the employ of NSI or any Affiliate thereof or in any way interfere with the relationship between NSI or any Affiliate thereof, on the one hand, and any such employee thereof, on the other hand, or to work for any other entity or business.
Section 7.3 Reasonableness of Restrictions and Enforceability. Each Sunbelt Shareholder acknowledges that their strong business ties are significant to the growth of the Business, and each Sunbelt Shareholder further acknowledges that the restrictions in this Agreement are reasonable both individually and in the aggregate and that the duration, geographic scope, extent and application of each of such restrictions are no greater than is necessary for the protection of NSI’s legitimate business interests, which include but are not limited to Sunbelt’s trade secrets and other valuable confidential business information acquired by NSI, its substantial relationships with prospective or existing customers and suppliers, and the goodwill associated with the Business.
Section 7.4 Severable Covenants. The Parties intend that the covenants in Section 7.1 will be construed as a series of separate covenants, each consisting of the covenants in Section 7.1 for each of the Locations. Except for the Locations, all such separate covenants will be deemed identical. The Parties desire and intend that this Agreement be enforced to the fullest extent permissible under the Laws and public policies applied in each jurisdiction in which enforcement is sought. If any particular provision of Section 7.1 or 7.2 is adjudicated to be invalid or unenforceable, (a) each of the Parties agrees that if such provisions would be valid or enforceable if some part or parts of them were deleted or the period or area of application reduced, the applicable restriction will apply with the modifications necessary to make it valid and enforceable, and (b) such adjudication will apply only with respect to the operation of this Agreement in the particular jurisdiction in which the adjudication is made, and the unenforceable covenant will be eliminated from this Agreement to the extent necessary to permit the remaining separate covenants (or portions of them) to be enforced.

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ARTICLE VIII
ESCROW AND INDEMNIFICATION
Section 8.1 Indemnification. From and after the Closing Date and subject to the limitations contained in Section 8.2, the Sunbelt Shareholders will, jointly and severally, indemnify NSI, NSI’s current and future affiliates, the respective officers, directors, employees, agents, attorneys, accountants, advisors and representatives of such entities and the respective successors and assigns of such entities (collectively, the “Indemnified Parties” and each individually, an “Indemnified Party”) and hold the Indemnified Parties harmless against any loss, expense, liability or other damage, including attorneys’ fees, to the extent of the amount of such loss, expense, liability or other damage (collectively “Damages”) that the Indemnified Parties have incurred (a) by reason of the untruth, inaccuracy or breach by Sunbelt of any representation, warranty, covenant or agreement of Sunbelt contained in this Agreement, or (b) with respect to any Tax imposed on or with respect to any Sunbelt Shareholder with respect to any Tax period or portion of a Tax period ending on or before the Closing Date or with respect to the transactions contemplated by this Agreement. Except to the extent that equitable relief is available for a breach of Article VII of this Agreement, the sole and exclusive remedy of a party to this Agreement for any claim arising under this Agreement against the other parties hereto (other than as set forth in Section 8.2 below) shall be the indemnification provisions of this Article VIII. Except to the extent payable to a third party asserting a third party indemnification claim, under no circumstances shall an indemnifying party be liable for any consequential, indirect or punitive damages for any misrepresentation or breach of any provision of or any other matter arising pursuant to this Agreement or the Transaction Documents. Unless otherwise required by applicable law, for all tax purposes the parties hereto agree to treat (and shall cause each of their respective Affiliates to treat) any indemnity payment under this Agreement as an adjustment to the Sale Consideration, and no party shall take any position inconsistent with such characterization.
Section 8.2 Escrow Fund. From time to time in accordance with Sections 2.1(b) and (e) hereof, the Escrow Amount shall be deposited with Silicon Valley Bank as escrow agent (the “Escrow Agent”), such deposit to constitute the Escrow Fund (the “Escrow Fund”) and to be governed by the terms set forth in this Article VIII and in the Escrow Agreement. The Escrow Fund shall (A) serve as security and, except for (i) any fraudulent breach of a representation or warranty or intentional breach of a covenant by the Sunbelt Shareholders, and (ii) any indemnifiable claim payable to NSI pursuant to Section 8.1(b)(relating to Taxes) or with respect to a breach of Section 3.6 (Tax Matters), be the sole and exclusive recourse against the Sunbelt Shareholders for the indemnities in Section 8.1, and (B) may be used at the direction of the Representative to make Shortfall Loans, subject to the terms, conditions and limitations of Section 2.1(k)(iii) hereof and, provided there is no fraudulent breach of a representation or warranty or intentional breach of a covenant by the Sunbelt Shareholders or any indemnifiable

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claim payable to NSI pursuant to Section 8.1(b) at the time a Shortfall Loan is sought by the Representative, NSI agrees to execute, at the request of the Representative, a joint written direction to the Escrow Agent instructing it to release the funds requested for a Shortfall Loan. Except for any fraudulent breach of a representation or warranty or intentional breach of a covenant by the Sunbelt Shareholders or any indemnifiable claim payable to NSI pursuant to Section 8.1(b), in no event shall the aggregate liability of the Sunbelt Shareholders exceed the aggregate value of the Escrow Fund.
Section 8.3 Damage Threshold. Notwithstanding the foregoing, none of the Sunbelt Shareholders shall have any liability under Section 8.1 and NSI may not receive any amounts from the Escrow Fund unless and until an Officer’s Certificate or Certificates (as defined in Section 8.5 below) for an aggregate amount of NSI’s Damages in excess of $50,000 has been delivered to the Sunbelt Shareholders and to the Escrow Agent; provided, however, that after an Officer’s Certificate or Certificates for an aggregate of $50,000 in Damages has been delivered, NSI shall be entitled to receive payment from the Escrow Fund equal in value to the amount of Damages identified in such Officer’s Certificate or Certificates that exceeds $50,000. Notwithstanding any other provision in this Article VIII, the liability of each Sunbelt Shareholder for indemnifiable claims pursuant to Section 8.1(a) arising out of a breach of Section 3.6 (Tax Matters), Section 8.1(b) (relating to Taxes) or Section 8.1(c) (relating to maintenance of a Positive Cash Balance) shall not be subject to the limitations of this Section 8.3.
Section 8.4 Escrow Periods.
     (a) Except as otherwise provided herein, the Escrow Fund shall terminate on the date that is thirty (30) days following delivery of audited consolidated financial statements of NSI, including Sunbelt, for the year ended December 31, 2007. The period commencing with the Closing Date and terminating on such date shall be called the “Escrow Period.” In the event that no Officer’s Certificates (as defined below) have been delivered by NSI on the date which is thirty (30) days following delivery of audited consolidated financial statements of NSI, including Sunbelt, for the year ended December 31, 2006, then on such date (the “First Release Date”), one-half of the monies comprising the Escrow Fund will be distributed to the applicable Sunbelt Shareholders.
     (b) If the Escrow Fund terminates pursuant to Section 8.4(a), then, subject to the limitations contained in Section 8.4(c), the Escrow Amount that remains in the Escrow Fund that has not been delivered to NSI pursuant to Section 8.5 shall be distributed to the Sunbelt Shareholders.

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     (c) Any distributions of Escrow Amounts to the Sunbelt Shareholders from the Escrow Fund shall be reduced by an amount, which, in the reasonable judgment of NSI, subject to the objection of the Sunbelt Shareholders and the subsequent resolution of the matter in the manner provided in Section 8.7, are necessary to satisfy any unsatisfied claims specified in any Officer’s Certificate theretofore delivered to the Escrow Agent and the Sunbelt Shareholders prior to termination of the Escrow Period with respect to Damages incurred or litigation pending prior to expiration of the Escrow Period. Any such amount shall remain in the Escrow Fund until such claims have been finally resolved. Any Escrow Amounts that are not delivered to NSI upon resolution of such claims shall be eligible for distribution to the Sunbelt Shareholders.
Section 8.5 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on or before the last day of the Escrow Period of a certificate signed by any appropriately authorized officer of NSI (an “Officer’s Certificate”):
     (a) Stating the aggregate amount of NSI’s Damages or an estimate thereof, in each case to the extent known or determinable at such time; and
     (b) Specifying in reasonable detail the individual items of such Damages included in the amount so stated, the date each such item was paid or properly accrued or arose, and the nature of the misrepresentation, breach or claim to which such item is related. The Escrow Agent shall, subject to the provisions of Sections 8.3, 8.6 and 8.7 hereof and of the Escrow Agreement, deliver to NSI out of the Escrow Fund, as promptly as practicable, a portion of the Escrow Amounts having a value equal to such Damages all in accordance with the Escrow Agreement.
Section 8.6 Objections to Claims. At the time of delivery of any Officer’s Certificate to the Escrow Agent, a duplicate copy of such Officer’s Certificate shall be delivered to the Sunbelt Shareholders and for a period of thirty (30) days after such delivery, the Escrow Agent shall make no delivery of Escrow Amounts pursuant to Section 8.4 unless the Escrow Agent shall have received written authorization from the Sunbelt Shareholders to make such delivery. After the expiration of such thirty (30) day period, the Escrow Agent shall make delivery of the Escrow Amounts in the Escrow Fund in accordance with Section 8.4 provided, however, that no such delivery may be made if the Sunbelt Shareholders shall object in a written statement to the claim made in the Officer’s Certificate, and such statement shall have been delivered to the Escrow Agent and to NSI prior to the expiration of such thirty (30) day period.
Section 8.7 Resolution of Conflicts.
     (a) In case the Sunbelt Shareholders shall so object in writing to any claim or claims by

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NSI made in any Officer’s Certificate, NSI shall have thirty (30) days to respond in a written statement to the objection of the Sunbelt Shareholders. If after such thirty (30) day period there remains a dispute as to any claims, the Sunbelt Shareholders and NSI shall attempt in good faith for thirty (30) days to agree upon the rights of the respective parties with respect to each of such claims. If the Sunbelt Shareholders and NSI should so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and the Escrow Agent shall distribute Escrow Amounts from the Escrow Fund in accordance with the terms of the memorandum.
     (b) If no such agreement can be reached after good faith negotiation, either NSI or the Sunbelt Shareholders may, by written notice to the other, demand arbitration of the matter unless the amount of the damage or loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration in accordance with Section 9.7 hereof.
Section 8.8 Actions of the Sunbelt Shareholders. A decision, act, consent or instruction of Jo Murciano, as representative of the Sunbelt Shareholders, shall constitute a decision of all of the Sunbelt Shareholders and shall be final, binding and conclusive upon each such Sunbelt Shareholder, and the Escrow Agent and NSI may rely upon any decision, act, consent or instruction of Jo Murciano as being the decision, act, consent or instruction of each and every such Sunbelt Shareholder. The Escrow Agent and NSI are hereby relieved from any liability to any person for any acts done by them in accordance with such decision, act, consent or instruction of Jo Murciano.
Section 8.9 Third Party Claims. In the event NSI becomes aware of a third-party claim which NSI believes may result in a demand against the Escrow Fund, NSI shall promptly notify the Sunbelt Shareholders of such claim, and the Sunbelt Shareholders shall be entitled, at their expense, to participate in any defense of such claim. NSI shall have the right in its sole discretion to settle any such claim; provided, however, that NSI may not effect the settlement of any such claim without the consent of the Sunbelt Shareholders, which consent shall not be unreasonably withheld. In the event that the Sunbelt Shareholders have consented to any such settlement, the Sunbelt Shareholders shall have no power or authority to object to the amount of any claim by NSI against the Escrow Fund for indemnity with respect to such settlement in the amount agreed to.
Section 8.10 No Other Representations. Notwithstanding anything to the contrary contained in this Agreement, it is the explicit intent of each party hereto that the Sunbelt Shareholders and NSI are making no representation or warranty whatsoever, express or implied, except those representations and warranties contained in Articles III and IV respectively and in any certificates delivered pursuant hereto.

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Section 8.11 Insurance Benefits. The amount of any payments required to be made under this Article VIII shall be reduced by the amount of any insurance benefit actually received by the recipient by reason of the payment or incurrence by such recipient of the item for which the indemnity is being sought. Each party shall notify the other of such receipt of any such insurance benefits.
Section 8.12 Tax Saving. The amount of any payments required to be made under this Article VIII shall be reduced to take into account any Tax benefit actually realized by NSI by reason of the tax deductibility of the item for which the indemnity is being sought but shall be increased to take into account (and to make NSI whole for) any Tax detriment actually suffered by NSI by reason of its receipt of such payments under this Article VIII.
Section 8.13 Limitation as to Indemnified Parties’ Own Negligence. The respective obligations of the Sunbelt Shareholders under Section 8.1 above to provide indemnification with respect to any claim shall be terminated, modified or abated as appropriate if such claim giving rise to Damages for which such indemnification is provided hereunder (a) would not have arisen but for a voluntary act which (i) is carried out by an Indemnified Party after Closing otherwise than in the Ordinary Course of Business or (ii) is carried out after the Closing at the request of, or with the approval, concurrence or assistance of an Indemnified Party otherwise than in the Ordinary Course of Business or (b) is based, in whole or in part, on the negligence or willful misconduct of an Indemnified Party, provided, however, that the indemnification available to any Indemnified Party shall not be so terminated, modified or abated as a result of any alleged negligence or willful misconduct on the part of the Indemnified Parties or any Indemnified Party with respect to due diligence conducted in connection with the Sale. For purposes of this Section 8.13 “voluntary” shall mean an act other than any act which is required to be taken by law or which, if taken, would constitute prudent business practice.
8.14. Indemnification by NSI and Sunbelt. From and after the Closing Date, NSI and Sunbelt will, jointly and severally, indemnify the Sunbelt Shareholders and their current and future affiliates, their respective officers, directors, employees, agents, attorneys, accountants, advisors and representatives, and their respective successors and assigns (collectively, the “Seller Parties” and each individually, a “Seller Party”) and hold the Seller Parties harmless against any loss, expense, liability or other damage, including attorneys’ fees, to the extent of the amount of such loss, expense, liability or other damage that the Seller Parties have incurred by reason of the untruth, inaccuracy or breach by NSI of any representation, warranty, covenant or agreement of NSI contained in this Agreement.

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ARTICLE IX
MISCELLANEOUS
Section 9.1 Survival of Representations and Covenants. All representations, warranties, covenants and agreements of the Sunbelt Shareholders contained in this Agreement shall survive the Closing and any investigation at any time made by or on behalf of NSI until the end of the Escrow Period; provided, however, that the representations and warranties contained in Section 3.6 and 3.16 shall survive until the expiration of the applicable statute of limitations and provided further that the indemnification obligations of the Sunbelt Shareholders pursuant to clause (b) of the first sentence of Section 8.1 shall also survive until the expiration of the applicable statute of limitations. If Escrow Amounts or other assets are retained in the Escrow Fund beyond expiration of the period specified in the Escrow Agreement, then (notwithstanding the expiration of such time period) the representation, warranty, covenant or agreement applicable to such claim shall survive until, but only for purposes of, the resolution of the claim to which such retained Escrow Amounts or other assets relate. All representations, warranties, covenants and agreements of NSI contained in this Agreement shall survive the Closing and any investigation at any time made by or on behalf of the Sunbelt Shareholders until the end of the Escrow Period. Notwithstanding the foregoing, all covenants and agreements set forth in this Agreement that are to be performed following the Closing Date shall survive the Closing and continue in full force and effect until such covenants and agreements are performed in accordance with the terms of this Agreement. In addition, notwithstanding the foregoing, in the case of any fraudulent breach of a representation or warranty or intentional breach of a covenant by either party, the representations and/or warranties and/or covenants that are the subject of such fraud or intentional misconduct shall not terminate until 11:59 p.m. New York, New York time on the day of expiration of the applicable statute of limitations.
Section 9.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or two business days after being mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
if to NSI:
NSI Software, Inc.
257 Turnpike Road
Southboro, MA 01772
Attention: Chief Executive Officer
Fax No: (508) 229-0866

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Telephone No: (508) 229-8810
with a copy to:
Hogan & Hartson L.L.P.
111 South Calvert Street
Baltimore, MD 21202
Attention: Thene M. Martin and A. Lynne Puckett
Fax No: (410) 539-6981
Telephone No: (410) 659-2755
(b) if to the Sunbelt Shareholders, to:
Attention: Jo Murciano
7, Allée Jean Houdon
92500 Rueil Malmaison
France
With a copy to the following for informational purposes only and not as notice:
Foley & Lardner LLP
100 North Tampa St., Suite 2700
Tampa, Florida 22602
U.S.A.
Fax: (813) 221-4210
Attention: Curt P. Creely
Section 9.3 Interpretation. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement they shall be deemed to be followed by the words “without limitation. Whenever the words “to the Knowledge of the Sunbelt Shareholders” or “known to the Sunbelt Shareholders” or similar phrases are used in this Agreement, they mean when used in reference to (i) an individual, to the actual knowledge of such individual or (ii) a party that is not an individual, to the actual knowledge, of the directors, officers and employees of such party.
Section 9.4 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two

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or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.
Section 9.5 Entire Agreement; No Third Party Beneficiaries. This Agreement (including the documents and the instruments referred to herein, including the Disclosure Schedule), the Confidentiality Agreement, and the Transaction Documents (a) constitute the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, and (b) other than with respect to the Sunbelt Shareholders, are not intended to confer upon any Person other than the parties hereto (including without limitation any Sunbelt employees) any rights or remedies hereunder.
Section 9.6 Governing Law; Jurisdiction. This Agreement shall be governed and construed in accordance with the laws of the State of New York without regard to any applicable conflicts of law. In any action between the parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement: (a) each of the parties irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the state and federal courts located in New York, New York; (b) if any such action is commenced in a state court, then, subject to applicable law, no party shall object to the removal of such action to any federal court located in New York, New York; (c) each of the parties irrevocably waives the right to trial by jury; and (d) each of the parties irrevocably consents to service of process by first class certified mail, return receipt requested, postage prepaid, to the address at which such party is to receive notice in accordance with Section 9.2.
Section 9.7 Arbitration. Any controversy, dispute or claim arising out of or relating to this Agreement, any modification or extension hereof, or any breach hereof (including the question whether any particular matter is arbitrable hereunder) shall be settled exclusively by arbitration, in New York, New York in accordance with the rules of the American Arbitration Association then in force (the “Rules”). The party requesting arbitration shall serve upon the other party to the controversy, dispute or claim a written demand for arbitration stating the substance of the controversy, dispute or claim and the contention of the party requesting arbitration and the name and address of the arbitrator appointed by it. The recipient of such demand shall within 20 days after such receipt appoint an arbitrator, and the two arbitrators shall appoint a third, and the decision or award of any two arbitrators shall be final and binding upon the parties. In the event that the two arbitrators fail to appoint a third arbitrator within 20 days of the appointment of the second arbitrator, either arbitrator, or either party to the arbitration, may apply to a judge of the United States District Court for New York for the appointment of the third arbitrator, and the appointment of such arbitrator by such judge on such application shall have precisely the same force and effect as if such arbitrator had been appointed by the two arbitrators. If for any reason the third arbitrator cannot be appointed in the manner prescribed by the preceding sentence,

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either regularly appointed arbitrator, or either party to the arbitration, may apply to the American Arbitration Association for appointment of the third arbitrator in accordance with the Rules. Should the party upon whom the demand for arbitration has been served fail or refuse to appoint an arbitrator within 20 days, the single arbitrator shall have the right to decide alone, and such arbitrator’s decision or award shall be final and binding upon the parties.
     The parties hereto agree to abide by all awards and decisions rendered in an arbitration proceeding in accordance with the foregoing, and all such awards and decisions may be filed by the prevailing party with any court having jurisdiction over the person or property of the other party as a basis for judgment and the issuance of execution thereon. The fees of the arbitrator(s) and related expenses of arbitration shall be apportioned among the parties as determined by the arbitrator(s).
     Unless otherwise agreed by the parties to the arbitration, all hearings shall be held, and all submissions shall be made by the parties, within ten days of the date of the selection of the last arbitrator, and the decisions of the arbitrator(s) shall be made within 30 days of the later of the date of the closing of the hearings or the date of the final submissions by the parties.
Section 9.8 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties; provided, however, that NSI shall be permitted to assign its rights and obligations hereunder to any wholly owned subsidiary of NSI or to any successor in interest to it in connection with a transaction involving a change-in-control of NSI. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns.
Section 9.9 Amendment. This Agreement may be amended only upon the written consent of NSI and the Sunbelt Shareholders.
Section 9.10 Extension; Waiver. At any time prior to the Closing Date, the parties hereto may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or the other acts of the other parties hereto, (ii) waive any inaccuracies in the representations or warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party.
Section 9.11 Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties

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shall be entitled to injunctive relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity.
Section 9.12 Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law or regulation, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.
Section 9.13 Fees and Expenses. Except as set forth in this Section 9.13, all fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby (“Transaction Expenses”) shall be paid by the party incurring such expenses. Notwithstanding anything to the contrary herein, as of the Closing Date there shall be no outstanding obligation or debt of Sunbelt or Sunbelt UK for legal or other expenses which remains unpaid.
[remainder of page intentionally left blank]

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IN WITNESS WHEREOF, NSI and the Sunbelt Shareholders have caused this Agreement to be signed either by their respective officers thereunto duly authorized or , in each case as of the date first written above.
         
NSI SOFTWARE, INC.    
By:
  /s/ S. Craig Huke    
 
       
Name:
  S. Craig Huke    
Title:
  Chief Financial Officer    
THE SHAREHOLDERS OF SUNBELT SYSTEM SOFTWARE S.A.S.:
SUNBELT INTERNATIONAL S.A.R.L.
         
By:
  /s/ Jo Murciano    
 
       
Name:
  Jo Murciano    
Title:
  Managing director (gérant)    
Mr. JO MURCIANO
     
/s/ Jo Murciano
    
 
    
Name: Jo Murciano
   
The Company has omitted the following schedules in accordance with Regulation S-K 601(b)(2):

  Schedule 2.3(i) Duly executed share transfer forms (“ordres de mouvements”)
  Schedule 2.3(ii) Share Transfer Registry and the individual shareholders accounts of Sunbelt
  Schedule 2.3(iii) Duly filed and executed versions of CERFA form N°10408*05 on sale of shares
  Schedule 3 Sunbelt System Software S.A.S. disclosure schedule
  Schedule 4 NSI disclosure schedule

The Company will furnish the omitted schedules to the Commission upon request.

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EX-3.01 4 w23440a3exv3w01.htm EX-3.01 exv3w01
 

Exhibit 3.01
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
DOUBLE-TAKE SOFTWARE, INC.
          Double-Take Software, Inc. (the “Corporation”), a corporation organized and existing under the Delaware General Corporation Law, does hereby certify as follows:
  1.   The present name of the Corporation is Double-Take Software, Inc. The Corporation was originally incorporated under the name NSI Software, Inc. and its original certificate of incorporation (the “Original Certificate”) was filed with the office of the Secretary of State of the State of Delaware (the “Delaware Secretary”) on September 16, 2003.
 
  2.   This Second Amended and Restated Certificate of Incorporation (the “Amended Certificate”) was duly adopted by the Board of Directors of the Corporation (the “Board”) and by the stockholders of the Corporation in accordance with Sections 228, 242, and 245 of the Delaware General Corporation Law.
 
  3.   This Amended Certificate restates and amends the Amended and Restated Certificate of Incorporation of the Corporation that was filed with the Delaware Secretary on October 4, 2004, which had amended the Original Certificate, as heretofor amended, supplemented and/or restated (the “Existing Certificate”).
 
  4.   This Amended Certificate shall become effective upon ________________________.
 
  5.   The text of the Existing Certificate is amended and restated in its entirety as follows:
Article 1. NAME
          The name of this corporation is Double-Take Software, Inc.

 

 

Article 2. REGISTERED OFFICE AND AGENT
          The address of this Corporation’s registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle 19801. The name of this Corporation’s registered agent at such address is The Corporation Trust Company.
Article 3. PURPOSE AND POWERS
          The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “Delaware General Corporation Law”). The Corporation shall have all power necessary or convenient to the conduct, promotion or attainment of such acts and activities.
Article 4. CAPITAL STOCK
      4.1. Authorized Shares
          The total number of shares of all classes of stock that the Corporation shall have the authority to issue is ONE HUNDRED FIFTY MILLION, of which ONE HUNDRED THIRTY MILLION of such shares shall be Common Stock having a par value of $.001 per share (“Common Stock”), and TWENTY MILLION of such shares shall be Preferred Stock, having a par value of $.01 per share (“Preferred Stock”).
4.2. Common Stock
      4.2.1. Relative Rights
          The Common Stock shall be subject to all of the rights, privileges, preferences and priorities of the Preferred Stock as set forth in the certificate of designations filed to establish the respective series of Preferred Stock. Each share of Common Stock shall have the same relative rights as and be identical in all respects to all the other shares of Common Stock.
      4.2.2. Dividends
          Whenever there shall have been paid, or declared and set aside for payment, to the holders of shares of any class of stock having preference over the Common Stock as to the payment of dividends, the full amount of dividends and of

2

 

sinking fund or retirement payments, if any, to which such holders are respectively entitled in preference to the Common Stock, then dividends may be paid on the Common Stock and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends thereon, but only when and as declared by the Board of Directors of the Corporation. Any dividends on the Common Stock will not be cumulative.
          4.2.3. Dissolution, Liquidation, Winding Up
          In the event of any dissolution, liquidation, or winding up of the Corporation, whether voluntary or involuntary, the holders of the Common Stock, and holders of any class or series of stock entitled to participate therewith, in whole or in part, as to the distribution of assets in such event, shall become entitled to participate in the distribution of any assets of the Corporation remaining after the Corporation shall have paid, or provided for payment of, all debts and liabilities of the Corporation and after the Corporation shall have paid, or set aside for payment, to the holders of any class of stock having preference over the Common Stock in the event of dissolution, liquidation or winding up the full preferential amounts (if any) to which they are entitled.
          4.2.4. Voting Rights
          Each holder of shares of Common Stock shall be entitled to attend all special and annual meetings of the stockholders of the Corporation and, share for share and without regard to class, together with the holders of all other classes of stock entitled to attend such meetings and to vote (except any class or series of stock having special voting rights), to cast one vote for each outstanding share of Common Stock so held upon any matter or thing (including, without limitation, the election of one or more directors) properly considered and acted upon by the stockholders.
          4.2.5 Stockholder Action
          Subject to the rights of any holders of Preferred Stock to act by written consent instead of a meeting, stockholder action may be taken only at an annual meeting or special meeting of stockholders and may not be taken by written consent instead of a meeting, unless the action to be taken by written consent of stockholders and the taking of this action by written consent has been expressly approved in advance by the board of directors.

3

 

      4.3. Preferred Stock
          The Board of Directors is authorized, subject to limitations prescribed by the Delaware General Corporation Law and the provisions of this Certificate of Incorporation, to provide, by resolution or resolutions from time to time and by filing a certificate of designations pursuant to the Delaware General Corporation Law, for the issuance of the shares of Preferred Stock in series, to establish from time to time the number of shares to be included in each such series, to fix the powers, designations, preferences and relative, participating, optional or other special rights of the shares of each such series and to fix the qualifications, limitations or restrictions thereof.
          The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: (1) the number of shares constituting that series and the distinctive designation of that series; (2) the dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (3) whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (4) whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (5) whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (6) whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (7) the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; and (8) any other relative powers, preferences, and rights of that series, and qualifications, limitations or restrictions on that series.
Article 5. BOARD OF DIRECTORS
      5.1. Number; Election
          The number of directors of the Corporation shall be such number as from time to time shall be fixed by, or in the manner provided in, the bylaws of the Corporation. Unless and except to the extent that the bylaws of the Corporation

4

 

shall otherwise require, the election of directors of the Corporation need not be by written ballot. Except as otherwise provided in this Certificate of Incorporation, each director of the Corporation shall be entitled to one vote per director on all matters voted or acted upon by the Board of Directors. A director whose resignation is being deliberated upon by the Board of Directors or a committee thereof shall not participate in such deliberations or vote on whether to accept such resignation.
      5.2. Management of Business and Affairs of the Corporation
          The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
      5.3. Limitation of Liability
          No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this provision shall not eliminate or limit the liability of a director (a) for any breach of the director’s duty of loyalty to the Corporation or its stockholders; (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (c) under Section 174 of the Delaware General Corporation Law; or (d) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Article 5.3 shall be prospective only and shall not adversely affect any right or protection of, or any limitation of the liability of, a director of the Corporation existing at, or arising out of facts or incidents occurring prior to, the effective date of such repeal or modification.
Article 6. AMENDMENT OF BYLAWS
          In furtherance and not in limitation of the powers conferred by the Delaware General Corporation Law, the Board of Directors of the Corporation is expressly authorized and empowered to adopt, amend and repeal the bylaws of the Corporation.
Article 7. RESERVATION OF RIGHT TO AMEND CERTIFICATE OF INCORPORATION
          The Corporation reserves the right at any time, and from time to time, to amend, alter, change, or repeal any provision contained in this Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter

5

 

prescribed by law; and all rights, preferences, and privileges of any nature conferred upon stockholders, directors, or any other persons by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this Article 7.
          IN WITNESS WHEREOF, this Amended Certificate has been executed by the ________________of the Corporation on this ___day of ___, 2006.
         
  DOUBLE-TAKE SOFTWARE, INC.
 		  
  By:      
       
       
 

6

EX-3.02 5 w23440a3exv3w02.htm EX-3.02 exv3w02
 

Exhibit 3.02
DOUBLE-TAKE SOFTWARE, INC.
SECOND AMENDED AND RESTATED BYLAWS
Adopted
as of
November 2, 2006
and effective as of the First Closing of the Corporation’s Initial Public Offering

 

 

TABLE OF CONTENTS
             
            Page
 
            
1.   OFFICES   1
 
   1.1.   Registered Office   1
 
   1.2.   Other Offices   1
2.   MEETINGS OF STOCKHOLDERS   1
 
   2.1.   Place of Meetings   1
 
   2.2.   Annual Meetings   1
 
   2.3.   Special Meetings   2
 
   2.4.   Notice of Meetings   2
 
   2.5.   Waivers of Notice   2
 
   2.6.   Business at Special Meetings   3
 
   2.7.   List of Stockholders   3
 
   2.8.   Quorum at Meetings   3
 
   2.9.   Voting and Proxies   4
 
   2.10.   Required Vote   4
3.   DIRECTORS   5
 
   3.1.   Powers   5
 
   3.2.   Number and Election   5
 
   3.3.   Nomination of Directors   5
 
   3.4.   Vacancies   6
 
   3.5.   Meetings   6
 
       3.5.1. Regular Meetings   6
 
       3.5.2. Special Meetings   7
 
       3.5.3. Telephone Meetings   7
 
       3.5.4. Action Without Meeting   7
 
       3.5.5. Waiver of Notice of Meeting   7
 
   3.6.   Quorum and Vote at Meetings   7
 
   3.7.   Committees of Directors   8
 
   3.8.   Compensation of Directors   8
4.   OFFICERS   9
 
   4.1.   Positions   9
 
   4.2.   Chairperson   9
 
   4.3.   Chief Executive Officer   9
 
   4.4.   President   9
 
   4.5.   Vice President   10
 
   4.6.   Secretary   10
 
   4.7.   Assistant Secretary   10
 
   4.8.   Treasurer   10

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            Page
 
            
 
   4.9.   Assistant Treasurer   10
 
   4.10.   Term of Office   11
 
   4.11.   Compensation   11
 
   4.12.   Fidelity Bonds   11
5.   CAPITAL STOCK   11
 
   5.1.   Certificates of Stock; Uncertificated Shares   11
 
   5.2.   Lost Certificates   12
 
   5.3.   Record Date   12
 
       5.3.1. Actions by Stockholders   12
 
       5.3.2. Payments   12
 
   5.4.   Stockholders of Record   13
6.   INDEMNIFICATION; INSURANCE   13
 
   6.1.   Authorization of Indemnification   13
 
   6.2.   Right of Claimant to Bring Action Against the Corporation   14
 
   6.3.   Non-exclusivity   14
 
   6.4.   Survival of Indemnification   14
 
   6.5.   Insurance   15
7.   GENERAL PROVISIONS   15
 
   7.1.   Inspection of Books and Records   15
 
   7.2.   Dividends   15
 
   7.3.   Reserves   15
 
   7.4.   Execution of Instruments   16
 
   7.5.   Fiscal Year   16
 
   7.6.   Seal   16

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SECOND AMENDED AND RESTATED BYLAWS
OF
DOUBLE-TAKE SOFTWARE, INC.
1.   OFFICES
  1.1.   Registered Office
               The name and address of the current registered agent in the State of Delaware are: The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801.
  1.2.   Other Offices
               The Corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or as may be necessary or useful in connection with the business of the Corporation.
2.   MEETINGS OF STOCKHOLDERS
  2.1.   Place of Meetings
               All meetings of the stockholders shall be held at such place as may be fixed from time to time by the Board of Directors, the Chairperson, Chief Executive Officer or the President. Notwithstanding the foregoing, the Board of Directors may determine that the meeting shall not be held at any place, but may instead be held by means of remote communication.
  2.2.   Annual Meetings
               The Corporation shall hold annual meetings of stockholders on such date and at such time as shall be designated from time to time by the Board of Directors, the Chairperson, the Chief Executive Officer or the President, at which stockholders shall elect a Board of Directors and transact such other business as may properly be brought before the meeting.
               Any stockholder wishing to bring business before an annual meeting of stockholders must deliver to the Secretary a written notice of the stockholder’s intention to do so. To be timely, the stockholder’s notice must be delivered to or mailed and received by the Corporation not less than 60 days before the meeting, except that if stockholders receive less than 75 days’ notice or prior public disclosure of the date of the meeting, the Corporation must

 

 

receive the notice not later than the close of business on the tenth day following the day on which the Corporation provides notice or public disclosure of the meeting. The notice must include the following information: (i) the name and address of the stockholder who is making a proposal and the nature of the business being proposed; (ii) a representation that the stockholder is a holder of record of Corporation capital stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to introduce the business specified in the notice; and (iii) such other information regarding each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed under the Securities and Exchange Commission’s (the “SEC”) proxy rules if the matter had been proposed, or intended to be proposed, by the board of directors.
  2.3.   Special Meetings
               Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Board of Directors, the Chairperson, the Chief Executive Officer or the President.
  2.4.   Notice of Meetings
               Notice of any meeting of stockholders, stating the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, and (if it is a special meeting) the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting (except to the extent that such notice is waived or is not required as provided in the General Corporation Law of the State of Delaware (the “Delaware General Corporation Law”) or these Bylaws). Such notice shall be given in accordance with, and shall be deemed effective as set forth in, Sections 222 and 232 (or any successor section or sections) of the Delaware General Corporation Law.
  2.5.   Waivers of Notice
               Whenever the giving of any notice is required by statute, the Certificate of Incorporation or these Bylaws, a written waiver thereof signed by the person or persons entitled to said notice, or a waiver thereof by electronic transmission by the person entitled to said notice, delivered to the Corporation, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. Attendance of a stockholder at a meeting shall constitute a waiver of notice (1) of such meeting, except when the stockholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (2) (if it is a special meeting) of consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the stockholder objects to considering the matter at the beginning of the meeting.

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  2.6.   Business at Special Meetings
               Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice (except to the extent that such notice is waived or is not required as provided in the Delaware General Corporation Law or these Bylaws).
  2.7.   List of Stockholders
               After the record date for a meeting of stockholders has been fixed, at least ten days before such meeting, the officer who has charge of the stock ledger of the Corporation shall make a list of all stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder (but not the electronic mail address or other electronic contact information, unless the Board of Directors so directs) and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least ten days prior to the meeting: (1) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (2) during ordinary business hours, at the principal place of business of the Corporation. If the meeting is to be held at a place, then such list shall also, for the duration of the meeting, be produced and kept open to the examination of any stockholder who is present at the time and place of the meeting. If the meeting is to be held solely by means of remote communication, then such list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.
  2.8.   Quorum at Meetings
               Stockholders may take action on a matter at a meeting only if a quorum exists with respect to that matter. Except as otherwise provided by statute or by the Certificate of Incorporation, the holders of a majority of the shares entitled to vote at the meeting, and who are present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. Where a separate vote by a class or series or classes or series is required, a majority of the outstanding shares of such class or series or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter. Once a share is represented for any purpose at a meeting (other than solely to object (1) to holding the meeting or transacting business at the meeting, or (2) (if it is a special meeting) to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice), it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for the adjourned meeting. The holders of a majority of the voting shares represented at a meeting, whether or not a quorum is present, may adjourn such meeting from time to time.

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  2.9.   Voting and Proxies
               Unless otherwise provided in the Delaware General Corporation Law or in the Corporation’s Certificate of Incorporation, and subject to the other provisions of these Bylaws, each stockholder shall be entitled to one vote on each matter, in person or by proxy, for each share of the Corporation’s capital stock that has voting power and that is held by such stockholder. No proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed appointment of proxy shall be irrevocable if the appointment form states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. If authorized by the Board of Directors, and subject to such guidelines as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication, participate in a meeting of stockholders and be deemed present in person and vote at such meeting whether such meeting is held at a designated place or solely by means of remote communication, provided that (1) the Corporation implements reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (2) the Corporation implements reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (3) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action is maintained by the Corporation.
  2.10.   Required Vote
               Except as provided in the next sentence, when a quorum is present at any meeting of stockholders, all matters shall be determined, adopted and approved by the affirmative vote (which need not be by ballot) of the holders of a majority of shares present in person or represented by proxy at the meeting and entitled to vote with respect to the matter, unless the proposed action is one upon which, by express provisions of statutes or of the Certificate of Incorporation, a different vote is specified and required, in which case such express provision shall govern and control with respect to that vote on that matter. Except as provided in Section 3.4 hereof or as otherwise required by law or by the Certificate of Incorporation, each director shall be elected by a majority of votes cast with respect to the director at any meeting at which a quorum is present, provided that if the number of nominees exceeds the number of directors to be elected, directors shall be elected by the vote of a plurality at a meeting at which a quorum is present. For purposes of this Section, a majority of the votes cast means that the number of shares voted “for” a director must exceed 50% of the votes cast with respect to that director. If the Certificate of Incorporation provides for more or less than one vote for any share, on any matter, every reference in these Bylaws to a majority or other proportion of stock, voting stock or shares shall refer to a majority or other proportion of the votes of such stock, voting stock or shares. Where a separate vote by a class or classes is required, the affirmative vote of the holders of a majority of the shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class.

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3.   DIRECTORS
  3.1.   Powers
               The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things, subject to any limitation set forth in the Certificate of Incorporation or as otherwise may be provided in the Delaware General Corporation Law.
  3.2.   Number and Election
               The number of directors which shall constitute the whole Board of Directors shall not be fewer than three (3) nor more than fifteen (15). Within the limits above specified, the number of directors shall be determined by resolution of the Board of Directors.
  3.3.   Nomination of Directors
               The Board of Directors shall nominate candidates to stand for election as directors; and other candidates also may be nominated by any Corporation stockholder. Any stockholder wishing to nominate persons for election as directors at an annual meeting must deliver to the Secretary a written notice of such stockholder’s intention to do so, which must be delivered to or mailed and received by the Corporation not less than 60 days before the meeting, except that if stockholders receive less than 75 days’ notice or prior public disclosure of the date of the meeting, the Corporation must receive such notice not later than the close of business on the tenth day following the day on which the Corporation provides notice or public disclosure of the meeting. The notice must include the following information: (i) the name and address of the stockholder who intends to make the nomination and the name and address of the person or persons to be nominated; (ii) a representation that the stockholder is a holder of record of Corporation capital stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons; (iii) if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons, naming such person or persons, pursuant to which the nomination is to be made by the stockholder; (iv) such other information regarding each nominee to be proposed by such stockholder as would be required to be included in a proxy statement filed under the SEC’s proxy rules if the nominee had been nominated, or intended to be nominated, by the Board of Directors; and (v) if applicable, the consent of each nominee to serve as a director if elected. The Board of Directors may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as one of its directors.
               The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 3.4 hereof, and each director elected shall hold office until such director’s

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successor is elected and qualified or until the director’s earlier death, resignation or removal. Directors need not be stockholders.
               The Board of Directors or a committee thereof shall not nominate any incumbent director who, as a condition to such nomination, does not submit a conditional and, in the case of an uncontested election, irrevocable letter of resignation to the Chairman of the Board of Directors. If a nominee who is already serving as a director is not elected, the Nominating and Corporate Governance Committee shall promptly consider the conditional resignation of such nominee and recommend to the Board of Directors whether to accept the resignation or reject it. The Board of Directors shall take action with respect to the Nominating and Corporate Governance Committee’s recommendation and publicly disclose its decision and the rationale behind it no later than 90 days following the certification of the election results. A director whose resignation is being deliberated upon by the Board of Directors or the Nominating and Corporate Governance Committee shall not participate in such deliberations or vote on whether to accept such resignation.
  3.4.   Vacancies
               Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by the affirmative vote of a majority of the directors then in office, although fewer than a quorum, or by a sole remaining director. Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by the affirmative vote of a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. Each director so chosen shall hold office until the next election of directors of the class to which such director was appointed, and until such director’s successor is elected and qualified, or until the director’s earlier death, resignation or removal. In the event that one or more directors resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office until the next election of directors, and until such director’s successor is elected and qualified, or until the director’s earlier death, resignation or removal.
  3.5.   Meetings
  3.5.1.   Regular Meetings
               Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors.

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  3.5.2.   Special Meetings
               Special meetings of the Board of Directors may be called by the Chairperson, the Chief Executive Officer or the President on one day’s notice to each director, either personally or by telephone, express delivery service (so that the scheduled delivery date of the notice is at least one day in advance of the meeting), telegram, facsimile transmission, electronic mail (effective when directed to an electronic mail address of the director), or other electronic transmission, as defined in Section 232(c) (or any successor section) of the Delaware General Corporation Law (effective when directed to the director), and on five days’ notice by mail (effective upon deposit of such notice in the mail). The notice need not describe the purpose of a special meeting.
  3.5.3.   Telephone Meetings
               Members of the Board of Directors may participate in a meeting of the Board of Directors by any communication by means of which all participating directors can simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting.
  3.5.4.   Action Without Meeting
               Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if the action is taken by all members of the Board of Directors. The action must be evidenced by one or more consents in writing or by electronic transmission describing the action taken, signed by each director, and delivered to the Corporation for inclusion in the minute book.
  3.5.5.   Waiver of Notice of Meeting
               A director may waive any notice required by statute, the Certificate of Incorporation or these Bylaws before or after the date and time stated in the notice. Except as set forth below, the waiver must be in writing, signed by the director entitled to the notice, or made by electronic transmission by the director entitled to the notice, and delivered to the Corporation for inclusion in the minute book. Notwithstanding the foregoing, a director’s attendance at or participation in a meeting waives any required notice to the director of the meeting unless the director at the beginning of the meeting objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.
  3.6.   Quorum and Vote at Meetings
               At all meetings of the Board of Directors, a quorum of the Board of Directors consists of a majority of the total number of directors prescribed pursuant to Section 3.2 of these Bylaws. The vote of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation or by these Bylaws.

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  3.7.   Committees of Directors
               The Board of Directors may designate one or more committees, each committee to consist of one or more directors. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. If a member of a committee shall be absent from any meeting, or disqualified from voting thereat, the remaining member or members present and not disqualified from voting, whether or not such member or members constitute a quorum, may, by unanimous vote, appoint another member of the Board of Directors to act at the meeting in the place of such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the Delaware General Corporation Law to be submitted to stockholders for approval or adopting, amending or repealing any bylaw of the Corporation; and unless the resolution designating the committee, these bylaws or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors, when required. Unless otherwise specified in the Board of Directors resolution appointing the Committee, all provisions of the Delaware General Corporation Law and these Bylaws relating to meetings, action without meetings, notice (and waiver thereof), and quorum and voting requirements of the Board of Directors apply, as well, to such committees and their members. Unless otherwise provided in the Certificate of Incorporation, these Bylaws, or the resolution of the Board of Directors designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee.
  3.8.   Compensation of Directors
               The Board of Directors shall have the authority to fix the compensation of directors. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

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4.   OFFICERS
  4.1.   Positions
               The officers of the Corporation shall be a Chairperson, a Chief Executive Officer, a President, a Secretary and a Treasurer, and such other officers as the Board of Directors (or an officer authorized by the Board of Directors) from time to time may appoint, including one or more Vice Chairmen, Executive Vice Presidents, Vice Presidents, Assistant Secretaries and Assistant Treasurers. Each such officer shall exercise such powers and perform such duties as shall be set forth below and such other powers and duties as from time to time may be specified by the Board of Directors or by any officer(s) authorized by the Board of Directors to prescribe the duties of such other officers. Any number of offices may be held by the same person, except that in no event shall the President and the Secretary be the same person. As set forth below, each of the Chairperson, Chief Executive Officer, President, and/or any Vice President may execute bonds, mortgages and other contracts under the seal of the Corporation, if required, except where required or permitted by law to be otherwise executed and except where the execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation.
  4.2.   Chairperson
               The Chairperson shall (when present) preside at all meetings of the Board of Directors and stockholders, and shall ensure that all orders and resolutions of the Board of Directors and stockholders are carried into effect. The Chairperson may execute bonds, mortgages and other contracts, under the seal of the Corporation, if required, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation.
  4.3.   Chief Executive Officer
               The Chairperson, President or officer of the Corporation may be designated by the Board of Directors as the Chief Executive Officer of the Corporation. The Chief Executive Officer shall have general supervision, direction and control of the business of the Corporation. The Chief Executive Officer may execute bonds, mortgages and other contracts, under the seal of the Corporation, if required, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation.
  4.4.   President
               The President shall be the chief operating officer of the Corporation and shall have full responsibility and authority for management of the day-to-day operations of the

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Corporation, subject to the authority of the Board of Directors and the Chief Executive Officer, if different. The President may execute bonds, mortgages and other contracts, under the seal of the Corporation, if required, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation.
  4.5.   Vice President
               In the absence of the President or in the event of the President’s inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President.
  4.6.   Secretary
               The Secretary shall have responsibility for preparation of minutes of meetings of the Board of Directors and of the stockholders and for authenticating records of the Corporation. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors. The Secretary or an Assistant Secretary may also attest all instruments signed by any other officer of the Corporation.
  4.7.   Assistant Secretary
               The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there shall have been no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of the Secretary’s inability or refusal to act, perform the duties and exercise the powers of the Secretary.
  4.8.   Treasurer
               The Treasurer shall be the chief financial officer of the Corporation and shall have responsibility for the custody of the corporate funds and securities and shall see to it that full and accurate accounts of receipts and disbursements are kept in books belonging to the Corporation. The Treasurer shall render to the Chief Executive Officer, the President, and the Board of Directors, upon request, an account of all financial transactions and of the financial condition of the Corporation.
  4.9.   Assistant Treasurer
               The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there shall have been no such

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determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of the Treasurer’s inability or refusal to act, perform the duties and exercise the powers of the Treasurer.
  4.10.   Term of Office
               The officers of the Corporation shall hold office until their successors are chosen and qualify or until their earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Any officer elected or appointed by the Board of Directors may be removed at any time, with or without cause, by the affirmative vote of a majority of the Board of Directors.
  4.11.   Compensation
               The compensation of officers of the Corporation shall be fixed by the Board of Directors or by any officer(s) authorized by the Board of Directors to prescribe the compensation of such other officers.
  4.12.   Fidelity Bonds
               The Corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise.
5.   CAPITAL STOCK
  5.1.   Certificates of Stock; Uncertificated Shares
               The shares of the Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution that some or all of any or all classes or series of the Corporation’s stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Every holder of stock represented by certificates shall be entitled to have a certificate (representing the number of shares registered in certificate form) signed in the name of the Corporation by the Chairperson, Chief Executive Officer, President or any Vice President, and by the Treasurer, Secretary or any Assistant Treasurer or Assistant Secretary of the Corporation. Any or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar whose signature or facsimile signature appears on a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.

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  5.2.   Lost Certificates
               The Board of Directors, Chairperson, Chief Executive Officer, President or Secretary may direct a new certificate of stock to be issued in place of any certificate theretofore issued by the Corporation and alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming that the certificate of stock has been lost, stolen or destroyed. When authorizing such issuance of a new certificate, the Board of Directors or any such officer may, as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or such owner’s legal representative, to advertise the same in such manner as the Board of Directors or such officer shall require and/or to give the Corporation a bond or indemnity, in such sum or on such terms and conditions as the Board of Directors or such officer may direct, as indemnity against any claim that may be made against the Corporation on account of the certificate alleged to have been lost, stolen or destroyed or on account of the issuance of such new certificate or uncertificated shares.
  5.3.   Record Date
  5.3.1.   Actions by Stockholders
               In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty days nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting, unless the Board of Directors fixes a new record date for the adjourned meeting.
  5.3.2.   Payments
               In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

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  5.4.   Stockholders of Record
               The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, to receive notifications, to vote as such owner, and to exercise all the rights and powers of an owner. The Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise may be provided by the Delaware General Corporation Law.
6.   INDEMNIFICATION; INSURANCE
  6.1.   Authorization of Indemnification
               Each person who was or is a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether by or in the right of the Corporation or otherwise (a “proceeding”), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, partner (limited or general) or agent of another corporation or of a partnership, joint venture, limited liability company, trust or other enterprise, including service with respect to an employee benefit plan, shall be (and shall be deemed to have a contractual right to be) indemnified and held harmless by the Corporation (and any successor to the Corporation by merger or otherwise) to the fullest extent authorized by, and subject to the conditions and (except as provided herein) procedures set forth in the Delaware General Corporation Law, as the same exists or may hereafter be amended (but any such amendment shall not be deemed to limit or prohibit the rights of indemnification hereunder for past acts or omissions of any such person insofar as such amendment limits or prohibits the indemnification rights that said law permitted the Corporation to provide prior to such amendment), against all expenses, liabilities and losses (including attorneys’ fees, judgments, fines, ERISA taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, however, that the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person (except for a suit or action pursuant to Section 6.2 hereof) only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. Persons who are not directors or officers of the Corporation and are not so serving at the request of the Corporation may be similarly indemnified in respect of such service to the extent authorized at any time by the Board of Directors of the Corporation. The indemnification conferred in this Section 6.1 also shall include the right to be paid by the Corporation (and such successor) the expenses (including attorneys’ fees) incurred in the defense of or other involvement in any such proceeding in advance of its final disposition; provided, however, that, if and to the extent the Delaware General Corporation Law requires, the payment of such expenses (including attorneys’ fees) incurred by a director or officer in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an

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undertaking by or on behalf of such director or officer to repay all amounts so paid in advance if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section 6.1 or otherwise; and provided further, that, such expenses incurred by other employees and agents may be so paid in advance upon such terms and conditions, if any, as the Board of Directors deems appropriate.
  6.2.   Right of Claimant to Bring Action Against the Corporation
               If a claim under Section 6.1 is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring an action against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed or is otherwise not entitled to indemnification under Section 6.1, but the burden of proving such defense shall be on the Corporation. The failure of the Corporation (in the manner provided under the Delaware General Corporation Law) to have made a determination prior to or after the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law shall not be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. Unless otherwise specified in an agreement with the claimant, an actual determination by the Corporation (in the manner provided under the Delaware General Corporation Law) after the commencement of such action that the claimant has not met such applicable standard of conduct shall not be a defense to the action, but shall create a presumption that the claimant has not met the applicable standard of conduct.
  6.3.   Non-exclusivity
               The rights to indemnification and advance payment of expenses provided by Section 6.1 hereof shall not be deemed exclusive of any other rights to which those seeking indemnification and advance payment of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office.
  6.4.   Survival of Indemnification
               The indemnification and advance payment of expenses and rights thereto provided by, or granted pursuant to, Section 6.1 hereof shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee,

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partner or agent and shall inure to the benefit of the personal representatives, heirs, executors and administrators of such person.
  6.5.   Insurance
               The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, partner (limited or general) or agent of another corporation or of a partnership, joint venture, limited liability company, trust or other enterprise, against any liability asserted against such person or incurred by such person in any such capacity, or arising out of such person’s status as such, and related expenses, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of the Delaware General Corporation Law.
7.   GENERAL PROVISIONS
  7.1.   Inspection of Books and Records
               Any stockholder, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose, and to make copies or extracts from: (1) the Corporation’s stock ledger, a list of its stockholders, and its other books and records; and (2) other documents as required by law. A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office or at its principal place of business.
  7.2.   Dividends
               The Board of Directors may declare dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation and the laws of the State of Delaware.
  7.3.   Reserves
               The directors of the Corporation may set apart, out of the funds of the Corporation available for dividends, a reserve or reserves for any proper purpose and may abolish any such reserve.

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  7.4.   Execution of Instruments
               All checks, drafts or other orders for the payment of money, and promissory notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
  7.5.   Fiscal Year
               The fiscal year of the Corporation shall end on December 31 of each year, unless otherwise fixed by resolution of the Board of Directors.
  7.6.   Seal
               The corporate seal shall be in such form as the Board of Directors shall approve. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced.
*     *     *     *     *
               The foregoing Bylaws were adopted by the Board of Directors of the Corporation on November 2, 2006.

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EX-10.07 6 w23440a3exv10w07.htm EX-10.07 exv10w07
 

Exhibit 10.07
 
DOUBLE-TAKE SOFTWARE
2006 OMNIBUS INCENTIVE PLAN
 

 

 

TABLE OF CONTENTS
                     
                Page  
1.   PURPOSE     1  
2.   DEFINITIONS     1  
3.   ADMINISTRATION OF THE PLAN     5  
    3.1.   Board     5  
    3.2.   Committee.     6  
    3.3.   Terms of Awards.     6  
    3.4.   Deferral Arrangement.     7  
    3.5.   No Liability.     8  
    3.6.   Share Issuance/Book-Entry     8  
4.   STOCK SUBJECT TO THE PLAN     8  
5.   EFFECTIVE DATE, DURATION AND AMENDMENTS     9  
    5.1.   Effective Date.     9  
    5.2.   Term.     9  
    5.3.   Amendment and Termination of the Plan     9  
6.   AWARD ELIGIBILITY AND LIMITATIONS     9  
    6.1.   Service Providers and Other Persons     9  
    6.2.   Successive Awards and Substitute Awards.     9  
    6.3.   Limitation on Shares of Stock Subject to Awards and Cash Awards.     10  
7.   AWARD AGREEMENT     10  
8.   TERMS AND CONDITIONS OF OPTIONS     10  
    8.1.   Option Price     10  
    8.2.   Vesting.     11  
    8.3.   Term.     11  
    8.4.   Termination of Service.     11  
    8.5.   Limitations on Exercise of Option.     11  
    8.6.   Method of Exercise.     11  
    8.7.   Rights of Holders of Options     12  
    8.8.   Delivery of Stock Certificates.     12  
    8.9.   Transferability of Options     12  
    8.10.   Family Transfers.     12  
    8.11.   Limitations on Incentive Stock Options.     12  
9.   TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS     13  
    9.1.   Right to Payment and Grant Price.     13  
    9.2.   Other Terms.     13  
10.   TERMS AND CONDITIONS OF RESTRICTED STOCK AND STOCK UNITS     13  
    10.1.   Grant of Restricted Stock or Stock Units.     13  
    10.2.   Restrictions.     13  
    10.3.   Restricted Stock Certificates.     14  
    10.4.   Rights of Holders of Restricted Stock.     14  

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                Page  
    10.5.   Rights of Holders of Stock Units.     14  
 
       10.5.1.   Voting and Dividend Rights.     14  
 
       10.5.2.   Creditor’s Rights.     14  
    10.6.   Termination of Service.     15  
    10.7.   Purchase of Restricted Stock.     15  
    10.8.   Delivery of Stock.     15  
11.   TERMS AND CONDITIONS OF UNRESTRICTED STOCK AWARDS     15  
12.   FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK     15  
    12.1.   General Rule.     15  
    12.2.   Surrender of Stock.     16  
    12.3.   Cashless Exercise.     16  
    12.4.   Other Forms of Payment.     16  
13.   TERMS AND CONDITIONS OF DIVIDEND EQUIVALENT RIGHTS     16  
    13.1.   Dividend Equivalent Rights.     16  
    13.2.   Termination of Service.     17  
14.   TERMS AND CONDITIONS OF PERFORMANCE AND ANNUAL INCENTIVE AWARDS     17  
    14.1.   Performance Conditions     17  
    14.2.   Performance or Annual Incentive Awards Granted to Designated Covered Employees     17  
 
       14.2.1.   Performance Goals Generally.     17  
 
       14.2.2.   Business Criteria.     18  
 
       14.2.3.   Timing For Establishing Performance Goals.     18  
 
       14.2.4.   Settlement of Performance or Annual Incentive Awards; Other Terms.     18  
    14.3.   Written Determinations.     18  
    14.4.   Status of Section 14.2 Awards Under Code Section 162(m)     19  
15.   PARACHUTE LIMITATIONS     19  
16.   REQUIREMENTS OF LAW     20  
    16.1.   General.     20  
    16.2.   Rule 16b-3.     20  
17.   EFFECT OF CHANGES IN CAPITALIZATION     21  
    17.1.   Changes in Stock.     21  
    17.2.   Reorganization in Which the Company Is the Surviving Entity Which does not Constitute a Corporate Transaction.     21  
    17.3.   Corporate Transaction.     22  
    17.4.   Adjustments.     23  
    17.5.   No Limitations on Company.     23  
18.   GENERAL PROVISIONS     23  
    18.1.   Disclaimer of Rights     23  
    18.2.   Nonexclusivity of the Plan     23  
    18.3.   Withholding Taxes     24  

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                Page  
    18.4.   Captions     24  
    18.5.   Other Provisions     24  
    18.6.   Number and Gender     24  
    18.7.   Severability     24  
    18.8.   Governing Law     24  
    18.9.   Section 409A of the Code     25  

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DOUBLE-TAKE SOFTWARE
2006 OMNIBUS INCENTIVE PLAN
      Double-Take Software, Inc., a Delaware corporation (the “Company”), sets forth herein the terms of its 2006 Omnibus Incentive Plan (the “Plan”), as follows:
1.   PURPOSE
      The Plan is intended to enhance the Company’s and its Affiliates’ (as defined herein) ability to attract and retain highly qualified officers, directors, key employees, and other persons, and to motivate such persons to serve the Company and its Affiliates and to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. To this end, the Plan provides for the grant of stock options, stock appreciation rights, restricted stock, stock units, unrestricted stock, dividend equivalent rights and cash awards. Any of these awards may, but need not, be made as performance incentives to reward attainment of annual or long-term performance goals in accordance with the terms hereof. Stock options granted under the Plan may be non-qualified stock options or incentive stock options, as provided herein.
2.   DEFINITIONS
      For purposes of interpreting the Plan and related documents (including Award Agreements), the following definitions shall apply:
      2.1 “Affiliate” means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including, without limitation, any Subsidiary.
      2.2 “Annual Incentive Award” means an Award made subject to attainment of performance goals (as described in Section 14) over a performance period of up to one year (the Company’s fiscal year, unless otherwise specified by the Committee).
      2.3 “Award” means a grant of an Option, Stock Appreciation Right, Restricted Stock, Unrestricted Stock, Stock Unit, Dividend Equivalent Rights, or cash award under the Plan.
      2.4 “Award Agreement” means the written agreement between the Company and a Grantee that evidences and sets out the terms and conditions of an Award.
      2.5 “Benefit Arrangement” shall have the meaning set forth in Section 15 hereof.
      2.6 “Board” means the Board of Directors of the Company.

 

 

      2.7 “Cause” means, as determined by the Board and unless otherwise provided in an applicable agreement with the Company or an Affiliate, (i) gross negligence or willful misconduct in connection with the performance of duties; (ii) conviction of a criminal offense (other than minor traffic offenses); or (iii) material breach of any term of any employment, consulting or other services, confidentiality, intellectual property or non-competition agreements, if any, between the Service Provider and the Company or an Affiliate.
      2.8 “Code” means the Internal Revenue Code of 1986, as now in effect or as hereafter amended.
      2.9 “Committee” means a committee of, and designated from time to time by resolution of, the Board, which shall be constituted as provided in Section 3.2.
      2.10 “Company” means Double-Take Software, Inc.
      2.11 “Corporate Transaction” means (i) the dissolution or liquidation of the Company or a merger, consolidation, or reorganization of the Company with one or more other entities in which the Company is not the surviving entity, (ii) a sale of substantially all of the assets of the Company to another person or entity, or (iii) any transaction (including without limitation a merger or reorganization in which the Company is the surviving entity) which results in any person or entity (other than persons who are stockholders or Affiliates immediately prior to the transaction) owning 80% or more of the combined voting power of all classes of stock of the Company.
      2.12 “Covered Employee” means a Grantee who is a covered employee within the meaning of Section 162(m)(3) of the Code.
      2.13 “Disability” means the Grantee is unable to perform each of the essential duties of such Grantee’s position by reason of a medically determinable physical or mental impairment which is potentially permanent in character or which can be expected to last for a continuous period of not less than 12 months; provided, however, that, with respect to rules regarding expiration of an Incentive Stock Option following termination of the Grantee’s Service, Disability shall mean the Grantee is unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
      2.14 “Dividend Equivalent Right” means a right, granted to a Grantee under Section 13 hereof, to receive cash, Stock, other Awards or other property equal in value to dividends paid with respect to a specified number of shares of Stock, or other periodic payments.

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      2.15 “Effective Date” means September 14, 2006, the date the Plan is approved by the Board.
      2.16 “Exchange Act” means the Securities Exchange Act of 1934, as now in effect or as hereafter amended.
      2.17 “Fair Market Value” means the value of a share of Stock, determined as follows: if on the Grant Date or other determination date the Stock is listed on an established national or regional stock exchange, is admitted to quotation on The Nasdaq Stock Market, Inc. or is publicly traded on an established securities market, the Fair Market Value of a share of Stock shall be the closing price of the Stock on such exchange or in such market (if there is more than one such exchange or market, the Fair Market Value shall be the closing Price of the Stock on the exchange that trades the largest volume of Stock on the Grant Date or such other determination date) on the Grant Date or such other determination date (if there is no such reported closing price, the Fair Market Value shall be the mean between the highest bid and lowest asked prices or between the high and low sale prices on such trading day) or, if no sale of Stock is reported for such trading day, on the next preceding day on which any sale shall have been reported. If the Stock is not listed on an established national or regional stock exchange, admitted to quotation on The Nasdaq Stock Market, Inc. or publicly traded on an established securities market, Fair Market Value shall be the mean between the lowest reported bid price and highest reported asked price of the Stock on the Grant Date or such other determination date in the over-the-counter market, as such prices are reported in a publication of general circulation selected by the Board and regularly reporting the market price of Sock in such market. If the Stock is not listed on such an exchange, quoted on such system, or traded on such a market, Fair Market Value shall be the value of the Stock as determined by the Board in good faith in a manner consistent with Code Section 409A.
      2.18 “Family Member” means a person who is a spouse, former spouse, child, stepchild, grandchild, parent, stepparent, grandparent, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive relationships, of the Grantee, any person sharing the Grantee’s household (other than a tenant or employee), a trust in which any one or more of these persons have more than fifty percent of the beneficial interest, a foundation in which any one or more of these persons (or the Grantee) control the management of assets, and any other entity in which one or more of these persons (or the Grantee) own more than fifty percent of the voting interests.
      2.19 “Grant Date” means, as determined by the Board, the latest to occur of (i) the date as of which the Board approves an Award, (ii) the date on which the recipient of an Award first becomes eligible to receive an Award under Section 6 hereof, or (iii) such other date as may be specified by the Board.
      2.20 “Grantee” means a person who receives or holds an Award under the Plan.
      2.21 “Incentive Stock Option” means an “incentive stock option” within the meaning of Section 422 of the Code, or the corresponding provision of any subsequently enacted tax statute, as amended from time to time.

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      2.22 “Non-qualified Stock Option” means an Option that is not an Incentive Stock Option.
      2.23 “Option” means an option to purchase one or more shares of Stock pursuant to the Plan.
      2.24 “Option Exercise Proceeds” means, with respect to an Option, the sum of the Option Price paid in cash, if any, to purchase shares of Stock under such Option, plus the value of all federal, state and local tax deductions to which the Company is entitled with respect to the exercise of such Option, determined using the highest federal tax rate applicable to corporations and a blended tax rate for state and local taxes based on the jurisdictions in which the Company does business and giving effect to the deduction of state and local taxes for federal tax purposes.
      2.25 “Option Price” means the exercise price for each share of Stock subject to an Option.
      2.26 “Other Agreement” shall have the meaning set forth in Section 15 hereof.
      2.27 “Outside Director” means a member of the Board who is not an officer or employee of the Company.
      2.28 “Performance Award” means an Award made subject to the attainment of performance goals (as described in Section 14) over a performance period of up to ten (10) years.
      2.29 “Plan” means this Double-Take Software 2006 Omnibus Incentive Plan.
      2.30 “Purchase Price” means the purchase price for each share of Stock pursuant to a grant of Restricted Stock or Unrestricted Stock.
      2.31 “Reporting Person” means a person who is required to file reports under Section 16(a) of the Exchange Act.
      2.32 “Restricted Stock” means shares of Stock, awarded to a Grantee pursuant to Section 10 hereof.
      2.33 “SAR Exercise Price” means the per share exercise price of an SAR granted to a Grantee under Section 9 hereof.
      2.34 “Securities Act” means the Securities Act of 1933, as now in effect or as hereafter amended.
      2.35 “Service” means service as a Service Provider to the Company or an Affiliate. Unless otherwise stated in the applicable Award Agreement, a Grantee’s change in position or duties shall not result in interrupted or terminated Service, so long as such Grantee continues to be a Service Provider to the Company or an Affiliate. Subject to the preceding sentence, whether a termination of Service shall have occurred for purposes of the Plan

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shall be determined by the Board, which determination shall be final, binding and conclusive.
      2.36 “Service Provider” means an employee, officer or director of the Company or an Affiliate, or a consultant or adviser currently providing services to the Company or an Affiliate.
      2.37 “Stock” means the common stock, par value $0.001 per share, of the Company.
      2.38 “Stock Appreciation Right” or “SAR” means a right granted to a Grantee under Section 9 hereof.
      2.39 “Stock Unit” means a bookkeeping entry representing the equivalent of one share of Stock awarded to a Grantee pursuant to Section 10 hereof.
      2.40 “Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code.
      2.41 “Substitute Awards” means Awards granted upon assumption of, or in substitution for, outstanding awards previously granted by a company or other entity acquired by the Company or any Affiliate or with which the Company or any Affiliate combines.
      2.42 “Termination Date” means the date upon which an Option shall terminate or expire, as set forth in Section 8.3 hereof.
      2.43 “Ten Percent Stockholder” means an individual who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding stock of the Company, its parent or any of its Subsidiaries. In determining stock ownership, the attribution rules of Section 424(d) of the Code shall be applied.
      2.44 “Unrestricted Stock” means an Award pursuant to Section 11 hereof.
3.   ADMINISTRATION OF THE PLAN
  3.1.   Board
      The Board shall have such powers and authorities related to the administration of the Plan as are consistent with the Company’s certificate of incorporation and by-laws and applicable law. The Board shall have full power and authority to take all actions and to make all determinations required or provided for under the Plan, any Award or any Award Agreement, and shall have full power and authority to take all such other actions and make all such other determinations not inconsistent with the specific terms and provisions of the Plan that the Board deems to be necessary or appropriate to the administration of the Plan, any Award or any Award Agreement. All such actions and determinations shall be by the affirmative vote of a majority of the members of the Board present at a meeting or by unanimous consent of the Board executed in writing in accordance with the Company’s certificate of incorporation and by-laws and applicable law. The interpretation and

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construction by the Board of any provision of the Plan, any Award or any Award Agreement shall be final, binding and conclusive.
  3.2.   Committee.
      The Board from time to time may delegate to the Committee such powers and authorities related to the administration and implementation of the Plan, as set forth in Section 3.1 above and other applicable provisions, as the Board shall determine, consistent with the certificate of incorporation and by-laws of the Company and applicable law.
     (i) Except as provided in Subsection (ii) and except as the Board may otherwise determine, the Committee, if any, appointed by the Board to administer the Plan shall consist of two or more Outside Directors of the Company who: (a) qualify as “outside directors” within the meaning of Section 162(m) of the Code and who (b) meet such other requirements as may be established from time to time by the Securities and Exchange Commission for plans intended to qualify for exemption under Rule 16b—3 (or its successor) under the Exchange Act and who comply with the independence requirements of the stock exchange on which the Common Stock is listed.
     (ii) The Board may also appoint one or more separate committees of the Board, each composed of one or more directors of the Company who need not be Outside Directors, who may administer the Plan with respect to employees or other Service Providers who are not officers or directors of the Company, may grant Awards under the Plan to such employees or other Service Providers, and may determine all terms of such Awards.
In the event that the Plan, any Award or any Award Agreement entered into hereunder provides for any action to be taken by or determination to be made by the Board, such action may be taken or such determination may be made by the Committee if the power and authority to do so has been delegated to the Committee by the Board as provided for in this Section. Unless otherwise expressly determined by the Board, any such action or determination by the Committee shall be final, binding and conclusive. To the extent permitted by law, the Committee may delegate its authority under the Plan to a member of the Board.
  3.3.   Terms of Awards.
      Subject to the other terms and conditions of the Plan, the Board shall have full and final authority to:
      (i) designate Grantees,
      (ii) determine the type or types of Awards to be made to a Grantee,
      (iii) determine the number of shares of Stock to be subject to an Award,
      (iv) establish the terms and conditions of each Award (including, but not limited to, the exercise price of any Option, the nature and duration of any restriction or condition (or provision for lapse thereof) relating to the vesting, exercise, transfer, or forfeiture of an Award

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or the shares of Stock subject thereto, and any terms or conditions that may be necessary to qualify Options as Incentive Stock Options),
      (v) prescribe the form of each Award Agreement evidencing an Award, and
      (vi) amend, modify, or supplement the terms of any outstanding Award. Such authority specifically includes the authority, in order to effectuate the purposes of the Plan but without amending the Plan, to modify Awards to eligible individuals who are foreign nationals or are individuals who are employed outside the United States to recognize differences in local law, tax policy, or custom. Notwithstanding the foregoing, no amendment, modification or supplement of any Award shall, without the consent of the Grantee, impair the Grantee’s rights under such Award.
      The Company may retain the right in an Award Agreement to cause a forfeiture of the gain realized by a Grantee on account of actions taken by the Grantee in violation or breach of or in conflict with any employment agreement, non-competition agreement, any agreement prohibiting solicitation of employees or clients of the Company or any Affiliate thereof or any confidentiality obligation with respect to the Company or any Affiliate thereof or otherwise in competition with the Company or any Affiliate thereof, to the extent specified in such Award Agreement applicable to the Grantee. Furthermore, the Company may annul an Award if the Grantee is an employee of the Company or an Affiliate thereof and is terminated for Cause as defined in the applicable Award Agreement or the Plan, as applicable. The grant of any Award shall be contingent upon the Grantee executing the appropriate Award Agreement.
      Notwithstanding the foregoing, no amendment or modification may be made to an outstanding Option or SAR which reduces the Option Price or SAR grant price, either by lowering the Option Price or SAR grant price or by canceling the outstanding Option or SAR and granting a replacement Option or SAR with a lower exercise price or grant price without the approval of the stockholders of the Company, provided, that, appropriate adjustments may be made to outstanding Options or SARs pursuant to Section 17.
  3.4.   Deferral Arrangement.
      The Board may permit or require the deferral of any award payment into a deferred compensation arrangement, subject to such rules and procedures as it may establish, which may include provisions for the payment or crediting of interest or dividend equivalents, including converting such credits into deferred Stock equivalents, restricting deferrals to comply with hardship distribution rules affecting 401(k) plans. Any such deferrals shall be made in a manner that complies with Code Section 409A.

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  3.5.   No Liability.
      No member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award or Award Agreement.
  3.6.   Share Issuance/Book-Entry
      Notwithstanding any provision of this Plan to the contrary, the issuance of the Stock under the Plan may be evidenced in such a manner as the Board, in its discretion, deems appropriate, including, without limitation, book-entry registration or issuance of one or more Stock certificates.
4.   STOCK SUBJECT TO THE PLAN
      Subject to adjustment as provided in Section 17 hereof, the number of shares of Stock available for issuance under the Plan shall be 2,653,061; provided however, that such number shall be increased by a number of shares of Stock equal to the number of Shares of Stock subject to option awards that were previously granted pursuant to the Company’s 2003 Employee Stock Option Plan that after the effectiveness of the Company’s initial public offering are either forfeited or not purchased pursuant to the terms of the applicable option award agreement. Notwithstanding the preceding sentence and also subject to adjustment as provided in Section 17 hereof, the aggregate number of shares of Stock that may be issued as Incentive Stock Options shall not exceed 2,653,061. Stock issued or to be issued under the Plan shall be authorized but unissued shares; or, to the extent permitted by applicable law, issued shares that have been reacquired by the Company. If any shares covered by an Award are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any Stock subject thereto, then the number of shares of Stock counted against the aggregate number of shares available under the Plan with respect to such Award shall, to the extent of any such forfeiture or termination, again be available for making Awards under the Plan.
      If the Option Price of any Option granted under the Plan, or if pursuant to Section 18.3 the withholding obligation of any Grantee with respect to an Option or other Award, is satisfied by tendering shares of Stock to the Company (by either actual delivery or by attestation) or by withholding shares of Stock, the number of shares of Stock issued net of the shares of Stock tendered or withheld shall be deemed delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan.
      The number of shares of Stock available for issuance under the Plan will be increased by the number of any shares of Stock that the Company repurchases with Option Exercise Proceeds. The number of shares of Stock contributed to the available shares of Stock in connection with an option exercise, however, may not be greater than the number obtained by dividing the amount of Option Exercise Proceeds by the Fair Market Value of the Stock on the applicable date of exercise.

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5.   EFFECTIVE DATE, DURATION AND AMENDMENTS
  5.1.   Effective Date.
      The Plan shall be effective as of the Effective Date, subject to approval of the Plan by the Company’s stockholders within one year of the Effective Date. Upon approval of the Plan by the stockholders of the Company as set forth above, all Awards made under the Plan on or after the Effective Date shall be fully effective as if the stockholders of the Company had approved the Plan on the Effective Date. If the stockholders fail to approve the Plan within one year of the Effective Date, any Awards made hereunder shall be null and void and of no effect.
  5.2.   Term.
      The Plan shall terminate automatically ten (10) years after its adoption by the Board and may be terminated on any earlier date as provided in Section 5.3.
  5.3.   Amendment and Termination of the Plan
      The Board may, at any time and from time to time, amend, suspend, or terminate the Plan as to any shares of Stock as to which Awards have not been made. An amendment shall be contingent on approval of the Company’s stockholders to the extent stated by the Board, required by applicable law or required by applicable stock exchange listing requirements. No Awards shall be made after termination of the Plan. No amendment, suspension, or termination of the Plan shall, without the consent of the Grantee, impair rights or obligations under any Award theretofore awarded under the Plan.
6.   AWARD ELIGIBILITY AND LIMITATIONS
  6.1.   Service Providers and Other Persons
      Subject to this Section 6, Awards may be made under the Plan to: (i) any Service Provider to the Company or of any Affiliate, including any Service Provider who is an officer or director of the Company, or of any Affiliate, as the Board shall determine and designate from time to time and (ii) any other individual whose participation in the Plan is determined to be in the best interests of the Company by the Board.
  6.2.   Successive Awards and Substitute Awards.
      An eligible person may receive more than one Award, subject to such restrictions as are provided herein. Notwithstanding Sections 8.1 and 9.1, the Option Price of an Option or the grant price of an SAR that is a Substitute Award may be less than 100% of the Fair Market Value of a share of Common Stock on the original date of grant; provided, that, the Option Price or grant price is determined in accordance with the principles of Code Section 424 and the regulations thereunder.
  6.3.   Limitation on Shares of Stock Subject to Awards and Cash Awards.
      During any time when the Company has a class of equity security registered under Section 12 of the Exchange Act:

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      (i) the maximum number of shares of Stock subject to Options or SARs that can be awarded under the Plan to any person eligible for an Award under Section 6 hereof is 1,061,224 per calendar year;
      (ii) the maximum number of shares that can be awarded under the Plan, other than pursuant to an Option or SAR, to any person eligible for an Award under Section 6 hereof is 1,061,224 per calendar year; and
      (iii) the maximum amount that may be earned as an Annual Incentive Award or other cash Award in any calendar year by any one Grantee shall be $3 million and the maximum amount that may be earned as a Performance Award or other cash Award in respect of a performance period by any one Grantee shall be $6 million.
      The preceding limitations in this Section 6.3 are subject to adjustment as provided in Section 17 hereof.
7.   AWARD AGREEMENT
      Each Award granted pursuant to the Plan shall be evidenced by an Award Agreement, in such form or forms as the Board shall from time to time determine. Award Agreements granted from time to time or at the same time need not contain similar provisions but shall be consistent with the terms of the Plan. Each Award Agreement evidencing an Award of Options shall specify whether such Options are intended to be Non-qualified Stock Options or Incentive Stock Options, and in the absence of such specification such options shall be deemed Non-qualified Stock Options.
8.   TERMS AND CONDITIONS OF OPTIONS
  8.1.   Option Price
      The Option Price of each Option shall be fixed by the Board and stated in the Award Agreement evidencing such Option. The Option Price of each Option shall be at least the Fair Market Value on the Grant Date of a share of Stock; provided, however, that in the event that a Grantee is a Ten Percent Stockholder, the Option Price of an Option granted to such Grantee that is intended to be an Incentive Stock Option shall be not less than 110 percent of the Fair Market Value of a share of Stock on the Grant Date. In no case shall the Option Price of any Option be less than the par value of a share of Stock.
  8.2.   Vesting.
          Subject to Sections 8.3 and 17.3 hereof, each Option granted under the Plan shall become exercisable at such times and under such conditions as shall be determined by the Board and stated in the Award Agreement. For purposes of this Section 8.2, fractional numbers of shares of Stock subject to an Option shall be rounded down to the next nearest whole number.

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  8.3.   Term.
      Each Option granted under the Plan shall terminate, and all rights to purchase shares of Stock thereunder shall cease, (i) upon the expiration of ten years from the date such Option is granted, (ii) upon the expiration of eleven years from the date such Option is granted if the Grantee terminates Service due to death in the tenth year of the Option’s term, or (iii) under such circumstances and on such date prior thereto as is set forth in the Plan or as may be fixed by the Board and stated in the Award Agreement relating to such Option (the “Termination Date”); provided, however, that in the event that the Grantee is a Ten Percent Stockholder, an Option granted to such Grantee that is intended to be an Incentive Stock Option shall not be exercisable after the expiration of five years from its Grant Date.
  8.4.   Termination of Service.
      Each Award Agreement shall set forth the extent to which the Grantee shall have the right to exercise the Option following termination of the Grantee’s Service. Such provisions shall be determined in the sole discretion of the Board, need not be uniform among all Options issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of Service.
  8.5.   Limitations on Exercise of Option.
      Notwithstanding any other provision of the Plan, in no event may any Option be exercised, in whole or in part, prior to the date the Plan is approved by the stockholders of the Company as provided herein or after the occurrence of an event referred to in Section 17 hereof which results in termination of the Option.
  8.6.   Method of Exercise.
      An Option that is exercisable may be exercised by the Grantee’s delivery to the Company of written notice of exercise on any business day, at the Company’s principal office, on the form specified by the Company. Such notice shall specify the number of shares of Stock with respect to which the Option is being exercised and shall be accompanied by payment in full of the Option Price of the shares for which the Option is being exercised plus the amount (if any) of federal and/or other taxes which the Company may, in its judgment, be required to withhold with respect to an Award. The minimum number of shares of Stock with respect to which an Option may be exercised, in whole or in part, at any time shall be the lesser of (i) 100 shares or such lesser number set forth in the applicable Award Agreement and (ii) the maximum number of shares available for purchase under the Option at the time of exercise.
  8.7.   Rights of Holders of Options
      Unless otherwise stated in the applicable Award Agreement, an individual holding or exercising an Option shall have none of the rights of a stockholder (for example, the right to receive cash or dividend payments or distributions attributable to the subject shares of Stock or to direct the voting of the subject shares of Stock ) until the shares of Stock covered thereby are fully paid and issued to him. Except as provided in Section 17 hereof, no adjustment shall

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be made for dividends, distributions or other rights for which the record date is prior to the date of such issuance.
  8.8.   Delivery of Stock Certificates.
      Promptly after the exercise of an Option by a Grantee and the payment in full of the Option Price, such Grantee shall be entitled to the issuance of a stock certificate or certificates evidencing his or her ownership of the shares of Stock subject to the Option.
  8.9.   Transferability of Options
      Except as provided in Section 8.10, during the lifetime of a Grantee, only the Grantee (or, in the event of legal incapacity or incompetency, the Grantee’s guardian or legal representative) may exercise an Option. Except as provided in Section 8.10, no Option shall be assignable or transferable by the Grantee to whom it is granted, other than by will or the laws of descent and distribution.
  8.10.   Family Transfers.
      If authorized in the applicable Award Agreement, a Grantee may transfer, not for value, all or part of an Option which is not an Incentive Stock Option to any Family Member. For the purpose of this Section 8.10, a “not for value” transfer is a transfer which is (i) a gift, (ii) a transfer under a domestic relations order in settlement of marital property rights; or (iii) a transfer to an entity in which more than fifty percent of the voting interests are owned by Family Members (or the Grantee) in exchange for an interest in that entity. Following a transfer under this Section 8.10, any such Option shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer. Subsequent transfers of transferred Options are prohibited except to Family Members of the original Grantee in accordance with this Section 8.10 or by will or the laws of descent and distribution. The events of termination of Service of Section 8.4 hereof shall continue to be applied with respect to the original Grantee, following which the Option shall be exercisable by the transferee only to the extent, and for the periods specified, in Section 8.4.
  8.11.   Limitations on Incentive Stock Options.
      An Option shall constitute an Incentive Stock Option only (i) if the Grantee of such Option is an employee of the Company or any Subsidiary of the Company; (ii) to the extent specifically provided in the related Award Agreement; and (iii) to the extent that the aggregate Fair Market Value (determined at the time the Option is granted) of the shares of Stock with respect to which all Incentive Stock Options held by such Grantee become exercisable for the first time during any calendar year (under the Plan and all other plans of the Grantee’s employer and its Affiliates) does not exceed $100,000. This limitation shall be applied by taking Options into account in the order in which they were granted.
9.   TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
  9.1.   Right to Payment and Grant Price.
      An SAR shall confer on the Grantee to whom it is granted a right to receive, upon exercise thereof, the excess of (i) the Fair Market Value of one share of Stock on the date of exercise over (ii) the grant price of the SAR as determined by the Board. The Award

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Agreement for an SAR shall specify the grant price of the SAR, which shall be at least the Fair Market Value of a share of Stock on the date of grant. SARs may be granted in conjunction with all or part of an Option granted under the Plan or at any subsequent time during the term of such Option, in conjunction with all or part of any other Award or without regard to any Option or other Award; provided that an SAR that is granted subsequent to the Grant Date of a related Option must have an SAR Price that is no less than the Fair Market Value of one share of Stock on the SAR Grant Date.
  9.2.   Other Terms.
      The Board shall determine at the date of grant or thereafter, the time or times at which and the circumstances under which an SAR may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the time or times at which SARs shall cease to be or become exercisable following termination of Service or upon other conditions, the method of exercise, method of settlement, form of consideration payable in settlement, method by or forms in which Stock will be delivered or deemed to be delivered to Grantees, whether or not an SAR shall be in tandem or in combination with any other Award, and any other terms and conditions of any SAR. Notwithstanding the preceding, each SAR granted under the Plan shall terminate, and all rights thereunder shall cease, (i) upon the expiration of ten years from the date such SAR is granted, (ii) upon the expiration of eleven years from the date such SAR is granted if the Grantee terminates Service due to death in the tenth year of the SAR’s term, or (iii) under such circumstances and on such date prior thereto as is set forth in the Plan or as may be fixed by the Board and stated in the Award Agreement relating to such SAR.
10.   TERMS AND CONDITIONS OF RESTRICTED STOCK AND STOCK UNITS
  10.1.   Grant of Restricted Stock or Stock Units.
      Awards of Restricted Stock or Stock Units may be made for no consideration (other than par value of the shares which is deemed paid by Services already rendered).
  10.2.   Restrictions.
      At the time a grant of Restricted Stock or Stock Units is made, the Board may, in its sole discretion, establish a period of time (a “restricted period”) applicable to such Restricted Stock or Stock Units. Each Award of Restricted Stock or Stock Units may be subject to a different restricted period. The Board may, in its sole discretion, at the time a grant of Restricted Stock or Stock Units is made, prescribe restrictions in addition to or other than the expiration of the restricted period, including the satisfaction of corporate or individual performance objectives, which may be applicable to all or any portion of the Restricted Stock or Stock Units in accordance with Section 14.1 and 14.2. Neither Restricted Stock nor Stock Units may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of during the restricted period or prior to the satisfaction of any other restrictions prescribed by the Board with respect to such Restricted Stock or Stock Units.

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  10.3.   Restricted Stock Certificates.
      The Company shall issue, in the name of each Grantee to whom Restricted Stock has been granted, stock certificates representing the total number of shares of Restricted Stock granted to the Grantee, as soon as reasonably practicable after the Grant Date. The Board may provide in an Award Agreement that either (i) the Secretary of the Company shall hold such certificates for the Grantee’s benefit until such time as the Restricted Stock is forfeited to the Company or the restrictions lapse, or (ii) such certificates shall be delivered to the Grantee, provided, however, that such certificates shall bear a legend or legends that comply with the applicable securities laws and regulations and makes appropriate reference to the restrictions imposed under the Plan and the Award Agreement.
  10.4.   Rights of Holders of Restricted Stock.
      Unless the Board otherwise provides in an Award Agreement, holders of Restricted Stock shall have the right to vote such Stock and the right to receive any dividends declared or paid with respect to such Stock. The Board may provide that any dividends paid on Restricted Stock must be reinvested in shares of Stock, which may or may not be subject to the same vesting conditions and restrictions applicable to such Restricted Stock. All distributions, if any, received by a Grantee with respect to Restricted Stock as a result of any stock split, stock dividend, combination of shares, or other similar transaction shall be subject to the restrictions applicable to the original Grant.
  10.5.   Rights of Holders of Stock Units.
  10.5.1.   Voting and Dividend Rights.
      Holders of Stock Units shall have no rights as stockholders of the Company. The Board may provide in an Award Agreement evidencing a grant of Stock Units that the holder of such Stock Units shall be entitled to receive, upon the Company’s payment of a cash dividend on its outstanding Stock, a cash payment for each Stock Unit held equal to the per-share dividend paid on the Stock. Such Award Agreement may also provide that such cash payment will be deemed reinvested in additional Stock Units at a price per unit equal to the Fair Market Value of a share of Stock on the date that such dividend is paid.
  10.5.2.   Creditor’s Rights.
      A holder of Stock Units shall have no rights other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Award Agreement.
  10.6.   Termination of Service.
      Unless the Board otherwise provides in an Award Agreement or in writing after the Award Agreement is issued, upon the termination of a Grantee’s Service, any Restricted Stock or Stock Units held by such Grantee that have not vested, or with respect to which all applicable restrictions and conditions have not lapsed, shall immediately be deemed forfeited. Upon forfeiture of Restricted Stock or Stock Units, the Grantee shall have no further rights with respect to such Award, including but not limited to any right to vote Restricted Stock or any right to receive dividends with respect to shares of Restricted Stock or Stock Units.

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  10.7.   Purchase of Restricted Stock.
      The Grantee shall be required, to the extent required by applicable law, to purchase the Restricted Stock from the Company at a Purchase Price equal to the greater of (i) the aggregate par value of the shares of Stock represented by such Restricted Stock or (ii) the Purchase Price, if any, specified in the Award Agreement relating to such Restricted Stock. The Purchase Price shall be payable in a form described in Section 12 or, in the discretion of the Board, in consideration for past Services rendered to the Company or an Affiliate.
  10.8.   Delivery of Stock.
      Upon the expiration or termination of any restricted period and the satisfaction of any other conditions prescribed by the Board, the restrictions applicable to shares of Restricted Stock or Stock Units settled in Stock shall lapse, and, unless otherwise provided in the Award Agreement, a stock certificate for such shares shall be delivered, free of all such restrictions, to the Grantee or the Grantee’s beneficiary or estate, as the case may be. Neither the Grantee, nor the Grantee’s beneficiary or estate, shall have any further rights with regard to a Stock Unit once the share of Stock represented by the Stock Unit has been delivered.
11.   TERMS AND CONDITIONS OF UNRESTRICTED STOCK AWARDS
      The Board may, in its sole discretion, grant (or sell at par value or such other higher purchase price determined by the Board) an Unrestricted Stock Award to any Grantee pursuant to which such Grantee may receive shares of Stock free of any restrictions (“Unrestricted Stock”) under the Plan. Unrestricted Stock Awards may be granted or sold as described in the preceding sentence in respect of past services and other valid consideration, or in lieu of, or in addition to, any cash compensation due to such Grantee.
12.   FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK
  12.1.   General Rule.
      Payment of the Option Price for the shares purchased pursuant to the exercise of an Option or the Purchase Price for Restricted Stock shall be made in cash or in cash equivalents acceptable to the Company.
  12.2.   Surrender of Stock.
      To the extent the Award Agreement so provides, payment of the Option Price for shares purchased pursuant to the exercise of an Option or the Purchase Price for Restricted Stock may be made all or in part through the tender to the Company of shares of Stock, which shall be valued, for purposes of determining the extent to which the Option Price or Purchase Price has been paid thereby, at their Fair Market Value on the date of exercise or surrender.

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  12.3.   Cashless Exercise.
      With respect to an Option only (and not with respect to Restricted Stock), to the extent permitted by law and to the extent the Award Agreement so provides, payment of the Option Price for shares purchased pursuant to the exercise of an Option may be made all or in part by delivery (on a form acceptable to the Board) of an irrevocable direction to a licensed securities broker acceptable to the Company to sell shares of Stock and to deliver all or part of the sales proceeds to the Company in payment of the Option Price and any withholding taxes described in Section 18.3.
  12.4.   Other Forms of Payment.
      To the extent the Award Agreement so provides, payment of the Option Price for shares purchased pursuant to exercise of an Option or the Purchase Price for Restricted Stock may be made in any other form that is consistent with applicable laws, regulations and rules.
13.   TERMS AND CONDITIONS OF DIVIDEND EQUIVALENT RIGHTS
  13.1.   Dividend Equivalent Rights.
      A Dividend Equivalent Right is an Award entitling the recipient to receive credits based on cash distributions that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other award to which it relates) if such shares had been issued to and held by the recipient. A Dividend Equivalent Right may be granted hereunder to any Grantee. The terms and conditions of Dividend Equivalent Rights shall be specified in the grant. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional equivalents. Any such reinvestment shall be at Fair Market Value on the date of reinvestment. Dividend Equivalent Rights may be settled in cash or Stock or a combination thereof, in a single installment or installments, all determined in the sole discretion of the Board. A Dividend Equivalent Right granted as a component of another Award may provide that such Dividend Equivalent Right shall be settled upon exercise, settlement, or payment of, or lapse of restrictions on, such other award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other award. A Dividend Equivalent Right granted as a component of another Award may also contain terms and conditions different from such other award.
  13.2.   Termination of Service.
      Except as may otherwise be provided by the Board either in the Award Agreement or in writing after the Award Agreement is issued, a Grantee’s rights in all Dividend Equivalent Rights or interest equivalents shall automatically terminate upon the Grantee’s termination of Service for any reason.

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14.   TERMS AND CONDITIONS OF PERFORMANCE AND ANNUAL INCENTIVE AWARDS
  14.1.   Performance Conditions
          The right of a Grantee to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such performance conditions as may be specified by the Board. The Board may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions, and may exercise its discretion to reduce the amounts payable under any Award subject to performance conditions, except as limited under Sections 14.2 hereof in the case of a Performance Award or Annual Incentive Award intended to qualify under Code Section 162(m). If and to the extent required under Code Section 162(m), any power or authority relating to a Performance Award or Annual Incentive Award intended to qualify under Code Section 162(m), shall be exercised by the Committee and not the Board.
  14.2.   Performance or Annual Incentive Awards Granted to Designated Covered Employees
          If and to the extent that the Committee determines that a Performance or Annual Incentive Award to be granted to a Grantee who is designated by the Committee as likely to be a Covered Employee should qualify as “performance-based compensation” for purposes of Code Section 162(m), the grant, exercise and/or settlement of such Performance or Annual Incentive Award shall be contingent upon achievement of pre-established performance goals and other terms set forth in this Section 14.2.
  14.2.1.   Performance Goals Generally.
      The performance goals for such Performance or Annual Incentive Awards shall consist of one or more business criteria and a targeted level or levels of performance with respect to each of such criteria, as specified by the Committee consistent with this Section 14.2. Performance goals shall be objective and shall otherwise meet the requirements of Code Section 162(m) and regulations thereunder including the requirement that the level or levels of performance targeted by the Committee result in the achievement of performance goals being “substantially uncertain.” The Committee may determine that such Performance or Annual Incentive Awards shall be granted, exercised and/or settled upon achievement of any one performance goal or that two or more of the performance goals must be achieved as a condition to grant, exercise and/or settlement of such Performance or Annual Incentive Awards. Performance goals may differ for Performance or Annual Incentive Awards granted to any one Grantee or to different Grantees.
  14.2.2.   Business Criteria.
      One or more of the following business criteria for the Company, on a consolidated basis, and/or specified subsidiaries or business units of the Company (except with respect to the total stockholder return and earnings per share criteria), shall be used exclusively by the Committee in establishing performance goals for such Performance or Annual Incentive Awards: (1) total stockholder return; (2) such total stockholder return as compared to total

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return (on a comparable basis) of a publicly available index such as, but not limited to, the Standard & Poor’s 500 Stock Index; (3) net income; (4) pretax earnings; (5) earnings, on a consolidated basis or operating basis, before any, all or none of the following: interest expense, taxes, depreciation, amortization bonuses, service fees, and extraordinary or special items; (6) operating margin; (7) earnings per share; (8) return on equity; (9) return on capital; (10) operating earnings; (11) working capital; (12) ratio of debt to stockholders’ equity; (13) growth in assets; (14) market share; (15) stock price; (16) cash flow; (17) sales growth (in general, by type of product and by type of customer); (18) retained earnings; (19) product development goals; (20) completion of acquisitions; (21) completion of divestitures and asset sales; (22) cost or expense reductions; (23) introduction or conversion of product brands; and (24) achievement of specified management information systems objectives. Business criteria may be measured on an absolute basis or on a relative basis (i.e., performance relative to peer companies) and on a GAAP or non-GAAP basis.
  14.2.3.   Timing For Establishing Performance Goals.
      Performance goals shall be established not later than 90 days after the beginning of any performance period applicable to such Performance or Annual Incentive Awards, or at such other date as may be required or permitted for “performance-based compensation” under Code Section 162(m).
  14.2.4.   Settlement of Performance or Annual Incentive Awards; Other Terms.
      Settlement of such Performance or Annual Incentive Awards shall be in cash, Stock, other Awards or other property, in the discretion of the Committee. The Committee may, in its discretion, reduce the amount of a settlement otherwise to be made in connection with such Performance or Annual Incentive Awards. The Committee shall specify the circumstances in which such Performance or Annual Incentive Awards shall be paid or forfeited in the event of termination of Service by the Grantee prior to the end of a performance period or settlement of Performance Awards.
  14.3.   Written Determinations.
          All determinations by the Committee as to the establishment of performance goals, the amount of any potential Performance Awards and as to the achievement of performance goals relating to Performance Awards, and the amount of any potential individual Annual Incentive Awards and the amount of final Annual Incentive Awards, shall be made in writing in the case of any Award intended to qualify under Code Section 162(m). To the extent permitted by Section 162(m), the Committee may delegate any responsibility relating to such Performance Awards or Annual Incentive Awards.
  14.4.   Status of Section 14.2 Awards Under Code Section 162(m)
          It is the intent of the Company that Performance Awards and Annual Incentive Awards under Section 14.2 hereof granted to persons who are designated by the Committee as likely to be Covered Employees within the meaning of Code Section 162(m) and regulations thereunder shall, if so designated by the Committee, constitute “qualified performance-based compensation” within the meaning of Code Section 162(m) and

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regulations thereunder. Accordingly, the terms of Section 14.2, including the definitions of Covered Employee and other terms used therein, shall be interpreted in a manner consistent with Code Section 162(m) and regulations thereunder. The foregoing notwithstanding, because the Committee cannot determine with certainty whether a given Grantee will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean only a person designated by the Committee, at the time of grant of Performance Awards or an Annual Incentive Award, as likely to be a Covered Employee with respect to that fiscal year. If any provision of the Plan or any agreement relating to such Performance Awards or Annual Incentive Awards does not comply or is inconsistent with the requirements of Code Section 162(m) or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements.
15.   PARACHUTE LIMITATIONS
      Notwithstanding any other provision of this Plan or of any other agreement, contract, or understanding heretofore or hereafter entered into by a Grantee with the Company or any Affiliate, except an agreement, contract, or understanding hereafter entered into that expressly modifies or excludes application of this paragraph (an “Other Agreement”), and notwithstanding any formal or informal plan or other arrangement for the direct or indirect provision of compensation to the Grantee (including groups or classes of Grantees or beneficiaries of which the Grantee is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Grantee (a “Benefit Arrangement”), if the Grantee is a “disqualified individual,” as defined in Section 280G(c) of the Code, any Option, Restricted Stock or Stock Unit held by that Grantee and any right to receive any payment or other benefit under this Plan shall not become exercisable or vested (i) to the extent that such right to exercise, vesting, payment, or benefit, taking into account all other rights, payments, or benefits to or for the Grantee under this Plan, all Other Agreements, and all Benefit Arrangements, would cause any payment or benefit to the Grantee under this Plan to be considered a “parachute payment” within the meaning of Section 280G(b)(2) of the Code as then in effect (a “Parachute Payment”) and (ii) if, as a result of receiving a Parachute Payment, the aggregate after-tax amounts received by the Grantee from the Company under this Plan, all Other Agreements, and all Benefit Arrangements would be less than the maximum after-tax amount that could be received by the Grantee without causing any such payment or benefit to be considered a Parachute Payment. In the event that the receipt of any such right to exercise, vesting, payment, or benefit under this Plan, in conjunction with all other rights, payments, or benefits to or for the Grantee under any Other Agreement or any Benefit Arrangement would cause the Grantee to be considered to have received a Parachute Payment under this Plan that would have the effect of decreasing the after-tax amount received by the Grantee as described in clause (ii) of the preceding sentence, then the Grantee shall have the right, in the Grantee’s sole discretion, to designate those rights, payments, or benefits under this Plan, any Other Agreements, and any Benefit Arrangements that should be reduced or eliminated so as to avoid having the payment or benefit to the Grantee under this Plan be deemed to be a Parachute Payment.

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16.   REQUIREMENTS OF LAW
  16.1.   General.
      The Company shall not be required to sell or issue any shares of Stock under any Award if the sale or issuance of such shares would constitute a violation by the Grantee, any other individual exercising an Option, or the Company of any provision of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations. If at any time the Company shall determine, in its discretion, that the listing, registration or qualification of any shares subject to an Award upon any securities exchange or under any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance or purchase of shares hereunder, no shares of Stock may be issued or sold to the Grantee or any other individual exercising an Option pursuant to such Award unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company, and any delay caused thereby shall in no way affect the date of termination of the Award. Specifically, in connection with the Securities Act, upon the exercise of any Option or the delivery of any shares of Stock underlying an Award, unless a registration statement under such Act is in effect with respect to the shares of Stock covered by such Award, the Company shall not be required to sell or issue such shares unless the Board has received evidence satisfactory to it that the Grantee or any other individual exercising an Option may acquire such shares pursuant to an exemption from registration under the Securities Act. Any determination in this connection by the Board shall be final, binding, and conclusive. The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act. The Company shall not be obligated to take any affirmative action in order to cause the exercise of an Option or the issuance of shares of Stock pursuant to the Plan to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable until the shares of Stock covered by such Option are registered or are exempt from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption.
  16.2.   Rule 16b-3.
      During any time when the Company has a class of equity security registered under Section 12 of the Exchange Act, it is the intent of the Company that Awards pursuant to the Plan and the exercise of Options granted hereunder will qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent that any provision of the Plan or action by the Board does not comply with the requirements of Rule 16b-3, it shall be deemed inoperative to the extent permitted by law and deemed advisable by the Board, and shall not affect the validity of the Plan. In the event that Rule 16b-3 is revised or replaced, the Board may exercise its discretion to modify this Plan in any respect necessary to satisfy the requirements of, or to take advantage of any features of, the revised exemption or its replacement.

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17.   EFFECT OF CHANGES IN CAPITALIZATION
  17.1.   Changes in Stock.
      If the number of outstanding shares of Stock is increased or decreased or the shares of Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company on account of any recapitalization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Company occurring after the Effective Date, the number and kinds of shares for which grants of Options and other Awards may be made under the Plan shall be adjusted proportionately and accordingly by the Company to prevent dilution or enlargement of the rights of the Grantees. In addition, the number and kind of shares for which Awards are outstanding shall be adjusted proportionately and accordingly so that the proportionate interest of the Grantee immediately following such event shall, to the extent practicable, be the same as immediately before such event. Any such adjustment in outstanding Options or SARs shall not change the aggregate Option Price or SAR Exercise Price payable with respect to shares that are subject to the unexercised portion of an outstanding Option or SAR, as applicable, but shall include a corresponding proportionate adjustment in the Option Price or SAR Exercise Price per share. The conversion of any convertible securities of the Company shall not be treated as an increase in shares effected without receipt of consideration. Notwithstanding the foregoing, in the event of any distribution to the Company’s stockholders of securities of any other entity or other assets (including an extraordinary dividend but excluding a non-extraordinary dividend of the Company) without receipt of consideration by the Company, the Company may, in such manner as the Company deems appropriate, adjust (i) the number and kind of shares subject to outstanding Awards and/or (ii) the exercise price of outstanding Options and Stock Appreciation Rights to reflect such distribution. Notwithstanding the preceding, the Company may also make provision for the payment of cash or other property in respect of any outstanding Award.

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  17.2.   Reorganization in Which the Company Is the Surviving Entity Which does not Constitute a Corporate Transaction.
      Subject to Section 17.3 hereof, if the Company shall be the surviving entity in any reorganization, merger, or consolidation of the Company with one or more other entities which does not constitute a Corporate Transaction, any Option or SAR theretofore granted pursuant to the Plan shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to such Option or SAR would have been entitled immediately following such reorganization, merger, or consolidation, with a corresponding proportionate adjustment of the Option Price or SAR Exercise Price per share so that the aggregate Option Price or SAR Exercise Price thereafter shall be the same as the aggregate Option Price or SAR Exercise Price of the shares remaining subject to the Option or SAR immediately prior to such reorganization, merger, or consolidation. Subject to any contrary language in an Award Agreement evidencing an Award, any restrictions applicable to such Award shall apply as well to any replacement shares received by the Grantee as a result of the reorganization, merger or consolidation. In the event of a transaction described in this Section 17.2, Stock Units shall be adjusted so as to apply to the securities that a holder of the number of shares of Stock subject to the Stock Units would have been entitled to receive immediately following such transaction.
  17.3.   Corporate Transaction.
          Subject to the exceptions set forth in the last sentence of this Section 17.3 and the last sentence of Section 17.4, upon the occurrence of a Corporate Transaction:
          (i) all outstanding shares of Restricted Stock shall be deemed to have vested, and all Stock Units shall be deemed to have vested and the shares of Stock subject thereto shall be delivered, immediately prior to the occurrence of such Corporate Transaction, and
          (ii) either of the following two actions shall be taken:
               (A) fifteen days prior to the scheduled consummation of a Corporate Transaction, all Options and SARs outstanding hereunder shall become immediately exercisable and shall remain exercisable for a period of fifteen days, or
               (B) the Board may elect, in its sole discretion, to cancel any outstanding Awards of Options, Restricted Stock, Stock Units, and/or SARs and pay or deliver, or cause to be paid or delivered, to the holder thereof an amount in cash or securities having a value (as determined by the Board acting in good faith), in the case of Restricted Stock or Stock Units, equal to the formula or fixed price per share paid to holders of shares of Stock and, in the case of Options or SARs, equal to the product of the number of shares of Stock subject to the Option or SAR (the “Award Shares”) multiplied by the amount, if any, by which (I) the formula or fixed price per share paid to holders of shares of Stock pursuant to such transaction exceeds (II) the Option Price or SAR Exercise Price applicable to such Award Shares.
          With respect to the Company’s establishment of an exercise window, (i) any exercise of an Option or SAR during such fifteen-day period shall be conditioned upon the consummation of the event and shall be effective only immediately before the consummation

-22-

 

of the event, and (ii) upon consummation of any Corporate Transaction the Plan, and all outstanding but unexercised Options and SARs shall terminate. The Board shall send written notice of an event that will result in such a termination to all individuals who hold Options and SARs not later than the time at which the Company gives notice thereof to its stockholders. This Section 17.3 shall not apply to any Corporate Transaction to the extent that provision is made in writing in connection with such Corporate Transaction for the assumption or continuation of the Options, SARs, Stock Units and Restricted Stock theretofore granted, or for the substitution for such Options, SARs, Stock Units and Restricted Stock for new common stock options and stock appreciation rights and new common stock stock units and restricted stock relating to the stock of a successor entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number of shares (disregarding any consideration that is not common stock) and option and stock appreciation right exercise prices, in which event the Plan, Options, SARs, Stock Units and Restricted Stock theretofore granted shall continue in the manner and under the terms so provided.
  17.4.   Adjustments.
      Adjustments under this Section 17 related to shares of Stock or securities of the Company shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. No fractional shares or other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share. The Board shall determine the effect of a Corporate Transaction upon Awards other than Options, SARs, Stock Units and Restricted Stock, and such effect shall be set forth in the appropriate Award Agreement. The Board may provide in the Award Agreements at the time of grant, or any time thereafter with the consent of the Grantee, for different provisions to apply to an Award in place of those described in Sections 17.1, 17.2 and 17.3.
  17.5.   No Limitations on Company.
      The making of Awards pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets.
18.   GENERAL PROVISIONS
  18.1.   Disclaimer of Rights
      No provision in the Plan or in any Award or Award Agreement shall be construed to confer upon any individual the right to remain in the employ or service of the Company or any Affiliate, or to interfere in any way with any contractual or other right or authority of the Company either to increase or decrease the compensation or other payments to any individual at any time, or to terminate any employment or other relationship between any individual and the Company. In addition, notwithstanding anything contained in the Plan to the contrary, unless otherwise stated in the applicable Award Agreement, no Award granted under the Plan shall be affected by any change of duties or position of the Grantee, so long as such Grantee continues to be a director, officer, consultant or employee of the Company or an Affiliate. The obligation of the Company to pay any benefits pursuant to this Plan shall be

-23-

 

interpreted as a contractual obligation to pay only those amounts described herein, in the manner and under the conditions prescribed herein. The Plan shall in no way be interpreted to require the Company to transfer any amounts to a third party trustee or otherwise hold any amounts in trust or escrow for payment to any Grantee or beneficiary under the terms of the Plan.
  18.2.   Nonexclusivity of the Plan
      Neither the adoption of the Plan nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations upon the right and authority of the Board to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular individual or particular individuals) as the Board in its discretion determines desirable, including, without limitation, the granting of stock options otherwise than under the Plan.
  18.3.   Withholding Taxes
      The Company or an Affiliate, as the case may be, shall have the right to deduct from payments of any kind otherwise due to a Grantee any federal, state, or local taxes of any kind required by law to be withheld with respect to the vesting of or other lapse of restrictions applicable to an Award or upon the issuance of any shares of Stock upon the exercise of an Option or pursuant to an Award. At the time of such vesting, lapse, or exercise, the Grantee shall pay to the Company or the Affiliate, as the case may be, any amount that the Company or the Affiliate may reasonably determine to be necessary to satisfy such withholding obligation. Subject to the prior approval of the Company or the Affiliate, which may be withheld by the Company or the Affiliate, as the case may be, in its sole discretion, the Grantee may elect to satisfy such obligations, in whole or in part, (i) by causing the Company or the Affiliate to withhold shares of Stock otherwise issuable to the Grantee or (ii) by delivering to the Company or the Affiliate shares of Stock already owned by the Grantee. The shares of Stock so delivered or withheld shall have an aggregate Fair Market Value equal to such withholding obligations. The Fair Market Value of the shares of Stock used to satisfy such withholding obligation shall be determined by the Company or the Affiliate as of the date that the amount of tax to be withheld is to be determined. A Grantee who has made an election pursuant to this Section 18.3 may satisfy his or her withholding obligation only with shares of Stock that are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.
  18.4.   Captions
      The use of captions in this Plan or any Award Agreement is for the convenience of reference only and shall not affect the meaning of any provision of the Plan or such Award Agreement.
  18.5.   Other Provisions
      Each Award granted under the Plan may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Board, in its sole discretion.

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  18.6.   Number and Gender
      With respect to words used in this Plan, the singular form shall include the plural form, the masculine gender shall include the feminine gender, etc., as the context requires.
  18.7.   Severability
      If any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction.
  18.8.   Governing Law
      The validity and construction of this Plan and the instruments evidencing the Awards hereunder shall be governed by the laws of the State of Delaware, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Plan and the instruments evidencing the Awards granted hereunder to the substantive laws of any other jurisdiction.
  18.9.   Section 409A of the Code
      The Board intends to comply with Section 409A of the Code (“Section 409A”), or an exemption to Section 409A, with regard to Awards hereunder that constitute nonqualified deferred compensation within the meaning of Section 409A. To the extent that the Board determines that a Grantee would be subject to the additional 20% tax imposed on certain nonqualified deferred compensation plans pursuant to Section 409A as a result of any provision of any Award granted under this Plan, such provision shall be deemed amended to the minimum extent necessary to avoid application of such additional tax. The nature of any such amendment shall be determined by the Board.
* * *
      To record adoption of the Plan by the Board as of September 14, 2006, approval of the Plan by the stockholders on September 14, 2006, the amendment of the Plan by the Board as of November 2, 2006 (effective as of the first closing of the Corporation’s public offering), and approval of the amendment of the Plan by the stockholders on November 2, 2006 (effective as of the first closing of the Corporation’s public offering), the Company has caused its authorized officer to execute the Plan.

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EX-10.08.A 7 w23440a3exv10w08wa.htm EX-10.08.A exv10w08wa
 

Exhibit 10.08A
Option No.: _______
DOUBLE-TAKE SOFTWARE
2006 OMNIBUS INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
Double-Take Software, Inc, a Delaware corporation (the “Company”), hereby grants an option to purchase shares of its common stock, $.001 par value, (the “Stock”) to the optionee named below. The terms and conditions of the option are set forth in this cover sheet, in the attachment, and in the Company’s 2006 Omnibus Incentive Plan (the “Plan”).
Grant Date:                                                             , 200___
Name of Optionee:                                                                                                                                                                  
Optionee’s Employee Identification Number: ___-___-___
Number of Shares Covered by Option:                                         
Option Price per Share: $_____.___(At least 100% of Fair Market Value)
Vesting Start Date:                                         , ___
      By signing this cover sheet, you agree to all of the terms and conditions described in the attached Agreement and in the Plan, a copy of which is also attached. You acknowledge that you have carefully reviewed the Plan, and agree that the Plan will control in the event any provision of this Agreement should appear to be inconsistent.
         
Optionee:
        
     
    (Signature)
 
        
Company:
        
     
    (Signature)
 
        
 
  Title:    
 
       
Attachment
      This is not a stock certificate or a negotiable instrument.

 

 

DOUBLE-TAKE SOFTWARE
2006 OMNIBUS INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
     
Incentive Stock Option
  This option is intended to be an incentive stock option under Section 422 of the Internal Revenue Code and will be interpreted accordingly. If you cease to be an employee of the Company, its parent or a subsidiary (“Employee”) but continue to provide Service, this option will be deemed a nonstatutory stock option three months after you cease to be an Employee. In addition, to the extent that all or part of this option exceeds the $100,000 rule of section 422(d) of the Internal Revenue Code, this option or the lesser excess part will be deemed to be a nonstatutory stock option.
 
    
Vesting
  This option is only exercisable before it expires and then only with respect to the vested portion of the option. Subject to the preceding sentence, you may exercise this option, in whole or in part, to purchase a whole number of vested shares not less than 100 shares, unless the number of shares purchased is the total number available for purchase under the option, by following the procedures set forth in the Plan and below in this Agreement.
 
    
 
  Your right to purchase shares of Stock under this option vests [as to                      (___) of the total number of shares covered by this option, as shown on the cover sheet, on the one-year anniversary of the Vesting Start Date (“Anniversary Date”), provided you then continue in Service. Thereafter, for each such vesting date that you remain in Service, the number of shares of Stock which you may purchase under this option shall vest ]at the rate of                      (___) per month as of the first day of each month following the month of the Anniversary Date. The resulting aggregate number of vested shares will be rounded to the nearest whole number, and you cannot vest in more than the number of shares covered by this option.]
 
    
 
  No additional shares of Stock will vest after your Service has terminated for any reason.
 
    
Term
  Your option will expire in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Grant Date, as shown on the cover sheet. Your option will expire earlier if your Service terminates, as described below.
 
    
Regular Termination
  If your Service terminates for any reason, other than death, Disability or Cause, then your option will expire at the close of business at Company headquarters on the 90th day after your

2

 

     
 
  termination date.
 
    
Termination for Cause
  If your Service is terminated for Cause, then you shall immediately forfeit all rights to your option and the option shall immediately expire.
 
    
Death
  If your Service terminates because of your death, then your option will expire at the close of business at Company headquarters on the date twelve (12) months after the date of death. During that twelve month period, your estate or heirs may exercise the vested portion of your option.
 
    
 
  In addition, if you die during the 90-day period described in connection with a regular termination (i.e., a termination of your Service not on account of your death, Disability or Cause), and a vested portion of your option has not yet been exercised, then your option will instead expire on the date twelve (12) months after your termination date. In such a case, during the period following your death up to the date twelve (12) months after your termination date, your estate or heirs may exercise the vested portion of your option.
 
    
Disability
  If your Service terminates because of your Disability, then your option will expire at the close of business at Company headquarters on the date twelve (12) months after your termination date.
 
    
Leaves of Absence
  For purposes of this option, your Service does not terminate when you go on a bona fide employee leave of absence that was approved by the Company in writing, if the terms of the leave provide for continued Service crediting, or when continued Service crediting is required by applicable law. However, your Service will be treated as terminating 90 days after you went on employee leave, unless your right to return to active work is guaranteed by law or by a contract. Your Service terminates in any event when the approved leave ends unless you immediately return to active employee work.
 
    
 
  The Company determines, in its sole discretion, which leaves count for this purpose, and when your Service terminates for all purposes under the Plan.
 
    
Notice of Exercise
  When you wish to exercise this option, you must notify the Company by filing the proper “Notice of Exercise” form at the address given on the form. Your notice must specify how many shares you wish to purchase (in a parcel of at least 100 shares generally). Your notice must also specify how your shares of Stock should be registered (in your name only or in your and your spouse’s names as joint tenants with right of survivorship). The notice will be effective when it is received by the Company.

3

 

     
 
  If someone else wants to exercise this option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.
 
    
Form of Payment
  When you submit your notice of exercise, you must include payment of the option price for the shares you are purchasing. Payment may be made in one (or a combination) of the following forms:
 
    
 
  Ÿ     Cash, your personal check, a cashier’s check, a money order or another cash equivalent acceptable to the Company.
 
    
 
  Ÿ     Shares of Stock which are surrendered to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option price.
 
    
 
  Ÿ     By delivery (on a form prescribed by the Company) of an irrevocable direction to a licensed securities broker acceptable to the Company to sell Stock and to deliver all or part of the sale proceeds to the Company in payment of the aggregate option price and any withholding taxes (if approved in advance by the Compensation Committee of the Board if you are either an executive officer or a director of the Company).
 
    
Withholding Taxes
  You will not be allowed to exercise this option unless you make acceptable arrangements to pay any withholding or other taxes that may be due as a result of the option exercise or sale of Stock acquired under this option. In the event that the Company determines that any federal, state, local or foreign tax or withholding payment is required relating to the exercise or sale of shares arising from this grant, the Company shall have the right to require such payments from you, or withhold such amounts from other payments due to you from the Company or any Affiliate.
 
    
Transfer of Option
  During your lifetime, only you (or, in the event of your legal incapacity or incompetency, your guardian or legal representative) may exercise the option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately become invalid. You may, however, dispose of this option in your will or it may be transferred upon your death by the laws of descent and distribution.
 
    
 
  Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your spouse, nor is the Company obligated to recognize your spouse’s

4

 

     
 
  interest in your option in any other way.
 
    
Retention Rights
  Neither your option nor this Agreement give you the right to be retained by the Company (or any parent, Subsidiaries or Affiliates) in any capacity. The Company (and any parent, Subsidiaries or Affiliates) reserve the right to terminate your Service at any time and for any reason.
 
    
Shareholder Rights
  You, or your estate or heirs, have no rights as a shareholder of the Company until a certificate for your option’s shares has been issued (or an appropriate book entry has been made). No adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued (or an appropriate book entry has been made), except as described in the Plan.
 
    
Forfeiture of Rights
  If you should take actions in competition with the Company, the Company shall have the right to cause a forfeiture of your rights, including, but not limited to, the right to cause: (i) a forfeiture of any outstanding option, and (ii) with respect to the period commencing twelve (12) months prior to your termination of Service with the Company and ending twelve (12) months following such termination of Service (A) a forfeiture of any gain recognized by you upon the exercise of an option or (B) a forfeiture of any Stock acquired by you upon the exercise of an option (but the Company will pay you the option price without interest). Unless otherwise specified in an employment or other agreement between the Company and you, you take actions in competition with the Company if you directly or indirectly, own, manage, operate, join or control, or participate in the ownership, management, operation or control of, or are a proprietor, director, officer, stockholder, member, partner or an employee or agent of, or a consultant to any business, firm, corporation, partnership or other entity which competes with any business in which the Company or any of its Affiliates is engaged during your employment or other relationship with the Company or its Affiliates or at the time of your termination of Service. Under the prior sentence, ownership of less than 1% of the securities of a public company shall not be treated as an action in competition with the Company.
 
    
Adjustments
  In the event of a stock split, a stock dividend or a similar change in the Stock, the number of shares covered by this option and the option price per share shall be adjusted (and rounded down to the nearest whole number) if required pursuant to the Plan. Your option shall be subject to the terms of the agreement of merger, liquidation or reorganization in the event the Company is subject to

5

 

     
 
  such corporate activity.
 
    
Applicable Law
  This Agreement will be interpreted and enforced under the laws of the State of Delaware, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.
 
    
The Plan
  The text of the Plan is incorporated in this Agreement by reference. Certain capitalized terms used in this Agreement are defined in the Plan, and have the meaning set forth in the Plan.
 
    
 
  This Agreement and the Plan constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded.
 
    
Data Privacy
  In order to administer the Plan, the Company may process personal data about you. Such data includes but is not limited to the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about you such as home address and business addresses and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of the Plan.
 
    
 
  By accepting this option, you give explicit consent to the Company to process any such personal data. You also give explicit consent to the Company to transfer any such personal data outside the country in which you work or are employed, including, with respect to non-U.S. resident Optionees, to the United States, to transferees who shall include the Company and other persons who are designated by the Company to administer the Plan.
 
    
Consent to Electronic Delivery
  The Company may choose to deliver certain statutory materials relating to the Plan in electronic form. By accepting this option grant you agree that the Company may deliver the Plan prospectus and the Company’s annual report to you in an electronic format. If at any time you would prefer to receive paper copies of these documents, as you are entitled to, the Company would be pleased to provide copies. Please contact ___at ___to request paper copies of these documents.
 
    
Certain Dispositions
  If you sell or otherwise dispose of Stock acquired pursuant to the exercise of this option sooner than the one year anniversary of the date you acquired the Stock, then you agree to notify the Company in writing of the date of sale or disposition, the number of share of Stock sold or disposed of and the sale price per share within 30

6

 

     
 
  days of such sale or disposition.
      By signing the cover sheet of this Agreement, you agree to all of the terms and conditions described above and in the Plan.

7

EX-10.08.B 8 w23440a3exv10w08wb.htm EX-10.08.B exv10w08wb
 

Exhibit 10.08B
Option No.:                     
DOUBLE-TAKE SOFTWARE
2006 OMNIBUS INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
      Double-Take Software, Inc, a Delaware corporation (the “Company”), hereby grants an option to purchase shares of its common stock, $.001 par value, (the “Stock”) to the optionee named below. The terms and conditions of the option are set forth in this cover sheet, in the attachment, and in the Company’s 2006 Omnibus Incentive Plan (the “Plan”).
Grant Date:                                         , 200                    
     
Name of Optionee:
    
 
   
Optionee’s Employee Identification Number:                     -                    -                    
     
Number of Shares Covered by Option:
    
 
   
Option Price per Share: $                    .                     (At least 100% of Fair Market Value)
Vesting Start Date:                                         ,                     
      By signing this cover sheet, you agree to all of the terms and conditions described in the attached Agreement and in the Plan, a copy of which is also attached. You acknowledge that you have carefully reviewed the Plan, and agree that the Plan will control in the event any provision of this Agreement should appear to be inconsistent.
         
Optionee:
        
     
   
(Signature)
 
        
Company:
        
     
   
(Signature)
     
Title:
    
 
   
Attachment
      This is not a stock certificate or a negotiable instrument.

 

 

DOUBLE-TAKE SOFTWARE
2006 OMNIBUS INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
     
Nonqualified Stock Option
  This option is not intended to be an incentive stock option under Section 422 of the Internal Revenue Code and will be interpreted accordingly.
 
    
Vesting
  This option is only exercisable before it expires and then only with respect to the vested portion of the option. Subject to the preceding sentence, you may exercise this option, in whole or in part, to purchase a whole number of vested shares not less than 100 shares, unless the number of shares purchased is the total number available for purchase under the option, by following the procedures set forth in the Plan and below in this Agreement.
 
    
 
  Your right to purchase shares of Stock under this option vests [as to ___of the total number of shares covered by this option, as shown on the cover sheet, on the one-year anniversary of the Vesting Start Date (“Anniversary Date”), provided you then continue in Service. Thereafter, for each such vesting date that you remain in Service, the number of shares of Stock which you may purchase under this option shall vest ]at the rate of ___per month as of the first day of each month following the month of the Anniversary Date. The resulting aggregate number of vested shares will be rounded to the nearest whole number, and you cannot vest in more than the number of shares covered by this option.
 
    
 
  No additional shares of Stock will vest after your Service has terminated for any reason.
 
    
Term
  Your option will expire in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Grant Date, as shown on the cover sheet. Your option will expire earlier if your Service terminates, as described below.
 
    
Regular Termination
  If your Service terminates for any reason, other than death, Disability or Cause, then your option will expire at the close of business at Company headquarters on the 90th day after your termination date.
 
    
Termination for
Cause
  If your Service is terminated for Cause, then you shall immediately forfeit all rights to your option and the option shall immediately expire.
 
    
Death
  If your Service terminates because of your death, then your option will expire at the close of business at Company headquarters on the

2

 

     
 
  date twelve (12) months after the date of death. During that twelve month period, your estate or heirs may exercise the vested portion of your option.
 
    
 
  In addition, if you die during the 90-day period described in connection with a regular termination (i.e., a termination of your Service not on account of your death, Disability or Cause), and a vested portion of your option has not yet been exercised, then your option will instead expire on the date twelve (12) months after your termination date. In such a case, during the period following your death up to the date twelve (12) months after your termination date, your estate or heirs may exercise the vested portion of your option.
 
    
Disability
  If your Service terminates because of your Disability, then your option will expire at the close of business at Company headquarters on the date twelve (12) months after your termination date.
 
    
Leaves of Absence
  For purposes of this option, your Service does not terminate when you go on a bona fide employee leave of absence that was approved by the Company in writing, if the terms of the leave provide for continued Service crediting, or when continued Service crediting is required by applicable law. However, your Service will be treated as terminating 90 days after you went on employee leave, unless your right to return to active work is guaranteed by law or by a contract. Your Service terminates in any event when the approved leave ends unless you immediately return to active employee work.
 
    
 
  The Company determines, in its sole discretion, which leaves count for this purpose, and when your Service terminates for all purposes under the Plan.
 
    
Notice of Exercise
  When you wish to exercise this option, you must notify the Company by filing the proper “Notice of Exercise” form at the address given on the form. Your notice must specify how many shares you wish to purchase (in a parcel of at least 100 shares generally). Your notice must also specify how your shares of Stock should be registered (in your name only or in your and your spouse’s names as joint tenants with right of survivorship). The notice will be effective when it is received by the Company.
 
    
 
  If someone else wants to exercise this option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.
 
    
Form of Payment
  When you submit your notice of exercise, you must include payment of the option price for the shares you are purchasing. Payment may be made in one (or a combination) of the following forms:

3

 

  •   Cash, your personal check, a cashier’s check, a money order or another cash equivalent acceptable to the Company.
 
  •   Shares of Stock which are surrendered to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option price.
 
  •   By delivery (on a form prescribed by the Company) of an irrevocable direction to a licensed securities broker acceptable to the Company to sell Stock and to deliver all or part of the sale proceeds to the Company in payment of the aggregate option price and any withholding taxes (if approved in advance by the Compensation Committee of the Board if you are either an executive officer or a director of the Company).
     
Withholding Taxes
  You will not be allowed to exercise this option unless you make acceptable arrangements to pay any withholding or other taxes that may be due as a result of the option exercise or sale of Stock acquired under this option. In the event that the Company determines that any federal, state, local or foreign tax or withholding payment is required relating to the exercise or sale of shares arising from this grant, the Company shall have the right to require such payments from you, or withhold such amounts from other payments due to you from the Company or any Affiliate.
 
    
Transfer of Option
  During your lifetime, only you (or, in the event of your legal incapacity or incompetency, your guardian or legal representative) may exercise the option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately become invalid. You may, however, dispose of this option in your will or it may be transferred upon your death by the laws of descent and distribution.
 
    
 
  Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your spouse, nor is the Company obligated to recognize your spouse’s interest in your option in any other way.
 
    
Retention Rights
  Neither your option nor this Agreement give you the right to be retained by the Company (or any parent, Subsidiaries or Affiliates) in any capacity. The Company (and any parent, Subsidiaries or Affiliates) reserve the right to terminate your Service at any time and for any reason.

4

 

     
Shareholder Rights
  You, or your estate or heirs, have no rights as a shareholder of the Company until a certificate for your option’s shares has been issued (or an appropriate book entry has been made). No adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued (or an appropriate book entry has been made), except as described in the Plan.
 
    
Forfeiture of Rights
  If you should take actions in competition with the Company, the Company shall have the right to cause a forfeiture of your rights, including, but not limited to, the right to cause: (i) a forfeiture of any outstanding option, and (ii) with respect to the period commencing twelve (12) months prior to your termination of Service with the Company and ending twelve (12) months following such termination of Service (A) a forfeiture of any gain recognized by you upon the exercise of an option or (B) a forfeiture of any Stock acquired by you upon the exercise of an option (but the Company will pay you the option price without interest). Unless otherwise specified in an employment or other agreement between the Company and you, you take actions in competition with the Company if you directly or indirectly, own, manage, operate, join or control, or participate in the ownership, management, operation or control of, or are a proprietor, director, officer, stockholder, member, partner or an employee or agent of, or a consultant to any business, firm, corporation, partnership or other entity which competes with any business in which the Company or any of its Affiliates is engaged during your employment or other relationship with the Company or its Affiliates or at the time of your termination of Service. Under the prior sentence, ownership of less than 1% of the securities of a public company shall not be treated as an action in competition with the Company.
 
    
Adjustments
  In the event of a stock split, a stock dividend or a similar change in the Stock, the number of shares covered by this option and the option price per share shall be adjusted (and rounded down to the nearest whole number) if required pursuant to the Plan. Your option shall be subject to the terms of the agreement of merger, liquidation or reorganization in the event the Company is subject to such corporate activity.
 
    
Applicable Law
  This Agreement will be interpreted and enforced under the laws of the State of Delaware, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.
 
    
The Plan
  The text of the Plan is incorporated in this Agreement by reference. Certain capitalized terms used in this Agreement are defined in the

5

 

     
 
  Plan, and have the meaning set forth in the Plan.
 
    
 
  This Agreement and the Plan constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded.
 
    
Data Privacy
  In order to administer the Plan, the Company may process personal data about you. Such data includes but is not limited to the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about you such as home address and business addresses and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of the Plan.
 
    
 
  By accepting this option, you give explicit consent to the Company to process any such personal data. You also give explicit consent to the Company to transfer any such personal data outside the country in which you work or are employed, including, with respect to non-U.S. resident Optionees, to the United States, to transferees who shall include the Company and other persons who are designated by the Company to administer the Plan.
 
    
Consent to Electronic Delivery
  The Company may choose to deliver certain statutory materials relating to the Plan in electronic form. By accepting this option grant you agree that the Company may deliver the Plan prospectus and the Company’s annual report to you in an electronic format. If at any time you would prefer to receive paper copies of these documents, as you are entitled to, the Company would be pleased to provide copies. Please contact ___at ___to request paper copies of these documents.
      By signing the cover sheet of this Agreement, you agree to all of the terms and conditions described above and in the Plan.

6

EX-10.08.C 9 w23440a3exv10w08wc.htm EX-10.08.C exv10w08wc
 

Exhibit 10.08C
Option No.: _______
DOUBLE-TAKE SOFTWARE
2006 OMNIBUS INCENTIVE PLAN
DIRECTOR NONQUALIFIED STOCK OPTION AGREEMENT
Double-Take Software, Inc, a Delaware corporation (the “Company”), hereby grants an option to purchase shares of its common stock, $.001 par value, (the “Stock”) to the optionee named below. The terms and conditions of the option are set forth in this cover sheet, in the attachment, and in the Company’s 2006 Omnibus Incentive Plan (the “Plan”).
Grant Date: ____________, 200___
Name of Optionee: ____________________________________
Optionee’s Employee Identification Number: ___-___-___
Number of Shares Covered by Option: _______________
Option Price per Share: $ ______.___(At least 100% of Fair Market Value)
Vesting Start Date: _______________,___
      By signing this cover sheet, you agree to all of the terms and conditions described in the attached Agreement and in the Plan, a copy of which is also attached. You acknowledge that you have carefully reviewed the Plan, and agree that the Plan will control in the event any provision of this Agreement should appear to be inconsistent.
             
Optionee:
            
   
 
(Signature)		    
 
            
Company:
            
   
 
(Signature)		    
 
            
 
  Title:        
 
     
 
    
Attachment
      This is not a stock certificate or a negotiable instrument.

 

 

DOUBLE-TAKE SOFTWARE
2006 OMNIBUS INCENTIVE PLAN
DIRECTOR NONQUALIFIED STOCK OPTION AGREEMENT
     
Nonqualified Stock Option
  This option is not intended to be an incentive stock option under Section 422 of the Internal Revenue Code and will be interpreted accordingly.
 
    
Definition of Service
  For purposes of this Agreement, “Service” means service as a director of the Company or an Affiliate of the Company. Whether a termination of Service has occurred for purposes of the Plan will be determined by the Board, which determination shall be final, binding and conclusive.
 
    
Vesting
  This option is only exercisable before it expires and then only with respect to the vested portion of the option. Subject to the preceding sentence, you may exercise this option, in whole or in part, to purchase a whole number of vested shares not less than 100 shares, unless the number of shares purchased is the total number available for purchase under the option, by following the procedures set forth in the Plan and below in this Agreement.
 
    
 
  Your right to purchase shares of Stock under this option vests as to 100% of the total number of shares covered by this option, as shown on the cover sheet, on the one-year anniversary of the Vesting Start Date (“Anniversary Date”), provided you then continue in Service.
 
    
 
  No additional shares of Stock will vest after your Service has terminated for any reason.
 
    
Term
  Your option will expire at the close of business at Company headquarters on the day before the 10th anniversary of the Grant Date, as shown on the cover sheet.
 
    
Notice of Exercise
  When you wish to exercise this option, you must notify the Company by filing the proper “Notice of Exercise” form at the address given on the form. Your notice must specify how many shares you wish to purchase (in a parcel of at least 100 shares generally). Your notice must also specify how your shares of Stock should be registered (in your name only or in your and your spouse’s names as joint tenants with right of survivorship). The notice will be effective when it is received by the Company.
 
    
 
  If someone else wants to exercise this option after your death, that person must prove to the Company’s satisfaction that he or she is

2

 

     
 
  entitled to do so.
 
    
Form of Payment
  When you submit your notice of exercise, you must include payment of the option price for the shares you are purchasing. Payment may be made in one (or a combination) of the following forms:
 
    
 
  •     Cash, your personal check, a cashier’s check, a money order or another cash equivalent acceptable to the Company.
 
    
 
  •     Shares of Stock which are surrendered to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option price.
 
    
 
  •     By delivery (on a form prescribed by the Company) of an irrevocable direction to a licensed securities broker acceptable to the Company to sell Stock and to deliver all or part of the sale proceeds to the Company in payment of the aggregate option price and any withholding taxes (if approved in advance by the Compensation Committee of the Board if you are either an executive officer or a director of the Company).
 
    
Transfer of Option
  During your lifetime, only you (or, in the event of your legal incapacity or incompetency, your guardian or legal representative) may exercise the option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately become invalid. You may, however, dispose of this option in your will or it may be transferred upon your death by the laws of descent and distribution.
 
    
 
  Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your spouse, nor is the Company obligated to recognize your spouse’s interest in your option in any other way.
 
    
Retention Rights
  Neither your option nor this Agreement give you the right to be retained by the Company (or any parent, Subsidiaries or Affiliates) in any capacity. The Company (and any parent, Subsidiaries or Affiliates) reserve the right to terminate your Service at any time and for any reason.
 
    
Shareholder Rights
  You, or your estate or heirs, have no rights as a shareholder of the Company until a certificate for your option’s shares has been issued (or an appropriate book entry has been made). No adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued (or an appropriate

3

 

     
 
  book entry has been made), except as described in the Plan.
 
    
Adjustments
  In the event of a stock split, a stock dividend or a similar change in the Stock, the number of shares covered by this option and the option price per share shall be adjusted (and rounded down to the nearest whole number) if required pursuant to the Plan. Your option shall be subject to the terms of the agreement of merger, liquidation or reorganization in the event the Company is subject to such corporate activity.
 
    
Applicable Law
  This Agreement will be interpreted and enforced under the laws of the State of Delaware, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.
 
    
The Plan
  The text of the Plan is incorporated in this Agreement by reference. Certain capitalized terms used in this Agreement are defined in the Plan, and have the meaning set forth in the Plan.
 
    
 
  This Agreement and the Plan constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded.
 
    
Data Privacy
  In order to administer the Plan, the Company may process personal data about you. Such data includes but is not limited to the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about you such as home address and business addresses and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of the Plan.
 
    
 
  By accepting this option, you give explicit consent to the Company to process any such personal data. You also give explicit consent to the Company to transfer any such personal data outside the country in which you work or are employed, including, with respect to non-U.S. resident Optionees, to the United States, to transferees who shall include the Company and other persons who are designated by the Company to administer the Plan.
 
    
Consent to Electronic Delivery
  The Company may choose to deliver certain statutory materials relating to the Plan in electronic form. By accepting this option grant you agree that the Company may deliver the Plan prospectus and the Company’s annual report to you in an electronic format. If at any time you would prefer to receive paper copies of these documents, as you are entitled to, the Company would be pleased

4

 

     
 
  to provide copies. Please contact ___at ___to request paper copies of these documents.
      By signing the cover sheet of this Agreement, you agree to all of the terms and conditions described above and in the Plan.

5

EX-10.09 10 w23440a3exv10w09.htm EX-10.09 exv10w09
 

Exhibit 10.09
DOUBLE-TAKE SOFTWARE, INC.
INDEMNIFICATION AGREEMENT
      This Indemnification Agreement (“Agreement”) is effective as of                            , 200   by and between Double-Take Software, Inc., a Delaware corporation (“Double-Take”), and                      (“Indemnified Person”).
      WHEREAS, Double-Take desires to attract and retain the services of highly qualified individuals, such as Indemnified Person, to serve Double-Take and its related entities;
      WHEREAS, in order to induce Indemnified Person to continue to provide services to Double-Take as an officer or a member of the Board of Directors and in order to provide Indemnified Person with specific contractual assurance that indemnification will be available to Indemnified Person regardless of, among other things, any amendment or revocation of Double-Take’s Certificate of Incorporation or any acquisition transaction relating to Double-Take, Double-Take wishes to provide for the indemnification of, and the advancement of expenses to, Indemnified Person to the maximum extent permitted by law;
      WHEREAS, Double-Take and Indemnified Person recognize the substantial increase in corporate litigation in general, subjecting Board Members, directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; and
      WHEREAS, in view of the considerations set forth above, Double-Take desires that Indemnified Person shall be indemnified and advanced expenses by Double-Take as set forth herein;
      NOW, THEREFORE, Double-Take and Indemnified Person hereby agree as set forth below.
1.   Certain Definitions.
          (a) “Board Member” shall mean an individual (i) elected by stockholders of Double-Take or (ii) appointed by members of its Board of Directors to serve on its Board of Directors.
     (b) “Change in Control” shall mean a change in the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of Double-Take, or any successor in interest thereto, whether through the ownership of voting securities, by contract or otherwise. A rebuttable presumption of a Change in Control shall be created by any of the following, which first occur after the date hereof, and Double-Take shall bear the burden of proof to overcome such presumption: (i) any “person” (including, without limitation, any individual, sole proprietorship, partnership, trust, corporation, association, joint venture, or other entity, whether or not incorporated), or “group” of persons (as such terms are used in Sections 13(d) and14(d) of the Securities Exchange Act

 

 

of 1934, as amended (the “Exchange Act”)), becomes, after the date hereof, the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities; (ii) during any two (2) year period, individuals who constitute the Board at the beginning of such period, together with any new directors elected or appointed during the period whose election or appointment resulted from a vacancy on the Board caused by retirement, death, or disability of a director and whose election or appointment was approved by a vote of at least a majority of the directors then still in office who were directors at the beginning of the period, cease for any reason to constitute a majority of the Board; (iii) the Company sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any person; (iv) the Company consolidates with, or merges with or into another entity, or any entity consolidates with, or merges with or into, the Company (a “Merger”), in which the owners of outstanding voting stock of the Company immediately prior to such Merger do not represent at least a majority of the voting power in the surviving entity after the Merger; or (v) the stockholders of the Company approve a plan of liquidation or dissolution.
          (c) “Claim” shall mean with respect to a Covered Event: any threatened, pending or completed action, suit, proceeding, arbitration or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnified Person in good faith believes might lead to the institution of any such action, suit, proceeding, arbitration or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other.
          (d) “Covered Event” shall mean any event or occurrence related to the fact that Indemnified Person is or was a Board Member, officer, employee, agent or fiduciary of Double-Take, or any subsidiary or affiliate of Double-Take, or is or was serving at the request of Double-Take as a director, officer, partner (limited or general), member, trustee, employee, agent or fiduciary of another corporation, partnership, joint venture, limited liability company, trust, other enterprise or employee benefit plan, or by reason of any action or inaction on the part of Indemnified Person while serving in such capacity.
          (e) “Expenses” shall mean any and all expenses (including attorneys’ fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to participate in, any action, suit, proceeding, arbitration, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by Double-Take, which approval shall not be unreasonably withheld) of any Claim and any federal, state, local or foreign taxes imposed on the Indemnified Person as a result of the actual or deemed receipt of any payments under this Agreement.
          (f) “Expense Advance” shall mean a payment to Indemnified Person pursuant to Section 3 of Expenses in advance of the settlement of or final judgment in any action, suit, proceeding, arbitration, or alternative dispute resolution mechanism, hearing, inquiry or investigation which constitutes a Claim.

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          (g) “Independent Legal Counsel” shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(d) hereof, who shall not have otherwise performed services for Double-Take or Indemnified Person within the last three years (other than with respect to matters concerning the rights of Indemnified Person under this Agreement, or of other Indemnified Persons under similar indemnity agreements).
          (h) References to “Double-Take” shall include, in addition to Double-Take Software, Inc., any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which Double-Take Software, Inc. (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, managers, employees, agents or fiduciaries, so that if Indemnified Person is or was a director, officer, manager, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, manager, partner (general or limited), member, trustee, employee, agent or fiduciary of another corporation, partnership, joint venture, limited liability company, employee benefit plan, trust or other enterprise, Indemnified Person shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnified Person would have with respect to such constituent corporation if its separate existence had continued.
          (i) References to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on Indemnified Person with respect to an employee benefit plan; and references to “serving at the request of Double-Take” shall include any service as a Board Member, officer, employee, agent or fiduciary of Double-Take which imposes duties on, or involves services by, such Board Member, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnified Person acted in good faith and in a manner Indemnified Person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnified Person shall be deemed to have acted in a manner “not opposed to the best interests of Double-Take” as referred to in this Agreement.
          (j) “Reviewing Party” shall mean, subject to the provisions of Section 2(d), any person or body appointed by the Board of Directors, and approved by the Indemnified Person, which approval shall not be unreasonably withheld, in accordance with applicable law to review Double-Take’s obligations hereunder and under applicable law, which may include a member or members of Double-Take’s Board of Directors, Independent Legal Counsel or any other person or body not a party to the particular Claim for which Indemnified Person is seeking indemnification.
          (k) “Section” refers to a section of this Agreement unless otherwise indicated.
      2. Indemnification.
          (a) Indemnification of Expenses. Subject to the provisions of Section 2(b) below, Double-Take shall indemnify Indemnified Person for Expenses to the fullest extent

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permitted by law if Indemnified Person was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any Claim (whether by reason of or arising in part out of a Covered Event), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses.
          (b) Review of Indemnification Obligations. Notwithstanding the foregoing, in the event any Reviewing Party shall have determined (in a written opinion, in any case in which Independent Legal Counsel is the Reviewing Party) that indemnification of Indemnified Person hereunder would constitute a violation of applicable law, (i) Double-Take shall have no further obligation under Section 2(a) to make any payments to Indemnified Person not made prior to such determination by such Reviewing Party, and (ii) Double-Take shall be entitled to be reimbursed by Indemnified Person (who hereby agrees to reimburse Double-Take) for all Expenses theretofore paid to Indemnified Person to which Indemnified Person may not be indemnified hereunder without violating applicable law; provided, however, that if Indemnified Person has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnified Person is entitled to be indemnified hereunder, any determination made by any Reviewing Party that indemnification of Indemnified Person hereunder would constitute a violation of applicable law shall not be binding and Indemnified Person shall not be required to reimburse Double-Take for any Expenses theretofore paid in indemnifying Indemnified Person until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnified Person’s obligation to reimburse Double-Take for any Expenses shall be unsecured and no interest shall be charged thereon.
          (c) Indemnified Person Rights on Unfavorable Determination; Binding Effect. If any Reviewing Party determines that indemnification of Indemnified Person hereunder in whole or in part would constitute a violation of applicable law, Indemnified Person shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by such Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and, subject to the provisions of Section 17, Double-Take hereby consents to service of process and to appear in any such proceeding. Absent such litigation, any determination by any Reviewing Party shall be conclusive and binding on Double-Take and Indemnified Person.
          (d) Selection of Reviewing Party; Change in Control. If there has not been a Change in Control, any Reviewing Party shall be selected by the Board of Directors, and approved by Indemnified Person, which approval shall not be unreasonably withheld, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of Double-Take’s Board of Directors who were Board Members immediately prior to such Change in Control), any Reviewing Party with respect to all matters thereafter arising concerning the rights of Indemnified Person to indemnification of Expenses under this Agreement or any other agreement or under Double-Take’s Certificate of Incorporation as now or hereafter in effect, or under any other applicable law, if desired by Indemnified Person, shall be Independent Legal Counsel selected by Indemnified Person and approved by Double-Take (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to Double-Take and Indemnified Person as

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to whether and to what extent indemnification of Indemnified Person hereunder would constitute a violation of applicable law and Double-Take agrees to abide by such opinion. Double-Take agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Notwithstanding any other provision of this Agreement, Double-Take shall not be required to pay Expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnified Person, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnified Persons unless (i) Double-Take otherwise determines or (ii) any Indemnified Person shall provide a written statement setting forth in detail a reasonable objection to such Independent Legal Counsel representing other Indemnified Persons.
          (e) Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement other than Section 11 hereof, to the extent that Indemnified Person has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any Claim, Indemnified Person shall be indemnified against all Expenses incurred by Indemnified Person in connection therewith.
      3. Expense Advances.
          (a) Obligation to Make Expense Advances. Upon receipt of a written undertaking by or on behalf of the Indemnified Person to repay such amounts if it shall ultimately be determined that the Indemnified Person is not entitled to be indemnified therefore by Double-Take hereunder under applicable law, Double-Take shall make Expense Advances to Indemnified Person.
          (b) Form of Undertaking. Any obligation to repay any Expense Advances hereunder pursuant to a written undertaking by the Indemnified Person shall be unsecured and may be accepted without reference to financial ability to make the repayment and no interest shall be charged thereon.
      4. Procedures for Indemnification and Expense Advances.
          (a) Timing of Payments. All payments of Expenses (including without limitation Expense Advances) by Double-Take to the Indemnified Person pursuant to this Agreement shall be made to the fullest extent permitted by law as soon as practicable after written demand by Indemnified Person therefor is presented to Double-Take, but in no event later than thirty (30) days after such written demand by Indemnified Person is presented to Double-Take, except in the case of Expense Advances, which shall be made no later than ten (10) business days after such written demand by Indemnified Person is presented to Double-Take.
          (b) Notice/Cooperation by Indemnified Person. Indemnified Person shall give Double-Take notice in writing as soon as practicable of any Claim made against Indemnified Person for which indemnification and/or Expense Advances, will or could be sought under this

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Agreement; provided, however, that the failure to so notify Double-Take shall not relieve Double-Take of its obligations hereunder except to the extent such failure has materially prejudiced Double-Take. Notice to Double-Take shall be directed to the Chief Executive Officer of Double-Take at the address shown on the signature page of this Agreement (or such other address as Double-Take shall designate in writing to Indemnified Person). In addition, each of the Indemnified Person and Double-Take shall give the other party such information related to the Claim and cooperation as the other party may reasonably require and as shall be within such party’s power.
          (c) No Presumptions; Burden of Proof. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnified Person did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by this Agreement or applicable law. In addition, neither the failure of any Reviewing Party to have made a determination as to whether Indemnified Person has met any particular standard of conduct or had any particular belief, nor an actual determination by any Reviewing Party that Indemnified Person has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnified Person to secure a judicial determination that Indemnified Person should be indemnified under this Agreement under applicable law, shall be a defense to Indemnified Person’s claim or create a presumption that Indemnified Person has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by any Reviewing Party or otherwise as to whether the Indemnified Person is entitled to be indemnified and/or Expense Advances hereunder under applicable law, the burden of proof shall be on Double-Take to establish that Indemnified Person is not so entitled.
          (d) Notice to Insurers. If, at the time of the receipt by Double-Take of a notice of a Claim pursuant to Section 4(b) hereof, Double-Take has liability insurance in effect which may cover such Claim, Double-Take shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. Double-Take shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnified Person, all amounts payable as a result of such Claim in accordance with the terms of such policies.
          (e) Selection of Counsel. In the event Double-Take shall be obligated hereunder to provide indemnification for or make any Expense Advances with respect to the Expenses of any Claim, Double-Take, if appropriate, shall be entitled to assume the defense of such Claim with counsel approved by Indemnified Person (which approval shall not be unreasonably withheld) upon the delivery to Indemnified Person of written notice of Double-Take’s election to do so. After delivery of such notice, approval of such counsel by Indemnified Person and the retention of such counsel by Double-Take, Double-Take will not be liable to Indemnified Person under this Agreement for any fees or expenses of separate counsel subsequently retained by or on behalf of Indemnified Person with respect to the same Claim; provided, that, (i) Indemnified Person shall have the right to employ Indemnified Person’s separate counsel in any such Claim at Indemnified Person’s expense and (ii) if (A) the

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employment of separate counsel by Indemnified Person has been previously authorized by Double-Take, (B) Indemnified Person shall have reasonably concluded that there may be a conflict of interest between Double-Take and Indemnified Person in the conduct of any such defense, or (C) Double-Take shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnified Person’s separate counsel shall be Expenses for which Indemnified Person may receive indemnification or Expense Advances hereunder.
          (f) Settlements. Double-Take shall not be liable to indemnify Indemnified Person under this Agreement for any amounts paid in settlement of any Claim effected without Double-Take’s written consent. Double-Take shall not settle any Claim in any manner that would impose any penalty or limitation on Indemnified Person or that would require the acknowledgment of any wrongdoing by Indemnified Person without Indemnified Person’s written consent. Neither Double-Take nor Indemnified Person will unreasonably withhold consent to any proposed settlement.
      5. Additional Indemnification Rights; Nonexclusivity.
          (a) Scope. Double-Take hereby agrees to indemnify the Indemnified Person to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, Double-Take’s Certificate of Incorporation or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a director, officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnified Person shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its Board of Directors or a director, officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’ rights and obligations hereunder except as set forth in Section 11(a) hereof.
          (b) Nonexclusivity. The indemnification and the payment of Expense Advances provided by this Agreement shall be in addition to any rights to which Indemnified Person may be entitled under Double-Take’s Certificate of Incorporation or bylaws, any other agreement, any vote of stockholders or disinterested Board Members, the General Corporation Law of the State of Delaware or otherwise. The indemnification and the payment of Expense Advances provided under this Agreement shall continue as to Indemnified Person for any action taken or not taken while serving in an indemnified capacity even though subsequent thereto Indemnified Person may have ceased to serve in such capacity.
      6. Allowance for Compliance with SEC Requirements. Indemnified Person acknowledges that the Securities and Exchange Commission (“SEC”) has expressed the opinion that indemnification of directors and officers from liabilities under the Securities Act of 1933, as amended (the “Securities Act”), is against public policy as expressed in the Securities Act and, is therefore, unenforceable. Indemnified Person hereby agrees that it will not be a breach of this Agreement for Double-Take to undertake with the SEC in connection with the registration for sale of any stock or other securities of Double-Take from time to time that, in the event a claim

-7-

 

for indemnification against such liabilities (other than the payment by Double-Take of expenses incurred or paid by a director, officer, employee, agent or fiduciary of Double-Take in the successful defense of any action, suit or proceeding) is asserted in connection with such stock or other securities being registered, Double-Take will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of competent jurisdiction the question of whether or not 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. Indemnified Person further agrees that such submission to a court of competent jurisdiction shall not be a breach of this Agreement.
      7. No Duplication of Payments. Double-Take shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnified Person to the extent Indemnified Person has otherwise actually received payment from or on behalf of Double-Take (under any insurance policy, provision of Double-Take’s Certificate of Incorporation or otherwise) of the amounts otherwise payable hereunder.
      8. Partial Indemnification. If Indemnified Person is entitled under any provision of this Agreement or otherwise to indemnification by Double-Take for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, Double-Take shall nevertheless indemnify Indemnified Person for the portion of such Expenses to which Indemnified Person is entitled.
      9. Mutual Acknowledgment. Both Double-Take and Indemnified Person acknowledge that in certain instances, federal law or applicable public policy may prohibit Double-Take from indemnifying its Board Members, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnified Person understands and acknowledges that Double-Take has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of Double-Take’s right under public policy to indemnify Indemnified Person.
      10. Liability Insurance. To the extent Double-Take maintains liability insurance applicable to Board Members, officers, employees, agents or fiduciaries, Indemnified Person shall be covered by such policies in such a manner as to provide Indemnified Person the same rights and benefits as are provided to the most favorably insured of Double-Take’s Board Members, if Indemnified Person is a Board Member; or of Double-Take’s officers, if Indemnified Person is not a Board Member of Double-Take but is an officer; or of Double-Take’s key employees, agents or fiduciaries, if Indemnified Person is not an officer or Board Member but is a key employee, agent or fiduciary. Upon any Change in Control, Double-Take shall obtain continuation and/or “tail” coverage for Indemnified Person to the maximum extent obtainable at such time.
      11. Exceptions. Notwithstanding any other provision of this Agreement, Double-Take shall not be obligated pursuant to the terms of this Agreement:

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          (a) Excluded Action or Omissions. To indemnify or make Expense Advances to Indemnified Person with respect to Claims arising out of acts, omissions or transactions for which Indemnified Person is prohibited from receiving indemnification under the Delaware General Corporation Law.
          (b) Claims Initiated by Indemnified Person. To indemnify or make Expense Advances to Indemnified Person with respect to Claims initiated or brought voluntarily by Indemnified Person and not by way of defense, counterclaim or crossclaim, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under Double-Take’s Certificate of Incorporation now or hereafter in effect relating to Claims for Covered Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 145 of the Delaware General Corporation Law, regardless of whether Indemnified Person ultimately is determined to be entitled to such indemnification, Expense Advances, or insurance recovery, as the case may be.
          (c) Lack of Good Faith. To indemnify Indemnified Person for any Expenses incurred by the Indemnified Person with respect to any action instituted (i) by Indemnified Person to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 14 that each of the material assertions made by the Indemnified Person as a basis for such action was not made in good faith or was frivolous, or (ii) by or in the name of Double-Take to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 14 that each of the material defenses asserted by Indemnified Person in such action was made in bad faith or was frivolous.
          (d) Claims Under Section 16(b). To indemnify Indemnified Person for Expenses and the payment of profits arising from the purchase and sale by Indemnified Person of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.
      12. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.
      13. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of Double-Take), spouses, heirs and personal and legal representatives. Double-Take shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business or assets of Double-Take, by written agreement in form and substance satisfactory to Indemnified Person, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that Double-Take would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnified Person continues to serve as a Board Member, director, officer, employee, agent or fiduciary (as applicable) of Double-Take or of any other enterprise at Double-Take’s request.

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      14. Expenses Incurred in Action Relating to Enforcement or Interpretation. In the event that any action is instituted by Indemnified Person under this Agreement or under any liability insurance policies maintained by Double-Take to enforce or interpret any of the terms hereof or thereof, Indemnified Person shall be entitled to be indemnified for all Expenses incurred by Indemnified Person with respect to such action (including, without limitation, attorneys’ fees), regardless of whether Indemnified Person is ultimately successful in such action, unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material assertions made by Indemnified Person as a basis for such action was not made in good faith or was frivolous; provided, however, that until such final judicial determination is made, Indemnified Person shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action. In the event of an action instituted by or in the name of Double-Take under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnified Person shall be entitled to be indemnified for all Expenses incurred by Indemnified Person in defense of such action (including without limitation costs and expenses incurred with respect to Indemnified Person’s counterclaims and cross-claims made in such action), unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material defenses asserted by Indemnified Person in such action was made in bad faith or was frivolous; provided, however, that until such final judicial determination is made, Indemnified Person shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action.
      15. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of Double-Take against Indemnified Person, Indemnified Person’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of Double-Take shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.
      16. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and signed for by the party addressed, on the date of such delivery, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice.
      17. Consent to Jurisdiction. Double-Take and Indemnified Person each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim.

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      18. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including without limitation each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
      19. Choice of Law. This Agreement, and all rights, remedies, liabilities, powers and duties of the parties to this Agreement, shall be governed by and construed in accordance with the laws of the State of Delaware as applied to contracts between Delaware residents entered into and to be performed entirely in the State of Delaware without regard to principles of conflicts of laws.
      20. Subrogation. In the event of payment under this Agreement, Double-Take shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnified Person, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable Double-Take effectively to bring suit to enforce such rights.
      21. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver.
      22. Integration and Entire Agreement. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.
      23. No Construction as Employment Agreement. Nothing contained in this Agreement shall be construed as giving Indemnified Person any right to be retained in the employ of Double-Take or any of its subsidiaries or affiliated entities.

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IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written.
         
    DOUBLE-TAKE, INC.
 
        
 
  By:    
 
       
 
  Name:    
 
  Title:    
 
  Address:   257 Turnpike Road, Suite 210
 
      Southborough, MA 01772
         
    AGREED TO AND ACCEPTED
 
        
    INDEMNIFIED PERSON:
 
        
 
  By:    
 
       
 
      (Signature)
 
        
 
  Name:    
 
       
 
      (Print Name)
 
        
    Address:

-12-

EX-10.10 11 w23440a3exv10w10.htm EX-10.10 exv10w10
 

Exhibit 10.10
NSI Executive Compensation Plan 2006
(All non-commissioned employees would have a similar plan)
Plan Goals: To motivate top management to achieve the financial objectives of the company.
Plan Participants: Selected Senior Management.
Targets: Quarterly and Annual Operating Income and Quarterly and Annual Revenues, as contained in the approved Company Operating Plan.
Bonus Distribution: The “total bonus” is distributed into five (5) equal “sub bonuses;” one for each quarter’s performance and one for the year-end performance. Sub bonuses are further divided equally and based on achievement of operating income and revenue objectives. Thus 10% of the total bonus is targeted at each quarter’s operating income, each quarter’s revenue, the year-end operating income, and the year-end revenue.
Recoup: Missed bonuses cannot be recouped.
Achievement: 100% of the sub-bonus is paid at achievement of 100% of each target.
Over Achievement: Sub-bonus payments for achieving quarterly and annual revenue targets will be increased proportionately by the amount each target is exceeded subject to a cap of 20% above the revenue target bonus. Sub-bonus payments for exceeding quarterly and annual revenue targets by more than 20% will be increased proportionately by the amount each target is exceeded, but only to the extent that the operating income target for the period in which the bonus is being paid has been exceeded by a proportionate amount or greater. (By way of illustration, for a revenue sub bonus to be paid at 135% of target in Q1, operating income would have to exceed its target for that quarter by 135% or more.). Sub-bonus payments for achieving operating income targets will be increased proportionately by the amount each target is exceeded subject to a cap of 20% above the operating income target sub-bonus.
Under Achievement: 60% of the sub-bonus is paid at achievement of 87.5% of each target. Bonuses are increased proportionately between 87.5% and 100% (that is, each percentage point increase between 87.5% and 100% achievement increases the bonus payment by 3.2%)
Bonus Override: In the event that substantially all the assets or stock of the Company is acquired during the bonus year, the profit and income objectives for the quarter in which the transaction takes place and the year-end will be deemed to have been made.
Payment: Payment of bonuses is due within 45 days of the quarter or year-end. Payment will be in cash, net of withholdings.
Termination: No bonus is due if the executive leaves the company prior to the quarter end, for voluntary or involuntary reasons. All earned bonuses are due for previous quarter performance should the executive leave prior to receipt of payment.
Product Definition: This plan has been structured under the assumptions that the corporation would sell and support services and products offered at the time of the approval of the company operating plan. The Board of Directors may readjust the plan, should product offerings change.
Change Provision: This plan is subject to change at any time for any reason deemed appropriate by the Board of Directors. Mergers, acquisitions, licensing, new product development and other factors may contribute to plan adjustments.

EX-10.22 12 w23440a3exv10w22.htm EX-10.22 exv10w22
 

Exhibit 10.22
August 7, 2006
Dean Goodermote
Dear Dean,
On behalf of Double-Take Software, Inc. (the “Company”), we are pleased to enter into an amended and restated employment agreement with you continuing your position as CEO and Chairman, effective August 7, 2006, and which amends and restates your agreement with the Company dated March 22, 2005. This position reports to the Board of Directors. Following are the terms of this employment agreement:
     Position:
     Chief Executive Officer and Chairman
     Detailed Job Description:
     The responsibilities of this position include:
  •   Direct overall corporate strategy and determine appropriate goals and objectives for the Company in conjunction with the Board.
  •   Provide direction and leadership to the organization to enable achievement of the Company’s goals and objectives.
  •   Support effective Board governance by advising and informing Board members and interfacing between Board and employees.
  •   Provide management oversight in the delivery of the Company’s products and services, including sales, marketing, product management, product development and professional services, and management and oversight of the financial functions of the Company.
  •   Determine required resources, including human resources and capital, to achieve the Company’s goals and fill any deficiencies that are established.
  •   Recommend a yearly budget for Board approval and prudently manage the Company’s resources within those budget guidelines, providing interim guidance and reallocating resources as necessary.
  •   Manage the human resources of the organization according to authorized personnel policies and procedures and current laws and regulations.
  •   Present the Company and its products and services in a strong, positive image to relevant external and internal stakeholders.

 

 

  •   Present recommendations and pursue opportunities for realizing shareholder value and liquidity in accordance with Board guidance.
Base Salary:
Annual Base Salary is $340,000, or such greater amount as is approved by the Board, payable every two (2) weeks in the sum of $13,076.92 less any applicable withholding taxes.
Performance Bonus:
Eligible for discretionary bonus amounts as determined by the Board in its sole discretion.
Transaction Bonus:
1.45% of the total equity value of the Company realized in a change of control transaction, prior to the payment of any liquidation preferences to any class of shareholder. Transaction Bonus will be payable in cash. The Transaction Bonus is not payable in the event of an IPO and will not be payable after an IPO.
IPO Bonus:
Fully vested shares of common stock of the Company equal to 1.45% of the fully diluted shares outstanding immediately prior to an IPO will be granted upon completion of an IPO less any applicable withholding taxes.
Stock Options:
Subject to the terms and conditions of the Company’s Employee Stock Option Plan, you have been granted options to purchase 1,862,895 shares of the common stock of the Company, dated as of March 22, 2005, and exercisable at the March 22, 2005 fair market value of $0.31 per share. 25% of the options vest on the one year anniversary date of employment, and the remainder will vest in equal amounts quarterly over the following three years. You have been granted additional options for 745,158 and 186,290 shares of the common stock of the Company, with the same vesting schedule as the March 22, 2005 grant. In the event of a change of control as a result of the closing of a merger, acquisition, purchase of all or substantially all of the assets of the Company, or like transaction, the unvested portion of the stock options shall immediately vest. In the event of an IPO, 100% of the March 22,

2

 

2005 option grant shall become vested and an additional 25% of all other stock option grants, including the 745,158 and 186,290 option grants, shall accelerate and become vested.
Insurance:
The Company will provide you and your family with major medical insurance, life insurance, long term disability insurance and other insurance coverage in accordance with the Company’s current benefits policies.
Vacation:
5 weeks per year.
401K:
Option to participate in the Company’s 401K Plan based on the plan’s terms.
Expenses:
Reasonable business expenses to be reimbursed in accordance with the Company’s current expense policy.
Confidentiality:
You continue to be subject to the Non-Disclosure and Non-Solicitation Agreement attached to your March 22, 2005 agreement.
Relationship:
It is understood and accepted that the employment relationship we have agreed to is an at-will relationship, and that it may be ended by either party, at any time, and for any reason. It is also understood that you are free of any obligations, including restrictive covenants and/or non-solicitation agreements that may affect your ability to carry out your duties within the Company.

3

 

If you should have any questions pertaining to this matter please do not hesitate to contact us.
We look forward to continuing to work with you.
         
Sincerely,
        
 
        
/s/ Bobby Goswami
  August, 7, 2006    
 
       
Bobby Goswami
  Date    
 
        
/s/ Laura Witt
  August, 7, 2006    
 
       
Laura Witt
  Date    
 
        
/s/ Jack Young
  August, 7, 2006    
 
       
Jack Young
  Date    
 
        
Double-Take Software, Inc. Board of Directors    
 
        
Agreed
        
 
        
/s/ Dean Goodermote
  August 7, 2006    
 
       
Dean Goodermote
  Date    

4

EX-10.23 13 w23440a3exv10w23.htm EX-10.23 exv10w23
 

Exhibit 10.23
October 31, 2006
S. Craig Huke
16568 Brookhollow Drive
Noblesville, IN 46062
On behalf of Double-Take Software, Inc. (the “Company”), I am pleased to enter into an amended and restated employment agreement with you that continues your position as Chief Financial Officer, effective on October 31, 2006. This agreement amends and restates your agreement with the Company dated May 23, 2003. Following are the terms of this amended and restated employment agreement:
Position:
Chief Financial Officer. Reports to the Chief Executive Officer of the Company (the “CEO”).
Base Salary:
$200,000 per year, payable every two (2) weeks in the sum of $7,692.31, less any applicable withholding and taxes. The Base Salary may be increased, but not lowered, by the Company, and, upon such increase, the increased amount shall thereafter be deemed the Base Salary.
Stock Options:
At the discretion of the Compensation Committee of the Board of Directors, you may from time to time be awarded options to purchase shares of the Company’s common stock. In the event of a change in control as a result of a merger, acquisition, purchase of substantially all of the Company’s assets or other like transaction, as determined by the Compensation Committee of the Board of Directors, in which the Company is not the surviving entity (a “Change in Control”), the unvested portion of all of your outstanding options to purchase shares of the Company’s common stock shall immediately vest.

 

 

Insurance:
The Company will provide you and your family with major medical insurance.
Bonus:
You are eligible to participate in the executive bonus program established by the Company, the terms of which shall be determined at the discretion of the Company.
Additional Bonus:
You will be paid a bonus of $25,000 on February 1, 2007, less any applicable withholding and taxes, provided that you are employed by the Company on such date. In the event of a Change in Control, the Additional Bonus shall be immediately due and payable.
Severance:
Subject to the approval of the Company’s Board of Directors, in the event your employment is terminated without Cause in connection with a Change in Control, you will continue to receive your Base Salary for a period of twelve months from your separation date. No severance payment will be made in the event your employment is terminated for Cause.
For purposes of this Agreement, “Cause” shall be defined as: (i) willful disobedience of a material and lawful Instruction of the CEO or the Board of Directors of the Company; (ii) conviction of any misdemeanor involving fraud or embezzlement or similar crime, or any felony; (iii) conduct amounting to fraud, dishonesty, negligence, willful misconduct or recurring insubordination; (iv) inattention to your duties; or (v) excessive absences from work.
PTO (sick, personal, vacation time off):
Pursuant to the Company’s current policy.
401(k):
Option to participate in the Company’s 401(k) plan based on the plan’s terms.
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CONFIDENTIAL

 

 

Expenses:
Reasonable business-related expenses, including without limitation, cellular phone usage, home office equipment and supplies and travel-related expenses, will be reimbursed upon presentation of supporting documentation.
Confidentiality:
You agree to sign the Non-Disclosure Confidentiality Agreement attached hereto.
Relationship:
It is understood and accepted that the employment relationship we have agreed to is an at-will relationship, and that it may be ended by either party, at any time, and for any reason. It is also understood that you are free of any obligations, including restrictive covenants and or non-solicitation agreements, that may affect your ability to carry out your duties within the Company.
If you should have any questions pertaining to this matter please don’t hesitate to contact me.
I look forward to continuing to work with you.
         
Sincerely,
      Agreed:
 
        
/s/ Dean Goodermote
      /s/ S. Craig Huke
 
       
Dean Goodermote
      S. Craig Huke
Chief Executive Officer
        
3 of 5
CONFIDENTIAL

 

 

NON-DISCLOSURE CONFIDENTIALITY AGREEMENT
DOUBLETAKE SOFTWARE, INC.
S. Craig Huke (hereinafter referred to as the “employee”) hereby acknowledges that Double-Take Software, Inc., et al. (hereinafter referred to as the “Corporation”) is engaged in the business of developing, selling, distributing, supporting, installing and servicing computer related software. Both parties agree that the operation of the business and performance of the work of the Corporation involves special skills, knowledge, trade secrets, special techniques, procedures or names and addresses of the customers, past and present, of the Corporation. The employee acknowledges that he is being employed with the express understanding that all of the foregoing shall not be divulged or otherwise disclosed to anyone at any time.
It is further understood and agreed to by the employee, that during the time of his employment by the Corporation, that his time and efforts will be exclusively devoted to the Corporation’s business, and that he will not participate in any activity of a similar nature with any other entity, in any capacity, (e.g. sales, consulting, engineering, supervision or hands on activity). All computer program source and information relating to such source code, trade secrets, books, manuals, bulletins, work papers, files, reports and other related materials are the property of the Corporation and must be returned to the Corporation upon request or at the termination of employment, along with any reproductions of such documentation.
Employee agrees to hold in confidence and to refrain from using or disclosing to any third party, without prior written consent of Corporation, (a( any information disclosed in confidence to employee by the Corporation, and (b( any information developed or delivered by employee during the term of employee’s employment by the Corporation. All computer program source and information relating to such source code received, developed or delivered by employee in connection with his employment shall be deemed confidential information and belonging exclusively to the Corporation for purposes of this paragraph.
Employee agrees to provide the Corporation with all source code and complete source code documentation for all computer programs developed or modified by employee in the course of his employment by the Corporation. Ownership of all goods, code, and materials, etc; delivered by employee hereunder is hereby assigned irrevocably to the Corporation, including but not limited to all copyrights, trademarks, trade secrets and patent rights in such goods and materials. Employee agrees to execute and return to the Corporation all documents required by the Corporation from time to time to evidence, document or, if necessary, to perfect such ownership, for any purpose desired by the Corporation, and hereby appoints the Corporation employee’s attorney-in-fact with full powers to execute such document itself in the event employee is unable to provide the Corporation with such signed documents.
In the event the term of the employee’s employment shall expire or terminate,
4 of 5
CONFIDENTIAL

 

 

employee agrees not to divulge any of the above information, etc., or to engage or participate, directly or indirectly, for himself or on behalf of or for the benefit of a third party, firm or corporation in developing products based on the information gained during his term of employment by the Corporation. Employee also agrees he will not participate, directly or indirectly, for himself or on behalf of or for the benefit of a third party, firm or corporation in soliciting competing products, services and/or solutions to the Corporation’s existing customers or proposed customers (which were being solicited by the Corporation during the time of his employment) for a period of two (2) years and will not encourage, induce or attempt to induce any employee of the Corporation to leave the employ of the corporation for a period of two (2) years.
The employee agrees that these terms are so vitally important to the operation of the business of the Corporation, that any violation of the above conditions will result in their termination of employment, forfeitures of any and all benefits and bonuses accrued, as well as entitling the Corporation to any injunctive relief allowed by Law.
This Agreement shall be governed by the Laws of the State of New Jersey and there are no understandings, agreements, representations, express or implied, not specified herein.
AGREED TO BY:
         
/s/ S. Craig Huke   10/31/06
     
Employee
      (DATE)
 
        
ACCEPTED BY:    
 
        
     /s/ Dean Goodermote    
     
For the Corporation    
 
        
TITLE:
  Chief Executive Officer   11/1/06
 
       
 
      (DATE)
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EX-10.24 14 w23440a3exv10w24.htm EX-10.24 exv10w24
 

Exhibit 10.24
October 31, 2006
Daniel M. Jones
25 Frost Valley Road
Mount Sinai, NY 11766
Dear Dan,
On behalf of Double-Take Software, Inc. (the “Company”), I am pleased to enter into an amended and restated employment agreement with you that continues your position as Vice President of North American Sales and Marketing, effective on October 31, 2006. This agreement amends and restates your agreement with the Company dated April 20, 2005. Following are the terms of this amended and restated employment agreement:
Position:
Vice President of North American Sales and Marketing. Reports to the Chief Executive Officer of the Company (the “CEO”).
Base Salary:
$150,500 per year, payable every two (2) weeks in the sum of $6,057.69 less any applicable withholding and taxes. The Base Salary may be increased, but not lowered, by the Company, and, upon such increase, the increased amount shall thereafter be deemed the Base Salary.
Commission:
You will be eligible to participate in a commission plan established by the Company, the terms of which shall be determined at the discretion of the Company.
Stock Options:
At the Direction of the Compensation Committee of the Board of Directors, you may from time to time be awarded options to purchase shares of the Company’s common stock.

 

 

Bonus:
You will be eligible to participate in the executive bonus program established by the Company, the terms of which shall be determined at the discretion of the Company.
Insurance:
The Company will provide you and your family with major medical insurance.
PTO (sick, personal, vacation time off):
Pursuant to the Company’s current policy.
401(k):
Option to participate in the Company Software’s 401(k) Plan based on the plan’s terms.
Expenses:
Car allowance of $400 Monthly, covers all car related expenses, gas, repairs etc., and cellular phone allowance of up to $400 monthly for Company related phone calls.
Confidentiality:
You agree to sign the Non-Disclosure Confidentiality Agreement attached hereto.
Severance:
If you are terminated without cause, we will pay you an amount equal to your Base Salary for one year from the date of termination. Payments will be made in accordance with the Company’s regular payroll periods, commencing on the first day of the first payroll period following the date of termination. Additionally, if you are required to relocate outside of a 100 mile radius from your current home, you may decline the relocation and be eligible for the severance stated above.
For purposes of this Agreement, “Cause” shall be defined as: (i) willful disobedience of a material and lawful Instruction of the CEO or Board of Directors of the Company; (ii) conviction of any misdemeanor involving fraud or embezzlement or similar crime, or any felony; (iii) conduct amounting to fraud, dishonesty, negligence, willful misconduct or recurring insubordination; (iv) inattention to your duties; or (v) excessive absences from work.
Relationship:
It is understood and accepted that the employment relationship we have agreed to is an at-will relationship, and that it may be ended by either party, at any time, and for any reason. It is also understood that you are free of any obligations, including restrictive covenants and or non-solicitation agreements that may affect your ability to carry out your duties within the Company.
2 of 5
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If you should have any questions pertaining to this matter, please don’t hesitate to contact me.
I look forward to continuing to work with you.
         
Sincerely,
      Agreed:
 
        
/s/ Dean Goodermote
      /s/ Daniel M. Jones
 
       
Dean Goodermote
      Daniel M. Jones
Chief Executive Officer
        
3 of 5
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NON-DISCLOSURE CONFIDENTIALITY AGREEMENT
DOUBLETAKE SOFTWARE, INC.
Daniel M. Jones (hereinafter referred to as the “employee”) hereby acknowledges that Double-Take Software, Inc., et al. (hereinafter referred to as the “Corporation”) is engaged in the business of developing, selling, distributing, supporting, installing and servicing computer related software. Both parties agree that the operation of the business and performance of the work of the Corporation involves special skills, knowledge, trade secrets, special techniques, procedures or names and addresses of the customers, past and present, of the Corporation. The employee acknowledges that he is being employed with the express understanding that all of the foregoing shall not be divulged or otherwise disclosed to anyone at any time.
It is further understood and agreed to by the employee, that during the time of his employment by the Corporation, that his time and efforts will be exclusively devoted to the Corporation’s business, and that he will not participate in any activity of a similar nature with any other entity, in any capacity, (e.g. sales, consulting, engineering, supervision or hands on activity). All computer program source and information relating to such source code, trade secrets, books, manuals, bulletins, work papers, files, reports and other related materials are the property of the Corporation and must be returned to the Corporation upon request or at the termination of employment, along with any reproductions of such documentation.
Employee agrees to hold in confidence and to refrain from using or disclosing to any third party, without prior written consent of Corporation, (a( any information disclosed in confidence to employee by the Corporation, and (b( any information developed or delivered by employee during the term of employee’s employment by the Corporation. All computer program source and information relating to such source code received, developed or delivered by employee in connection with his employment shall be deemed confidential information and belonging exclusively to the Corporation for purposes of this paragraph.
Employee agrees to provide the Corporation with all source code and complete source code documentation for all computer programs developed or modified by employee in the course of his employment by the Corporation. Ownership of all goods, code, and materials, etc; delivered by employee hereunder is hereby assigned irrevocably to the Corporation, including but not limited to all copyrights, trademarks, trade secrets and patent rights in such goods and materials. Employee agrees to execute and return to the Corporation all documents required by the Corporation from time to time to evidence, document or, if necessary, to perfect such ownership, for any purpose desired by the Corporation, and hereby appoints the Corporation employee’s attorney-in-fact with full powers to execute such document itself in the event employee is unable to provide the Corporation with such signed documents.
In the event the term of the employee’s employment shall expire or terminate, employee agrees not to divulge any of the above information, etc., or to engage or participate, directly or indirectly, for himself or on behalf of or for the benefit of a third party, firm or corporation in developing products based on the information gained during his term of employment by the Corporation. Employee also agrees he will not participate, directly or indirectly, for himself or on behalf of or for the benefit of a third party, firm or corporation in soliciting competing products, services
4 of 5
CONFIDENTIAL

 

 

and/or solutions to the Corporation’s existing customers or proposed customers (which were being solicited by the Corporation during the time of his employment) for a period of two (2) years and will not encourage, induce or attempt to induce any employee of the Corporation to leave the employ of the corporation for a period of two (2) years.
The employee agrees that these terms are so vitally important to the operation of the business of the Corporation, that any violation of the above conditions will result in their termination of employment, forfeitures of any and all benefits and bonuses accrued, as well as entitling the Corporation to any injunctive relief allowed by Law.
This Agreement shall be governed by the Laws of the State of New Jersey and there are no understandings, agreements, representations, express or implied, not specified herein.
AGREED TO BY:
         
/s/ Daniel M. Jones   10/31/06
     
Employee
      (DATE)
 
        
ACCEPTED BY:    
 
        
     /s/ Dean Goodermote    
     
For the Corporation    
 
        
TITLE:
  Chief Executive Office   11/1/06
 
       
 
      (DATE)
5 of 5
CONFIDENTIAL

 

EX-10.46 15 w23440a3exv10w46.htm EX-10.46 exv10w46
 

Exhibit 10.46
AMENDED AND RESTATED
EMPLOYMENT/SEVERANCE AGREEMENT
      AMENDED AND RESTATED AGREEMENT made as of the 31st day of October, 2006 by and between Robert Beeler residing at 5780 Hornbill Place, Carmel, Indiana 46033 (hereinafter referred to as the “Employee”) and Double-Take Software, Inc., a Delaware corporation with principal offices located at 257 Turnpike Road, Suite 210, Southborough, Massachusetts 01772 (hereinafter referred to as the “Company”).
      The Employee is currently employed by the Company. The Company and the Executive desire to amend and restate all prior agreements and understandings regarding the Executive’s employment by the Company as set forth herein.
ARTICLE I
DEFINITIONS
      1.1 Base Salary. Base Salary shall mean the highest annualized rate of Employee’s base compensation in effect at any time during the ninety (90) day period prior to the Date of Termination of Employment, and shall include all amounts of Employee’s base compensation that are reported as income, provided however, that Base Salary shall not include any bonus or any other payment contingent on performance.
      1.2 Cause. Cause shall mean (i) willful disobedience by Employee of a material and lawful instruction of the Chief Executive Officer or the Board of Directors of the Company; (ii) conviction of Employee of any misdemeanor involving fraud or embezzlement or similar crime, or any felony; (iii) breach by

 

 

Employee of any material provision of this Agreement; (iv) conduct amounting to fraud, dishonesty, willful misconduct or recurring insubordination; or (v) excessive absences from work for any reason.
      1.3 Disability. Disability shall mean a physical or mental infirmity which impairs the Employee’s ability to substantially perform his duties with the Company for a period of (30) consecutive days, and Employee has not returned to his full time employment prior to the Employment Termination Date as stated in the “Notice of Termination of Employment” (as defined below).
      1.4 Employment Termination Date. Employment Termination Date shall mean (i) in the case of the Employee’s death, his date of death; (ii) in all other cases, the date specified in the Notice of Termination of Employment; provided, however, if the Employee’ s employment is terminated by the Company due to Disability, the date specified in the Notice of Termination of Employment shall be at least 30 days from the date the Notice of Termination of Employment is given to the Employee, and provided further that in the case of Disability, the Employee shall not have returned to the full-time performance of his duties during such period of at least 30 days.
      1.5 Notice of Termination of Employment. Notice of Termination of Employment shall mean a written notice from the Company, or the Employee, of termination of the Employee’s employment which indicates the specific termination provision in this Agreement relied upon, if any. A Notice of Termination of Employment served by the Company shall specify the effective Employment Termination Date.

- 2 -

 

      1.6 Severance Payment. Severance Payment shall mean a cash payment equal to twelve (12) months Base Salary, payable in accordance with the Company’s regular payroll periods, commencing on the first day of the first payroll period following the Employment Termination Date.
      1.7 Termination Agreement. Termination Agreement shall mean an agreement in such form satisfactory to the Company and signed by Employee within thirty (30) days of the Employment Termination Date, which provides for a general release from all claims by the Employee in favor of the Company and such other terms reasonably requested by the Company.
ARTICLE II
EMPLOYMENT
      Employee’s employment is at-will and nothing in this Agreement is intended, or shall be construed, to limit the right of the Company to terminate Employee’s employment at any time in its sole discretion.
ARTICLE III
NON-DISCLOSURE
      Employee agrees that this Agreement is conditioned on Employee’s compliance with the Company’s non-disclosure agreement (the “NDA”), which is hereby incorporated by reference. Any breach or violation of any terms of the NDA shall be considered a breach or violation of this Agreement.
ARTICLE IV
RESTRICTIVE COVENANT
      4.1 In the event of the termination of employment with the Company for any reason, Employee agrees that he will not, for a period of one (1) year following

- 3 -

 

such termination, directly or indirectly, enter into or become associated with or engage in any other business (whether as a partner, officer, director, shareholder, employee, consultant, or otherwise), which is in the business of providing real time data replication and high availability software technologies in competition with the Company or is otherwise engaged in the same or similar business as the Company in direct competition with the Company, or which the Company was in the process of developing, during the tenure of Employee’s employment by the Company. Notwithstanding the foregoing, the ownership by Employee of less than 5 percent of the shares of any publicly held corporation shall not violate the provisions of this Article IV.
      4.2 In furtherance of the foregoing, Employee shall not during the aforesaid period of non-competition, directly or indirectly, in connection with any business of providing real time data replication and high availability software technologies, or any business similar to the business in which the Company was engaged, or in the process of developing during Employee’s tenure with the Company, solicit any customer or employee of the Company who was a customer or employee of the Company during the term of his employment.
      4.3 If any court shall hold that the duration of non-competition or any other restriction contained in this Article IV is unenforceable, it is our intention that same shall not thereby be terminated but shall be deemed amended to delete therefrom such provision or portion adjudicated to be invalid or unenforceable or, in the alternative, such judicially substituted term may be substituted therefor.

- 4 -

 

ARTICLE V
SEVERANCE PAYMENT; TERMINATION OF OPTIONS
      5.1 In the event the Company terminates Employee’s employment without Cause during the term of this Agreement, and (i) Employee does not violate the provisions of Articles III and IV; and (ii) Employee signs a Termination Agreement satisfactory to the Company, Employee shall be paid a Severance Payment.
      5.2 In the event (i) Employee is terminated for Cause, or (ii) Employee violates the provisions of Article III or IV, any and all employment stock options held by Employee, whether vested or unvested, shall immediately terminate and Employee shall not be entitled to exercise such options.
ARTICLE VI
TERM AND TERMINATION
      6.1 This Agreement shall commence as of October 31, 2006, and shall continue in effect until July 23, 2007.
      6.2 This Agreement shall automatically terminate upon the voluntary resignation of Employee.
ARTICLE VII
TERMINATION OF PRIOR AGREEMENTS AND UNDERSTANDINGS
      This Agreement sets forth the entire agreement between the parties and supersedes all prior agreements and understandings between the parties regarding severance payments or benefits, whether oral or written prior to the effective date of this Agreement.

- 5 -

 

ARTICLE VIII
ARBITRATION, COSTS AND INDEMNIFICATION
      8.1 Any dispute arising out of the interpretation, application, and/or performance of this Agreement with the sole exception of any claim, breach, or violation arising under Articles III or IV hereof shall be settled through final and binding arbitration before a single arbitrator in the State of New Jersey in accordance with the Rules of the American Arbitration Association. The arbitrator shall be selected by the Association and shall be an attorney-at-law experienced in the field or fields involved in the dispute (e.g., corporate, employment, trade secret, non-competition, or securities law). Any judgment upon any arbitration award may be entered in any court, federal or state, having competent jurisdiction of the parties. Whether in arbitration or in any litigation between the parties in federal or state court relating to or concerning this Agreement, it is agreed that the losing shall pay the prevailing party’s reasonable attorney’s fees and costs.
      8.2 The Company hereby agrees to indemnify, defend, and hold harmless Employee for any and all claims arising from or related to his employment by the Company at any time asserted, at any place asserted, and to the fullest extent permitted by law, except for any claims arising out of a breach of any restrictive covenant, non-solicitation agreement or similar arrangement between Employee and an entity other than the Company.
ARTICLE IX
SEVERABILITY
      If any provision of this Agreement shall be held invalid and unenforceable, the remainder of this Agreement shall remain in full force and effect. If any

- 6 -

 

provision is held invalid or unenforceable with respect to particular circumstances, it shall remain in full force and effect in all other circumstances.
ARTICLE X
NOTICE
      For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses as set forth below or to any such other address as the party to receive the notice shall advise by due notice given in accordance with this paragraph. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof except that notice of change of address shall be effective only upon receipt.
      The current addresses of the parties are as follows:
     IF TO THE COMPANY:             Double-Take Software, Inc.
257 Turnpike Road, Suite 210
Southborough, Massachusetts 01772
     IF TO THE EMPLOYEE:             Robert Beeler
5780 Hornbill Place
Carmel, Indiana 46033

- 7 -

 

ARTICLE XI
BENEFIT
      This Agreement shall inure to, and shall be binding upon, the parties hereto, the successors and assigns of the Company, and the heirs and personal representatives of the Employee.
ARTICLE XII
WAIVER
      The waiver by either party of any breach or violation of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of construction and validity.
ARTICLE XIII
GOVERNING LAW
      This Agreement has been negotiated and executed in the State of Massachusetts which shall govern its construction and validity.
ARTICLE XIV
JURISDICTION
      Any or all actions or proceedings which may be brought by the Company or Employee under this Agreement shall be brought in courts having a stitus within the State of Massachusetts, and Employee and the Company each hereby consent to the jurisdiction of any local, state, or federal court located within the State of Massachusetts.

- 8 -

 

ARTICLE XV
ENTIRE AGREEMENT
      This Agreement contains the entire agreement between the parties hereto. No change, addition, or amendment shall be made hereto, except by written agreement signed by the parties hereto.
ARTICLE XVI
SURVIVAL
      Articles III, IV, VIII, X, XIII and XIV shall survive the termination of this Agreement.
ARTICLE XVII
ADVICE OF COUNSEL
      Employee acknowledges that the Company advised Employee to retain his own counsel to review this Agreement and gave Employee sufficient time to obtain a review of this Agreement by his own counsel.
      IN WITNESS WHEREOF, the parties hereto have executed this Agreement and affixed their hands and seals the day and year first above written.
         
    DOUBLE-TAKE SOFTWARE, INC.
 
        
 
  By:   /s/ Dean Goodermote
 
       
    Dean Goodermote
    Chief Executive Officer
 
        
         /s/ Robert Beeler
     
    Robert Beeler

- 9 -

 

Exhibit 10.46
NON-DISCLOSURE CONFIDENTIALITY AGREEMENT
DOUBLE-TAKE SOFTWARE, INC.
Robert Beeler (hereinafter referred to as the “employee”) hereby acknowledges that Double-Take Software, Inc., et al. (hereinafter referred to as the “Corporation”) is engaged in the business of developing, selling, distributing, supporting, installing and servicing computer related software. Both parties agree that the operation of the business and performance of the work of the Corporation involves special skills, knowledge, trade secrets, special techniques, procedures or names and addresses of the customers, past and present, of the Corporation. The employee acknowledges that he is being employed with the express understanding that all of the foregoing shall not be divulged or otherwise disclosed to anyone at any time.
It is further understood and agreed to by the employee, that during the time of his employment by the Corporation, that his time and efforts will be exclusively devoted to the Corporation’s business, and that he will not participate in any activity of a similar nature with any other entity, in any capacity, (e.g. sales, consulting, engineering, supervision or hands on activity). All computer program source and information relating to such source code, trade secrets, books, manuals, bulletins, work papers, files, reports and other related materials are the property of the Corporation and must be returned to the Corporation upon request or at the termination of employment, along with any reproductions of such documentation.
Employee agrees to hold in confidence and to refrain from using or disclosing to any third party, without prior written consent of Corporation, (a) any information disclosed in confidence to employee by the Corporation, and (b) any information developed or delivered by employee during the term of employee’s employment by the Corporation. All computer program source and information relating to such source code received, developed or delivered by employee in connection with his employment shall be deemed confidential information and belonging exclusively to the Corporation for purposes of this paragraph.
Employee agrees to provide the Corporation with all source code and complete source code documentation for all computer programs developed or modified by employee in the course of his employment by the Corporation. Ownership of all goods, code, and materials, etc.; delivered by employee hereunder is hereby assigned irrevocably to the Corporation, including but not limited to all copyrights, trademarks, trade secrets and patent rights in such goods and materials. Employee agrees to execute and return to the Corporation all documents required by the Corporation from time to time to evidence, document or, if necessary, to perfect such ownership, for any purpose desired by the Corporation, and hereby appoints the Corporation employee’s attorney-in-fact with full powers to execute such document itself in the event employee is unable to provide the Corporation with such signed documents.
In the event the term of the employee’s employment shall expire or terminate, employee agrees not to divulge any of the above information, etc., or to engage or
1 of 2
Confidential

 

 

participate, directly or indirectly, for himself or on behalf of or for the benefit of a third party, firm or corporation in developing products based on the information gained during his term of employment by the Corporation. Employee also agrees he will not participate, directly or indirectly, for himself or on behalf of or for the benefit of a third party, firm or corporation in soliciting competing products, services and/or solutions to the Corporation’s existing customers or proposed customers (which were being solicited by the Corporation during the time of his employment) for a period of two (2) years and will not encourage, induce or attempt to induce any employee of the Corporation to leave the employ of the corporation for a period of two (2) years.
The employee agrees that these terms are so vitally important to the operation of the business of the Corporation, that any violation of the above conditions will result in their termination of employment, forfeitures of any and all benefits and bonuses accrued, as well as entitling the Corporation to any injunctive relief allowed by Law.
This Agreement shall be governed by the Laws of the State of Massachusetts and there are no understandings, agreements, representations, express or implied, not specified herein.
             
AGREED TO BY:        
 
            
          /s/ Robert Beeler       10/31/06
         
Employee       (DATE)
 
            
ACCEPTED BY:        
 
            
          /s/ Dean Goodermote        
         
For the Corporation        
 
            
TITLE:
            Chief Executive Officer       11/1/06
 
           
 
          (DATE)
2 of 2
Confidential

 

EX-10.47 16 w23440a3exv10w47.htm EX-10.47 exv10w47
 

Exhibit 10.47
AMENDED AND RESTATED
EMPLOYMENT/SEVERANCE AGREEMENT
      AMENDED AND RESTATED AGREEMENT made as of the 31 day of October, 2006 by and between David J. Demlow residing at 5776 Kingfisher Place, Carmel, Indiana 46033 (hereinafter referred to as the “Employee”) and Double-Take Software, Inc., a Delaware corporation with principal offices located at 257 Turnpike Road, Suite 210, Southborough, Massachusetts 01772 (hereinafter referred to as the “Company”).
      The Employee is currently employed by the Company. The Company and the Executive desire to amend and restate all prior agreements and understandings regarding the Executive’s employment by the Company as set forth herein.
ARTICLE I
DEFINITIONS
      1.1 Base Salary. Base Salary shall mean the highest annualized rate of Employee’s base compensation in effect at any time during the ninety (90) day period prior to the Date of Termination of Employment, and shall include all amounts of Employee’s base compensation that are reported as income, provided however, that Base Salary shall not include any bonus or any other payment contingent on performance.
      1.2 Cause. Cause shall mean (i) willful disobedience by Employee of a material and lawful instruction of the Chief Executive Officer or the Board of Directors of the Company; (ii) conviction of Employee of any misdemeanor involving fraud or embezzlement or similar crime, or any felony; (iii) breach by

 

 

Employee of any material provision of this Agreement; (iv) conduct amounting to fraud, dishonesty, willful misconduct or recurring insubordination; or (v) excessive absences from work for any reason.
      1.3 Disability. Disability shall mean a physical or mental infirmity which impairs the Employee’s ability to substantially perform his duties with the Company for a period of (30) consecutive days, and Employee has not returned to his full time employment prior to the Employment Termination Date as stated in the “Notice of Termination of Employment” (as defined below).
      1.4 Employment Termination Date. Employment Termination Date shall mean (i) in the case of the Employee’s death, his date of death; (ii) in all other cases, the date specified in the Notice of Termination of Employment; provided, however, if the Employee’ s employment is terminated by the Company due to Disability, the date specified in the Notice of Termination of Employment shall be at least 30 days from the date the Notice of Termination of Employment is given to the Employee, and provided further that in the case of Disability, the Employee shall not have returned to the full-time performance of his duties during such period of at least 30 days.
      1.5 Notice of Termination of Employment. Notice of Termination of Employment shall mean a written notice from the Company, or the Employee, of termination of the Employee’s employment which indicates the specific termination provision in this Agreement relied upon, if any. A Notice of Termination of Employment served by the Company shall specify the effective Employment Termination Date.

-2-

 

      1.6 Severance Payment. Severance Payment shall mean a cash payment equal to twelve (12) months Base Salary, payable in accordance with the Company’s regular payroll periods, commencing on the first day of the first payroll period following the Employment Termination Date.
      1.7 Termination Agreement. Termination Agreement shall mean an agreement in such form satisfactory to the Company and signed by Employee within thirty (30) days of the Employment Termination Date, which provides for a general release from all claims by the Employee in favor of the Company and such other terms reasonably requested by the Company.
ARTICLE II
EMPLOYMENT
      Employee’s employment is at-will and nothing in this Agreement is intended, or shall be construed, to limit the right of the Company to terminate Employee’s employment at any time in its sole discretion.
ARTICLE III
NON-DISCLOSURE
      Employee agrees that this Agreement is conditioned on Employee’s compliance with the Company’s non-disclosure agreement (the “NDA”), which is hereby incorporated by reference. Any breach or violation of any terms of the NDA shall be considered a breach or violation of this Agreement.
ARTICLE IV
RESTRICTIVE COVENANT
      4.1 In the event of the termination of employment with the Company for any reason, Employee agrees that he will not, for a period of one (1) year following

-3-

 

such termination, directly or indirectly, enter into or become associated with or engage in any other business (whether as a partner, officer, director, shareholder, employee, consultant, or otherwise), which is in the business of providing real time data replication and high availability software technologies in competition with the Company or is otherwise engaged in the same or similar business as the Company in direct competition with the Company, or which the Company was in the process of developing, during the tenure of Employee’s employment by the Company. Notwithstanding the foregoing, the ownership by Employee of less than 5 percent of the shares of any publicly held corporation shall not violate the provisions of this Article IV.
      4.2 In furtherance of the foregoing, Employee shall not during the aforesaid period of non-competition, directly or indirectly, in connection with any business of providing real time data replication and high availability software technologies, or any business similar to the business in which the Company was engaged, or in the process of developing during Employee’s tenure with the Company, solicit any customer or employee of the Company who was a customer or employee of the Company during the term of his employment.
      4.3 If any court shall hold that the duration of non-competition or any other restriction contained in this Article IV is unenforceable, it is our intention that same shall not thereby be terminated but shall be deemed amended to delete therefrom such provision or portion adjudicated to be invalid or unenforceable or, in the alternative, such judicially substituted term may be substituted therefor.

-4-

 

ARTICLE V
SEVERANCE PAYMENT; TERMINATION OF OPTIONS
      5.1 In the event the Company terminates Employee’s employment without Cause during the term of this Agreement, and (i) Employee does not violate the provisions of Articles III and IV; and (ii) Employee signs a Termination Agreement satisfactory to the Company, Employee shall be paid a Severance Payment.
      5.2 In the event (i) Employee is terminated for Cause, or (ii) Employee violates the provisions of Article III or IV, any and all employment stock options held by Employee, whether vested or unvested, shall immediately terminate and Employee shall not be entitled to exercise such options.
ARTICLE VI
TERM AND TERMINATION
      6.1 This Agreement shall commence as of October 31, 2006, and shall continue in effect until July 23, 2007.
      6.2 This Agreement shall automatically terminate upon the voluntary resignation of Employee.
ARTICLE VII
TERMINATION OF PRIOR AGREEMENTS AND UNDERSTANDINGS
      This Agreement sets forth the entire agreement between the parties and supersedes all prior agreements and understandings between the parties regarding severance payments or benefits, whether oral or written prior to the effective date of this Agreement.

-5-

 

ARTICLE VIII
ARBITRATION, COSTS AND INDEMNIFICATION
      8.1 Any dispute arising out of the interpretation, application, and/or performance of this Agreement with the sole exception of any claim, breach, or violation arising under Articles III or IV hereof shall be settled through final and binding arbitration before a single arbitrator in the State of New Jersey in accordance with the Rules of the American Arbitration Association. The arbitrator shall be selected by the Association and shall be an attorney-at-law experienced in the field or fields involved in the dispute (e.g., corporate, employment, trade secret, non-competition, or securities law). Any judgment upon any arbitration award may be entered in any court, federal or state, having competent jurisdiction of the parties. Whether in arbitration or in any litigation between the parties in federal or state court relating to or concerning this Agreement, it is agreed that the losing shall pay the prevailing party’s reasonable attorney’s fees and costs.
      8.2 The Company hereby agrees to indemnify, defend, and hold harmless Employee for any and all claims arising from or related to his employment by the Company at any time asserted, at any place asserted, and to the fullest extent permitted by law, except for any claims arising out of a breach of any restrictive covenant, non-solicitation agreement or similar arrangement between Employee and an entity other than the Company.
ARTICLE IX
SEVERABILITY
      If any provision of this Agreement shall be held invalid and unenforceable, the remainder of this Agreement shall remain in full force and effect. If any

-6-

 

provision is held invalid or unenforceable with respect to particular circumstances, it shall remain in full force and effect in all other circumstances.
ARTICLE X
NOTICE
      For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses as set forth below or to any such other address as the party to receive the notice shall advise by due notice given in accordance with this paragraph. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof except that notice of change of address shall be effective only upon receipt.
      The current addresses of the parties are as follows:
     
IF TO THE COMPANY:
  Double-Take Software, Inc.
 
  257 Turnpike Road, Suite 210
 
  Southborough, Massachusetts 01772
 
    
IF TO THE EMPLOYEE:
  David J. Demlow
 
  5776 Kingfisher Place
 
  Carmel, Indiana 46033

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ARTICLE XI
BENEFIT
      This Agreement shall inure to, and shall be binding upon, the parties hereto, the successors and assigns of the Company, and the heirs and personal representatives of the Employee.
ARTICLE XII
WAIVER
      The waiver by either party of any breach or violation of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of construction and validity.
ARTICLE XIII
GOVERNING LAW
      This Agreement has been negotiated and executed in the State of Massachusetts which shall govern its construction and validity.
ARTICLE XIV
JURISDICTION
      Any or all actions or proceedings which may be brought by the Company or Employee under this Agreement shall be brought in courts having a stitus within the State of Massachusetts, and Employee and the Company each hereby consent to the jurisdiction of any local, state, or federal court located within the State of Massachusetts.

-8-

 

ARTICLE XV
ENTIRE AGREEMENT
      This Agreement contains the entire agreement between the parties hereto. No change, addition, or amendment shall be made hereto, except by written agreement signed by the parties hereto.
ARTICLE XVI
SURVIVAL
      Articles III, IV, VIII, X, XIII and XIV shall survive the termination of this Agreement.
ARTICLE XVII
ADVICE OF COUNSEL
      Employee acknowledges that the Company advised Employee to retain his own counsel to review this Agreement and gave Employee sufficient time to obtain a review of this Agreement by his own counsel.
      IN WITNESS WHEREOF, the parties hereto have executed this Agreement and affixed their hands and seals the day and year first above written.
         
  DOUBLE-TAKE SOFTWARE, INC.
 		  
  By:   /s/ Dean Goodermote    
    Dean Goodermote   
    Chief Executive Officer   
 
     
  /s/ David J. Demlow    
  David J. Demlow   
     
 

-9-

 

Exhibit 10.47
NON-DISCLOSURE CONFIDENTIALITY AGREEMENT
DOUBLE-TAKE SOFTWARE, INC.
David J. Demlow (hereinafter referred to as the “employee”) hereby acknowledges that Double-Take Software, Inc., et al. (hereinafter referred to as the “Corporation”) is engaged in the business of developing, selling, distributing, supporting, installing and servicing computer related software. Both parties agree that the operation of the business and performance of the work of the Corporation involves special skills, knowledge, trade secrets, special techniques, procedures or names and addresses of the customers, past and present, of the Corporation. The employee acknowledges that he is being employed with the express understanding that all of the foregoing shall not be divulged or otherwise disclosed to anyone at any time.
It is further understood and agreed to by the employee, that during the time of his employment by the Corporation, that his time and efforts will be exclusively devoted to the Corporation’s business, and that he will not participate in any activity of a similar nature with any other entity, in any capacity, (e.g. sales, consulting, engineering, supervision or hands on activity). All computer program source and information relating to such source code, trade secrets, books, manuals, bulletins, work papers, files, reports and other related materials are the property of the Corporation and must be returned to the Corporation upon request or at the termination of employment, along with any reproductions of such documentation.
Employee agrees to hold in confidence and to refrain from using or disclosing to any third party, without prior written consent of Corporation, (a) any information disclosed in confidence to employee by the Corporation, and (b) any information developed or delivered by employee during the term of employee’s employment by the Corporation. All computer program source and information relating to such source code received, developed or delivered by employee in connection with his employment shall be deemed confidential information and belonging exclusively to the Corporation for purposes of this paragraph.
Employee agrees to provide the Corporation with all source code and complete source code documentation for all computer programs developed or modified by employee in the course of his employment by the Corporation. Ownership of all goods, code, and materials, etc.; delivered by employee hereunder is hereby assigned irrevocably to the Corporation, including but not limited to all copyrights, trademarks, trade secrets and patent rights in such goods and materials. Employee agrees to execute and return to the Corporation all documents required by the Corporation from time to time to evidence, document or, if necessary, to perfect such ownership, for any purpose desired by the Corporation, and hereby appoints the Corporation employee’s attorney-in-fact with full powers to execute such document itself in the event employee is unable to provide the Corporation with such signed documents.
In the event the term of the employee’s employment shall expire or terminate, employee agrees not to divulge any of the above information, etc., or to engage or
1 of 2
Confidential

 

participate, directly or indirectly, for himself or on behalf of or for the benefit of a third party, firm or corporation in developing products based on the information gained during his term of employment by the Corporation. Employee also agrees he will not participate, directly or indirectly, for himself or on behalf of or for the benefit of a third party, firm or corporation in soliciting competing products, services and/or solutions to the Corporation’s existing customers or proposed customers (which were being solicited by the Corporation during the time of his employment) for a period of two (2) years and will not encourage, induce or attempt to induce any employee of the Corporation to leave the employ of the corporation for a period of two (2) years.
The employee agrees that these terms are so vitally important to the operation of the business of the Corporation, that any violation of the above conditions will result in their termination of employment, forfeitures of any and all benefits and bonuses accrued, as well as entitling the Corporation to any injunctive relief allowed by Law.
This Agreement shall be governed by the Laws of the State of Massachusetts and there are no understandings, agreements, representations, express or implied, not specified herein.
AGREED TO BY:
             

/s/ David J. Demlow		   10/31/06    
         
Employee   (DATE)    
 
            
ACCEPTED BY:        
 
            

/s/ Dean Goodermote		        
         
For the Corporation        
 
            
TITLE:
  Chief Executive Officer   11/1/06    
 
           
 
      (DATE)    
2 of 2
Confidential

EX-10.48 17 w23440a3exv10w48.htm EX-10.48 exv10w48
 

Exhibit 10.48
NON-DISCLOSURE CONFIDENTIALITY AGREEMENT
DOUBLETAKE SOFTWARE, INC.
                     (hereinafter referred to as the “employee”) hereby acknowledges that Double-Take Software, Inc., et al. (hereinafter referred to as the “Corporation”) is engaged in the business of developing, selling, distributing, supporting, installing and servicing computer related software. Both parties agree that the operation of the business and performance of the work of the Corporation involves special skills, knowledge, trade secrets, special techniques, procedures or names and addresses of the customers, past and present, of the Corporation. The employee acknowledges that he is being employed with the express understanding that all of the foregoing shall not be divulged or otherwise disclosed to anyone at any time.
It is further understood and agreed to by the employee, that during the time of his employment by the Corporation, that his time and efforts will be exclusively devoted to the Corporation’s business, and that he will not participate in any activity of a similar nature with any other entity, in any capacity, (e.g. sales, consulting, engineering, supervision or hands on activity). All computer program source and information relating to such source code, trade secrets, books, manuals, bulletins, work papers, files, reports and other related materials are the property of the Corporation and must be returned to the Corporation upon request or at the termination of employment, along with any reproductions of such documentation.
Employee agrees to hold in confidence and to refrain from using or disclosing to any third party, without prior written consent of Corporation, (a) any information disclosed in confidence to employee by the Corporation, and (b) any information developed or delivered by employee during the term of employee’s employment by the Corporation. All computer program source and information relating to such source code received, developed or delivered by employee in connection with his employment shall be deemed confidential information and belonging exclusively to the Corporation for purposes of this paragraph.
Employee agrees to provide the Corporation with all source code and complete source code documentation for all computer programs developed or modified by employee in the course of his employment by the Corporation. Ownership of all goods, code, and materials, etc; delivered by employee hereunder is hereby assigned irrevocably to the Corporation, including but not limited to all copyrights, trademarks, trade secrets and patent rights in such goods and materials. Employee agrees to execute and return to the Corporation all documents required by the Corporation from time to time to evidence, document or, if necessary, to perfect such ownership, for any purpose desired by the Corporation, and hereby appoints the Corporation employee’s attorney-in-fact with full powers to execute such document itself in the event employee is unable to provide the Corporation with such signed documents.

 

 

In the event the term of the employee’s employment shall expire or terminate, employee agrees not to divulge any of the above information, etc., or to engage or participate, directly or indirectly, for himself or on behalf of or for the benefit of a third party, firm or corporation in developing products based on the information gained during his term of employment by the Corporation. Employee also agrees he will not participate, directly or indirectly, for himself or on behalf of or for the benefit of a third party, firm or corporation in soliciting competing products, services and/or solutions to the Corporation’s existing customers or proposed customers (which were being solicited by the Corporation during the time of his employment) for a period of two (2) years and will not encourage, induce or attempt to induce any employee of the Corporation to leave the employ of the corporation for a period of two (2) years.
The employee agrees that these terms are so vitally important to the operation of the business of the Corporation, that any violation of the above conditions will result in their termination of employment, forfeitures of any and all benefits and bonuses accrued, as well as entitling the Corporation to any injunctive relief allowed by Law.
This Agreement shall be governed by the Laws of the State of New Jersey and there are no understandings, agreements, representations, express or implied, not specified herein.
AGREED TO BY:
     
 
   
 
   
Employee
  (DATE)
ACCEPTED BY:
         
     
For the Corporation    
 
        
TITLE:
        
 
       
 
      (DATE)

 

EX-23.01 18 w23440a3exv23w01.htm EX-23.01 exv23w01
 

EXHIBIT 23.01
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the reference to our firm under the caption “Experts’’ and to the use of our report dated March 27, 2006 (with respect to
Note N(1), May 23, 2006, the seventh paragraph of Note I, August 7, 2006 and the third paragraph of Note A(1), November 3, 2006) with respect to the financial statements and the financial statement schedule of Double-Take Software, Inc. (formerly NSI Software, Inc.) as of December 31, 2005 and 2004 and for each of the years in the three-year period ended December 31, 2005 included in Amendment No. 3 to the Registration Statement on Form S-1 and related Prospectus of Double-Take Software, Inc. for the registration of shares of its common stock.
/s/ Eisner LLP
New York, New York
November 6, 2006

EX-23.02 19 w23440a3exv23w02.htm EX-23.02 exv23w02
 

Exhibit 23.02
(ERNST AND YOUNG LETTERHEAD)
Consent of Independent Auditors
We consent to the reference to our firm under the caption “Experts” and to the use of our report dated July 17, 2006, with respect to the consolidated financial statements of Double-Take Software S.A.S. (formerly named Sunbelt System Software S.A.S.) as of and for the years ended December 31, 2005 and 2004 included in the Registration Statement (Form S-1 No. 333-136499) and related Prospectus of Double-Take Software Inc. for the registration of shares of its common stock.
Paris-La Défense, France
October 31, 2006
(SIGNATURE)
Ernst & Young Audit
Represented by Laure-Hélène de la Motte
(ERNST AND YOUNG LETTERHEAD)

EX-99.01 20 w23440a3exv99w01.htm EX-99.01 exv99w01
 

Exhibit 99.01
November 1, 2006
Michael Shirer
Corporate Communications Director
IDC
5 Speen Street
Framingham, MA 01701
S. Craig Huke, Chief Financial Officer
Double-Take Software, Inc.
257 Turnpike Road, Suite 210
Southborough, MA 01772
Dear Mr. Huke:
IDC grants Double-Take Software, Inc. (the “Company”) permission to disclose the following information and make statements that are consistent with the following, including in connection with the Company’s filings with the United States Securities and Exchange Commission and the Company’s Registration Statement on Form S-1 (Reg. No. 333-136499) (the “Registration Statement”):
In 2006, International Data Corp., or IDC, a market research firm, estimated in its Worldwide Storage Replication Software 2006-2010 Forecast, Mar 2006 Doc #200998, that the worldwide storage replication software market would grow from $2.1 billion in sales in 2005 to $4.2 billion in 2010, representing a compound annual growth rate of approximately 15%. IDC further estimated that sales in the Windows server sub-segment of this market, which our software currently addresses, would increase at a compound annual growth rate of approximately 25%, from $310 million in 2005 to $940 million in 2010.
IDC consents to the reference to its name in the Prospectus Summary and Business sections of the Registration Statement.
It is understood by both IDC and the Company that the information will not be sold. It is further understood that IDC will be credited as the source of publication and that the original date of publication will also be noted.
If you have any subsequent questions or needs, please feel free to contact me directly at 508-988-7892 or mshirer@idc.com.
Best regards,
/s/MICHAEL SHIRER
Michael Shirer
Corporate Communications Director
IDC

EX-99.02 21 w23440a3exv99w02.htm EX-99.02 exv99w02
 

Exhibit 99.02
November 2, 2006
Mr. Craig Huke
Chief Financial Officer
Double-Take Software, Inc.
8470 Allison Pointe Blvd., Suite 300
Indianapolis, IN 46250
Re:      WRITTEN CONSENT OF INDEPENDENT VALUATION SPECIALIST
Dear Mr. Huke:
We hereby consent to the inclusion in the registration statement on Form S-1 of Double-Take Software, Inc. (“Double-Take") relating to the proposed initial public offering (the “Registration Statement"), of references to our analysis regarding the Fair Value of the Common Stock of Double-Take as of December 31, 2005 and June 30, 2006, provided to you in final form on May 1, 2006 and September 29, 2006, and to the manner in which our report is referred to therein, specifically the reference to our report under “Critical Accounting Policies—Stock-Based Compensation.”
We also hereby consent to the inclusion in the registration statement on Form S-1 of Double-Take relating to the proposed Registration Statement, of references to our analysis regarding the Fair Value of certain intangible assets that were acquired as part of Double-Take’s acquisition of Double-Take EMEA on May 23, 2006, provided to you in final form on September 25, 2006, and the manner in which our report is referred to therein, specifically the reference to our report under “Unaudited Pro Forma Financial Data.”
In giving such consent, we do not hereby admit that we come within the category of person whose consent is required under Section 7 or Section 11 of the Securities Act of 1933, as amended, or the rules and regulations adopted by the Securities and Exchange Commission thereunder, nor do we admit that we are experts with respect to any part of such Registration Statement within the meaning of the term “experts” as used in the Securities Act of 1933, as amended or the rules and regulations of the Securities and Exchange Commission thereunder.
Sincerely,
/s/ THE MCLEAN VALUATION SERVICES GROUP, LLC
The McLean Valuation Services Group, LLC
By:
Dennis J. Roberts, CPA/ABV, CVA, Managing Director
Andrew C. Smith, CPA/ABV, ASA, CVA, AMA, Managing Director

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[LETTERHEAD OF HOGAN & HARTSON L.L.P.]
November 7, 2006
BY EDGAR AND HAND DELIVERY
United States Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 4561
100 F Street, N.E.
Washington, DC 20549
Attn: Jay Ingram
RE: Double-Take Software, Inc.
Registration Statement on Form S-1/A
File No. 333-136499
Date Filed: October 4, 2006
Dear Mr. Ingram:
On behalf of Double-Take Software, Inc. (“Company”), this letter is in response to the staff’s letter of comment dated October 26, 2006, with respect to the above-referenced Registration Statement on Form S-1/A (the “Registration Statement”).
In response to your letter, set forth below are the staff’s comments in italics followed by the Company’s responses to the staff’s comments. Where indicated below, the Company has included changes to the disclosure in Amendment No. 3 to the Registration Statement, which the Company is filing contemporaneously with this response letter. Please note that the Company effected a 1 for 4.9 reverse split of its common stock on November 3, 2006, and that all common stock amounts in the Company’s response have been proportionately adjusted. We have inserted bracketed references to adjusted stock prices in the staff’s comments for your reference.
We have sent to your attention for delivery on November 8, 2006, courtesy copies of this letter and Amendment No. 3 to the Registration Statement (excluding exhibits) blacklined to show changes against the Registration Statement.

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 2
Cover Page
  1.   We have reviewed your response to comment 4 of our letter dated September 6, 2006. We believe that the reference to “joint book running managers” on the cover page is inconsistent with the requirements of Rule 421(d). We will not object if this term is used on the back outside cover. In the description of the joint book running manager arrangement provided in the Underwriting section, please explain that the underwriting agreement provides that decisions be made jointly by the book running managers, and briefly describe the most significant decisions of this nature, particularly those which could affect investors.
In response to the staff’s comment, we have removed the term “joint bookrunning managers” from the outside front cover page of the prospectus and moved it to the back outside cover page. We have revised the Underwriting section in accordance with the staff’s comment.
Our Markets and Opportunities, page 1
  2.   In response to comment 8 of our letter dated September 6, 2006, you have submitted a copy of the IDC consent to the use of the statements attributed to it. Please file the consent as an exhibit pursuant to Item 601(b)(23) of Regulation S-K.
We have obtained and filed a consent of IDC as Exhibit 99.01 to Amendment No. 3 to the Registration Statement.
Unaudited Pro Forma Financial Information, page 25
  3.   Your response to comment 20 of our letter dated September 6, 2006 indicates the $2.2 million dividend payment to the former shareholders of Double-Take EMEA were declared and paid prior to the acquisition and was not part of the purchase price. Please expand to explain why you made this dividend payment to Double-Take EMEA. Clarify what consideration you received in return for this payment.
The $2.2 million dividend payment (€1.7 million) was paid by Sunbelt System Software (now called Double-Take EMEA) to its shareholders prior to the acquisition of it by Double-Take Software, Inc. Double-Take Software, Inc. did not make the dividend payment. No consideration was received by Double-Take Software, Inc. related to this payment. Prior to the acquisition, the shareholders of Double-Take EMEA had the discretion to pay lawful dividends from earnings at any time, and we were aware that they intended to pay out this dividend payment prior to the acquisition.

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 3
  4.   We note the reference to “valuations by an independent party”. Please identify the independent part and file its consent to use the information cited.
The McLean Valuation Services Group provided the valuations referenced in this section, and we have identified it in the Registration Statement and have obtained and filed its consent as Exhibit 99.02 to Amendment No. 3 to the Registration Statement.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations, page 34
  5.   You indicate that you have revised your disclosure in response to comment 23 of our letter dated September 6, 2006; however, it appears you have only revised your disclosure to include a discussion of gross profit. Therefore we reissue prior comment number 23 to request you to revise to discuss the period over period changes in net income in your results of operations discussion. Also, your disclosure should provide a discussion of the impact of your Series B and C Preferred Stock on your statement of operations. Revise to explain the nature of such items and their impact on net loss attributable to common stockholders.
We have revised our disclosure for each period in response to the staff’s comments to discuss the changes in net income as well as the effect of our Preferred Stock on each period.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Cost of Revenue and Gross Profit, page 36
  6.   Your disclosure states, “[w]e expect this cost of software revenue percentage to decrease as Double-Take EMEA sells through the inventory of Double-Take products on hand at May 23, 2006.” Clarify why there will be a change in accounting for cost of sales once the inventory held by Double-Take EMEA is sold. Explain why this change would not have occurred on the acquisition date. Please explain the difference in your policy for recording revenue and cost of revenue though Double-Take EMEA before and after the inventory on hand as of May 23, 2006 is sold.
Prior to Double-Take Software, Inc.’s acquisition of Sunbelt System Software (now called Double-Take EMEA), Sunbelt periodically purchased Double-Take products for inventory. These purchases of inventory by Sunbelt contained no rights of return or price protection and payment was due to Double-Take Software, Inc. regardless of whether the inventory was ultimately sold through by Sunbelt to a customer.
At the acquisition date of May 23, 2006, Sunbelt’s inventory of Double Take products was recorded on the balance sheet at its fair value, which approximates cost. As that inventory was sold, the cost was charged to cost of revenue — software licenses. Any inventory purchased by

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 4
Double-Take EMEA after May 23, 2006 has been recorded as an inter-company transaction that has no net impact on cost of sales when sold by Double-Take EMEA.
The cost of Double-Take products purchased by Double-Take EMEA after May 23, 2006 will be equal to our cost.
Liquidity and Capital Resources
Cash Flows from Operating Activities, page 46
  7.   We note your revised disclosure in response to comment 32 of our letter dated September 6, 2006 and reissue and clarify the comment. Your disclosure appears to be a mere recitation of changes and other information evident from the financial statements. Revise your disclosure to focus on the primary drivers of and other material factors necessary to an understanding of your cash flows and the indicative value of historical cash flows. In addition, where there has been material variability in historical cash flows, your discussion should focus on the underlying reasons for the changes, as well as on their reasonably likely impact on future cash flows. We refer you to the Commissions “Guidance Regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations” Release No. 33-8350, Section IV.B. For example, your disclosure indicates you had better cash collections from your customers as well as continued growth in your deferred revenue. Your disclosure should explain the reasons for these positive trends when determinable. Your disclosure should also explain how the acquisition of Sunbelt System Software impacted these trends. Did the acquisition of Sunbelt System Software contribute to the growth in deferred revenue? Do you experience better cash collections from Sunbelt System Software sales than through other cannels? Further, we note from your consolidated statements of cash flows on page F-6 that cash flows from accounts payable and accrued expenses changed by approximately $5 million for the six months ended June 30, 2006. Your disclosure should address this material change. Please revise as appropriate.
We have revised our disclosure for each period to discuss the underlying reasons for positive and negative trends in our cash flows, as well as the impact of our acquisition of Double-Take EMEA. We also have revised our disclosure to detail and explain material changes in each period.
Aggregated Option Exercise in the Last Fiscal Year and Fiscal Year-End Option Values, page 67
  8.   We reissue comments 38 and 39 of our letter dated September 6, 2006. If you elect to use the “fair market value” to compute option value, then please describe the methodology used to establish the fair market value. Disclosing that the options were valued based on “internal valuation methodologies” is not informative as to the nature of the valuation methodologies

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 5
      used. Similarly uninformative is disclosure indicating that these values primarily based upon internal valuation estimates as well as arm’s-length transactions involving our preferred stock.
We have added disclosure to describe the methodology used to establish fair market value under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Stock-Based Compensation.” A cross reference to this disclosure is included in the footnote to the Aggregated Option Exercises in the Last Fiscal Year and Fiscal Year-End Option Values table to avoid repetition.
Certain Relationships and Related Transactions, page 79
Double-Take EMEA Acquisition and Relationship with Jo Murciano, page 81
  9.   We note from your response to comment 41 of our letter dated September 6, 2006, that Mr. Murciano is the President of Double-Take EMEA and a Director and the Chief Executive Officer of Sunbelt Software Distribution. Tell us your consideration of reporting revenue and accounts receivables generated from Sunbelt Software Distribution as related party revenue and accounts receivable on your consolidated Statements of Operations and Balance Sheets, respectively. We refer you to Regulation S-X, Rules 5-03(b)(1) and (2) and 5-02(3)(a)(2). In addition, tell us your consideration of providing the disclosures required by paragraph 2 of SFAS 57. In addition, revise your disclosure to clarify the relationship between Sunbelt System Software and Sunbelt Software Distribution.
We have revised our Statements of Operations and Balance Sheets to reflect that revenue and accounts receivable generated from Sunbelt Software Distribution is related party revenue and accounts receivable. We have revised our disclosure in response to the staff’s comments.
Principal and Selling Stockholders, page 82
  10.   We note your responses to our comments 42 and 43 of our letter dated September 6, 2006 and will evaluate your disclosure as it is made. Be advised that we may have additional comments.
We acknowledge the staff’s comment.
Underwriting, page 95
  11.   We note your response and revisions to comment 44 of our letter dated September 6, 2006. Disclosure currently indicates that the underwriters’ commitment to purchase the shares

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 6
      “may be terminated in the event of a material adverse change in economic, political or financial conditions.” Because the form of underwriting agreement has yet to be filed, the Staff is not yet able to evaluate your response to the prior comment. Please file the agreement with your next amendment.
We have filed the underwriting agreement as exhibit 1.01 to Amendment No. 3 to the Registration Statement.
Balance Sheets, page F-3
  12.   We note that you will provide the pro forma balance sheet data prior to the effectiveness of the offing in response to comment 47 of our letter dated September 6, 2006. Please be advised that we may have comments on your pro forma balance sheet data once the information is included in your financial statements.
We acknowledge the staff’s comment.
Notes to Financial Statements
Note A — Organization and Significant Accounting Policies
[7] Revenue Recognition, page F-9
  13.   We note your accounting policy for arrangements that require you to deliver multiple copies of a single license of the same software in response to comment 48 of our letter dated September 6, 2006. Your response indicates that in all cases, you ship all copies to the customer in one shipment and recognize revenue upon shipment. Since the information provided in your response clarifies how you meet the delivery criterion for arrangements that require you to deliver multiple copies of a single license, you should provide such information as disclosure in the notes to your financial statements. Revise your disclosure to include your accounting policy for arrangements that require you to deliver multiple copies of a single license similar to the one provided in your response.
We have added additional language to the “Delivery or performance has occurred” section of the revenue recognition discussion in critical accounting policies and in Note A[7] to the financial statements.
  14.   We note that in response to comment 49 of our letter dated September 6, 2006, you removed the reference to “other persuasive evidence” in your footnote disclosure. However, we note your discussion in your revenue recognition critical accounting policies on page 41 still includes reference to “other persuasive evidence.” Please revise your critical accounting

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 7
      policy with this and all other changes made to your footnote disclosures.
We have revised the disclosure in response to the staff’s comment.
  15.   Your response to comment 49 of our letter dated September 6, 2006 indicates that you receive a royalty report which documents all licenses shipped in the previous month and calculates the royalty due to you. It also indicates that revenue related to the royalty report is recorded in the month that the license was shipped to the customer. Please clarify how you are able to record revenue in the month the license was shipped if you do not receive the report until the month after the license was shipped. Clarify whether you receive the report soon after the end of the month and are able to record the license sales based on actual licenses shipped or you are required to estimate the amount of licenses shipped in the month and record an entry to revise your estimates to actual in the month you receive the royalty report. In addition, revise your revenue recognition critical accounting policy to discuss the critical accounting estimates involved with software licenses sold through original equipment manufacturers.
Historically, we have received a preliminary report of licenses shipped from the OEM within a week after the end of the month and the final report is contractually due by end of month following shipment. We use the preliminary report to make an estimate of the royalty due from the OEM and record the revenue in the months in which the software products are shipped. If the final royalty report is received from the OEM prior to finalization of the financial statements, the estimate of royalty revenue is replaced with the royalty revenue from the final report. If the final royalty report is not received prior to finalization of the financial statements, we issue statements using the preliminary report and adjust revenue, if necessary, in the following month. Historically, such adjustments have not been significant.
We have revised our description of critical accounting policies and Note A[7] to the financial statements to discuss the estimates involved with recording revenue from OEMs.
  16.   We note your response to comment 52 of our letter dated September 6, 2006 and reissue and clarify a portion of the comment. You response states that “a partner knows at the time it places an order the price it will pay for the software and also the price it will pay for the renewal when it comes due.” However, your response does not clarify how your customer knows the amount it will pay for the renewal when it comes due. Clarify whether your arrangements separately reference the price the customer will be required to pay to renew the customer support (i.e. provide a separate dollar amount from the year-one rate). In addition, clarify whether you refer to your customers as partners.
Our customer in most of our sales is the reseller or distributor of our product. We typically refer to the reseller or distributor as our partner. The end user of our products purchases them from our partner and the terms and pricing of these transactions is established between the end user and the

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 8
partner. We are not directly involved in that portion of the transaction.
These partners have established pricing for all products and services with us that allows them to buy software products and product support at specified standard prices. Therefore, when the partner places an order for our software, which includes first year maintenance, it also knows how much it will be required to pay for renewal support the following year. We use that established renewal rate for that customer to determine the amount of the software sale to defer and recognize ratably over the first year and renewal periods.
  17.   Your response to comment 53 of our letter dated September 6, 2006 indicates that many of your customers enter into support arrangements with you for additional years of support when they purchase their software license (in general up to two additional years). Clarify how you establish VSOE of fair value for the multi-year support arrangements. If you establish VSOE of fair value of a three-year support arrangement by reference to a single year renewal rate, clarify how you have determined the renewal term is substantive. We refer you to AICPA Technical Practice Aid 5100.52.
When we sell additional years of support with a software sale, it is priced using the one-year renewal rate multiplied by the number of years of support purchased. Because the one-year renewal rate is used to determine the rate for multiple years of support, the renewal rate and term are considered substantive according to AICPA Technical Practice Aid 5100.52 and this method constitutes VSOE of the support pursuant to the provisions in paragraphs 10 and 57 of SOP 97-2.
Note G — Commitments and Contingencies
[2] Litigation, page F-17
  18.   Your response to comment 59 of our letter dated September 6, 2006 indicates you will expense products purchased for re-sale when sold to an end customer and products purchased for internal use as the products are depreciated over their estimated useful lives. Since you are required to make the minimum payments aggregating $2 million in connection with your litigation settlement, tell us how you evaluated the necessity to accrue for this obligation pursuant to paragraph 8 of SFAS 5.
SFAS 5 requires that a loss from a loss contingency be accrued by a charge to income if both of the following conditions are met:
  1.   Information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements. It is implicit in this condition that it must be probable that one or more of the future events will occur confirming the fact of the loss.

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 9
  2.   The amount of the loss can be reasonably estimated.
At December 31, 2005 and today, we do have an obligation to make payments totaling $2 million related to the litigation settlement. However, we can use the $2 million to purchase products from the other party for internal use or for re-sale to third parties. Our intention is to purchase product for internal use or re-sale and not simply pay the $2 million.
Products purchased for internal use will be capital in nature and recorded as fixed assets and amortized over their estimated useful lives. In that case, there would likely be no loss to record at December 31, 2005 or September 30, 2006 and, if there were a loss, it cannot be reasonably estimated. Therefore, no accrual has been recorded at December 31, 2005 or at September 30, 2006.
Products purchased for re-sale to third parties will likely be sold for at least as much as we pay for them. If that is the case, we will incur no loss at all. Since, in this case, the amount of a potential loss (if there is one) cannot not be reasonably estimated, no accrual was recorded at December 31, 2005 or September 30, 2006.
Note J — Stockholders’ Equity
[1] Redeemable Preferred Stock, page F-21
  19.   Your response to comment 61 of our letter dated September 6, 2006 states: “[t]he $66,770 shown for the Series B Preferred shares on the balance sheet is noted as a liquidation preference and not the redemption value.” Explain the difference in the liquidation preference and the redemption value of your Series B Preferred shares. In this respect, your disclosure on page F-22 states that in October 2004 your Series B Preferred shares were amended so it would be “redeemable at the option of the holder on or after November 12, 2006 at a price equal to the Liquidation Preference plus declared but unpaid dividends." In addition, if the liquidation preference is different from the redemption value, explain why you disclose the liquidation preference and not the redemption value on your balance sheet; we refer you to Regulation S-X, Rule 5-02.28(b).
The balance sheet disclosure has been revised to disclose the redemption value. Previously, the balance sheet disclosure indicated the maximum liquidation preference which, as disclosed in Note J[1](b), is 300% of the purchase price.
  20.   Your response to comment 62 of our letter dated September 6, 2006 indicates you have amended your disclosure in response to the comment. However, it appears you have only amended to disclose the redemption value in November 2007. Please clarify how you believe this disclosure meets the requirement of Regulation S-X, Rule 5-02.28(c)(2). In addition, your

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 10
      disclosure indicates the redemption value of the Series C Preferred shares in November 2007 is $60,771. This appears to be the redemption value for the Series B Preferred shares. Clarify whether this is also the redemption value for the Series C Preferred shares. If not, revise your disclosure as appropriate.
Regulation S-X, Rule 5-02.28(c)(2) requires disclosure of redemption requirements over the next five years. The only required redemption is a 100% redemption of all preferred shares in November 2007 and that redemption value is disclosed in Note J[1](b) and Note J[1](c).
Our disclosure of the redemption value for both the Series B and Series C shares was erroneous and the disclosure has been corrected.
[4] Stock Option Plans, page F-24
  21.   We note your response to comment 64 of our letter dated September 6, 2006. Please address the following additional comments with respect to your response and revised disclosure:
  •   We note the McLean Valuation Services Group provided an independent valuation as of December 31, 2005 and June 30, 2006. Tell us what level of assurance the McLean Valuation Services Group gave in their fair value assessment.
 
  •   Please provide us with the objective evidence that supports your determination of fair value of your common stock as determined by your Board of Directors in fiscal year 2005 that supports the $0.31 [$1.52] per share fair value. As part of your response, tell us how the internal valuation estimates were calculated and how the October 2004 preferred stock sale was used to calculate fair value. In addition, tell us how you determined that no reassessment of this estimate was necessary.
We engaged The McLean Valuation Services Group to provide an independent valuation of our common stock as of December 31, 2005 and June 30, 2006. Copies of the valuation reports prepared by The McLean Valuation Services Group as of December 31, 2005 and June 30, 2006 were previously provided to the staff on a supplemental basis. The McLean Valuation Services Group’s valuation reports are not fairness opinions. Rather, the reports provide The McLean Valuation Services Group’s estimate of the fair market value of our common stock as of a particular date. We believe that The McLean Valuation Services Group reports are consistent with the Illustrative Valuation Report included as Appendix M to the American Institute of Certified Public Accountant’s “Valuation of Privately-Held Company Equity Securities Issued as Compensation” (the “Practice Aid”), which provides for the independent valuation specialist to provide an “estimate” of fair value.

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 11
The McLean Valuation Services Group have advised us that the scope of work they performed is customary and appropriate for valuations performed in similar circumstances. Their procedures were conducted in accordance with generally accepted appraisal standards, which is consistent with the substance and principles of valuation standards issued by leading professional organizations, such as: the Appraisal Foundation; National Association of Certified Valuation Analysts; and American Institute of Certified Public Accountants. Such procedures included, but were not limited to:
  •   Discussions with upper management regarding Double-Take Software’s strategy and financial results;
 
  •   Analysis of the industry and the economy;
 
  •   Analysis of historic financial statements;
 
  •   Analysis of guideline public companies, if any;
 
  •   Analysis of comparable company transactions, if any;
 
  •   Analysis of the earnings history and projections of Double-Take Software; and
 
  •   Analysis of other pertinent facts and data resulting in the estimate of value
Specifically, The McLean Valuation Services Group’s valuation methodology included an analysis of guideline public companies, comparable company transactions, and the discounted cash from the our forecasts.
In performing their work, The McLean Valuation Services Group relied on various sources of information that were supplied by management, including, but not limited to: financial statements, financial statement forecasts, and other schedules and information. The McLean Valuation Services Group did not audit, compile, or review those financial statements, forecasts, or financial data, nor did they express an opinion or any form of assurance on them. The McLean Valuation Services Group did not perform a site visit of all of our facilities. The Illustrative Valuation Report included as Appendix M to the Practice Aid also includes the following statement, which is similar to the language in The McLean Valuation Services Group report: “As valuation consultants, we have not audited these data and express no opinion or other form of assurance regarding their accuracy of fairness of presentation.”
In the absence of a public trading market, in accordance with paragraph 3 of the Practice Aid, in 2005, the Board of Directors used the “best estimate” method and considered numerous objective and subjective factors to determine the fair value at each option grant date in 2005, including the following factors:
•   In October 2004, we sold 7,717,398 shares of Series C convertible, redeemable,

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 12
      participating, preferred stock (the “Series C Preferred Stock”) at $0.98 per share in a private placement to venture capital investors, which taking into account the effect of the reverse stock split of our common stock on November 3, 2006, is equivalent to $4.80. For purpose of making determinations of the value of the common stock underlying stock options granted in 2005, this was the most recent arms-length transaction involving the sale of our capital stock to third parties. The Board of Directors considered the superior rights and preferences of the Series C Preferred Stock to the common stock, including a cumulative dividend, special voting rights, a liquidation preference, conversion rights and a redemption feature providing the holder the option to require us to redeem the shares after a certain time. The Board of Directors used the enterprise valuation from the Series C Preferred Stock transaction and allocated value to shares of all classes of preferred stock and the common stock based on their relative rights.
 
  •   We experienced significant changes in our senior management team in 2005, including naming Mr. Dean Goodermote as CEO in April 2005. Mr. Goodermote replaced Don Beeler, who has served as our CEO since our inception in 1991.
 
  •   Our financial and operating performance in 2005, including the status of research and product development efforts — specifically the uncertainties surrounding new development projects.
 
  •   Our stage of development and business strategy in 2005, including the delays experienced in rolling out its products and services and uncertainties surrounding new development projects;
 
  •   The ongoing patent litigation against us, which if decided adversely against us would have had a material adverse effect on our business and future prospects. Prior members of senior management had no success in settling the matter. It was not until December 2005 that our new CEO approached the plaintiffs in that case to discuss a settlement. Therefore, it was not until December 2005 that we were aware that there was any reasonable prospect of settling the dispute.
 
  •   The likelihood of achieving a liquidity event for the shares of common stock underlying the stock options granted in 2005, such as an initial public offering or a sale of the Company. Given prevailing market conditions and the ongoing patent litigation, the Board of Directors determined that the likelihood of achieving a liquidity event was remote.
The Board of Directors specifically took into account the following provisions of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock (collectively, the

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 13
“Preferred Stock”) in determining the fair value of the common stock at the time of the option grants:
  •   Upon liquidation or sale of the Company, the holders of Preferred Stock are entitled to receive, in preference to any distribution of assets to holders of common stock, an amount equal to the applicable original issue price plus all declared and unpaid dividends per share on the preferred stock; as of December 30, 2005, the aggregate liquidation preference of the Preferred Stock was approximately $55.1 million.
 
  •   The conversion and anti-dilution provisions of the Preferred Stock and the fact that the Preferred Stock will not automatically convert into common stock unless the implied valuation in the initial public offering of the common stock outstanding on a fully-diluted basis before the offering is at least $200 million.
 
  •   The accrued and unpaid dividends payable to holders of the Preferred Stock prior to the payment of any other dividends.
 
  •   The voting power of the holders of Preferred Stock relative to holders of common stock.
The factors described above, particularly the material ongoing patent litigation, resulted in a high degree of uncertainty as to whether we could achieve our business goals in 2005. As a result of these factors and uncertainties, the Board of Directors determined that the fair market value of the common stock underlying stock options granted in 2005 was $1.52 per share throughout the period. The Board of Directors determined that there were no significant offsetting factors which could justify an increase in the fair market value during 2005. In fact, the Board of Directors believed that it was being conservative by maintaining the fair market value per share at $1.52 during 2005 in light of the uncertainties.
It was not until December 2005 that the outcome of the uncertainties, including the patent litigation, that existed during the first eleven months of 2005 could have been predicted with any certainty. We note that we made no option grants in November or December of 2005.
We note that the Board of Directors, which includes representatives of investors from our prior preferred stock financings, determined that it had the relevant expertise to reasonably estimate the fair market value of our common stock at that time. We believe that the composition of the Board of Directors resulted in an unbiased view of the stock value and produced a reasonable estimate of the fair market value of our common stock.
We have carefully considered the issues relevant to estimating the compensatory element of stock

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 14
options granted in 2005 for financial reporting purposes. Based on this review, we believe that we have recorded appropriate amounts for stock compensation expense related to the option grants in 2005.
  22.   We note from your response to comment 65 of our letter dated September 6, 2006 that you have not determined the midpoint of your IPO offering price range. Please provide the analysis requested in this comment once the midpoint is known. Please be advised that we may have additional comments based on your response. Further, please reconcile and explain the differences between the estimated fair value of the underlying common stock of $0.31 per share in fiscal year 2005 (as determined by your Board of Directors) and $1.44 [$7.06] per share beginning .January 1, 2006 (as determined by the McLean Valuation Services Group). Additionally, clarify why you believe it was appropriate to use the estimated fair market value of your common stock as of June 30, 2006 for all of the options granted in fiscal year 2006. In this respect, clarify why you believe the estimated value as of June 30, 2006 represents the fair value of your stock as of the various grant dates in fiscal year 2006.
We have included the price range on the cover page of the preliminary prospectus included in Amendment No. 3 to the Registration Statement. That range is $9 to $11, having a midpoint of $10. We reviewed the difference between the midpoint of the price range and the Board of Director’s estimates of the fair market value of the common stock underlying stock options granted in 2006 and determined that a reassessment of the fair market value estimates for grants made in 2006 was appropriate based on the midpoint of the price range. As disclosed in Amendment No. 2 to the Registration Statement, we had previously determined that a reassessment was necessary for grants made during the six months ended June 30, 2006. That reassessment resulted in a retrospective estimate that the fair market value of our common stock for purposes of determining the appropriate compensation expense for options granted in 2006 was $7.06 per share. This was based on a number of factors, including the valuation report as of June 30, 2006. Based on a subsequent review using the midpoint of the price range, we modified our retrospective estimate to $7.06 per share for all grants made during the second quarter of 2006 and $9.02 per share for all grants made during the third quarter of 2006. We note that we made no option grants in the first quarter of 2006. Please see the revised discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies- Stock-Based Compensation” for more information on these conclusions.
We reviewed the difference between the midpoint of the price range and the Board of Directors estimates of the fair market value of the common stock underlying stock options granted in 2005 and determined that no reassessment of the fair market value estimates for grants made during the 2005 was appropriate based on the midpoint of the price range. We made this determination based on the factors described in the response to comment 21 above and the fact that the current proposed initial public offering was not considered until the second quarter of 2006. The first meeting with the underwriters for the proposed initial public offering occurred in April 2006.

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 15
  23.   Your response to comment 66 of our letter dated September 6, 2006 indicates that you do not believe you are required to file a consent from the McLean Valuation Services Group. However, since you refer to an independent valuation specialist, you are required to identify the expert and include the expert’s consent pursuant to Section 436(b) of Regulation C. Please include this consent in your next amendment.
We have named The McLean Valuation Services Group in our disclosure and have obtained and filed a consent of The McLean Valuation Services Group as Exhibit 99.02 to Amendment No. 3 to the Registration Statement.
Note M — Subsequent Event
[1] Acquisition of Double-Take EMEA, page F-31
  24.   We note your response to comment 13 of our letter dated September 6, 2006 and reissue a portion of the comment. Describe for us the process used to identify and value intangible assets acquired in connection with this acquisition and clarify how your process complies with the guidance of SFAS 141, paragraphs 37.e, 39 and A14-A28.
As detailed in SFAS 141, paragraph A14 provides five groups of intangible assets that meet the criteria for recognition apart from goodwill:
•   Marketing-related (trademarks, trade names, internet domain names, etc.);
 
•   Customer-related (customer contracts, customer relationships, customer lists, etc.);
 
•   Artistic (books, plays, magazines, pictures, video material, etc.);
 
•   Contract-based (licensing agreements, royalty agreements, franchise rights, etc.); and
 
•   Technology-based (patents, computer software, trade secrets, etc.).
Management considered the guidance in paragraphs A14 through A28 and after review of all of the acquired intangible assets identified the following material intangible assets of Sunbelt Systems Software that met the contractual legal criterion of SFAS 141.
•   Marketing-related intangible assets (specifically the exclusive distribution agreement that Sunbelt has in place with Double-Take) and
 
•   Customer-related intangible assets (specifically the reseller agreements that Sunbelt maintains).
Other intangible assets that were also considered included: trade name; patents; developed technology; in-process research and development; non-compete agreements; and others.

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 16
However, based on a detailed analysis, we did not find any material value to be assigned to other intangible assets.
  25.   We note your disclosure here and your revised disclosure in response to comment 15 of our letter dated September 6, 2006 on page 25. Please address the following additional comments with respect to your accounting for contingent consideration:
  •   Based on this disclosure, we note you have accrued approximately $3.9 million equal to the “excess of the fair value of the assets acquired and liabilities assumed over the non-contingent portion of the purchase price was accrued in accordance with SFAS No. 141.” Tell us how your accrual of this contingent purchase price complies with paragraphs 25 through 28 of SFAS 141. Clarify how you ascertained that this amount is determinable beyond a reasonable doubt pursuant to paragraph 26 of SFAS 141. Explain whether the contingency period has concluded for the contingent purchase price included in your purchase price allocation.
 
  •   Your response to prior comment number 15 states that the earn-out payments are “contingent consideration based on the level of product purchases made by the acquired company and the payment for those purchases.” Please provide a complete analysis which explains how the total amount of contingent consideration will be determined and how the contingent consideration is determined by contingency period. Clarify whether there is a minimum or maximum amount of contingent consideration which will be paid in total and/or by contingency period. In this respect, your disclosure indicates the total amount of contingent consideration is estimated to be between $10 and $12 million. Clarify how you estimated this amount of total contingent consideration. Provide a schedule of the contingency periods and the amount of contingent consideration estimated per period, if applicable.
Footnote #10 of paragraph 28 of SFAS #141 refers to paragraph 46 of SFAS #141 which provides guidance on accounting for contingent consideration in a business combination if the fair value of the net assets acquired exceeds the cost of the acquired entity. The footnote applies because the fair value of the assets acquired exceeded the cost of the acquired entity. Paragraph 46 indicates that “if a business combination involves a contingent consideration agreement that might result in recognition of an additional element of cost of the acquired entity when the contingency is resolved (a contingency based on earnings), an amount equal to the lesser of the maximum amount of contingent consideration or the excess prior to the pro rata allocation required by paragraph 44 shall be recognized as if it was a liability.” Paragraph 46 does not require that such contingent consideration be determined beyond a reasonable doubt.

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 17
Our purchase of Sunbelt Systems Software involves contingent consideration that is based on the level of payments for Double-Take products made by Sunbelt from January 1, 2006 through December 31, 2007. Since the fair value of the assets of Sunbelt Systems Software exceeded the cost of the acquired entity, an accrual was established for $3.9 million which represented the difference between the fair value of the assets acquired and the cost of the entity prior to contingent consideration. As contingent consideration payments are made to the former shareholders of Sunbelt Systems Software, the accrued liability will be reduced. Once the liability has been reduced to $0, additional contingent consideration payments will be recorded as goodwill.
Payment by us related to our acquisition of Sunbelt Systems Software was structured as follows:
•   $932,000 to be paid to the former shareholders of Sunbelt Systems Software as requested by the former shareholders. This amount was not considered to be contingent consideration and was included in the purchase calculation and was accrued on the acquisition date.
 
•   Monthly payments to the former shareholders of Sunbelt Systems Software to be calculated based on payments made by Sunbelt Systems Software for software purchases and product support to Double-Take Software from January 1, 2006 through December 31, 2007. For each $1 paid by Sunbelt Systems to us for software products, $0.50 is paid to the former Sunbelt Systems Software shareholders. For each $1 paid by Sunbelt Systems to us for product support, $0.375 is paid to the former Sunbelt Systems Software shareholders. The payments to the former shareholders of Sunbelt Systems are made monthly in the month after payment is made by Sunbelt Systems to Double-Take Software.
 
    There is technically no minimum or maximum contingent consideration. However, since the period over which contingent consideration is calculated began on January 1, 2006 and the acquisition closed on May 23, 2006, the contingent consideration relating the period from January 1, 2006 through April 30, 2006, which totaled $1.1 million, was known at the time of the acquisition and paid to the former Sunbelt shareholders on May 23, 2006. Once the total of contingent consideration reaches $10 million, the amount paid to the former Sunbelt shareholders is reduced from $0.50 for software product related payments to $0.15 and from $0.375 for product support related payments to $0.113.
At the time of the acquisition, $17.4 million was expected to be paid by Sunbelt Systems Software to Double-Take Software from May 24, 2006 through December 31, 2007. Those payments to Double-Take Software would result in a contingent payment of $8.7 million. Additionally, payments to Double-Take Software for support were expected to be $3.9 million which would result in the recognition of contingent consideration in the amount of $1.4 million. The total of the two components of the contingent consideration is $10.1 million which when added to the

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 18
payment made on May 23 of $1.1 million totals $11.2 million of “expected’ contingent consideration. The range of $10 to $12 million that has been disclosed was based on the “expected” range after giving effect to the chance that the actual amount could be higher or lower than the expected amount.
  26.   Your response to comment 16 of our letter dated September 6, 2006 indicates that you entered into compensation agreements in connection with your acquisition of Sunbelt System Software. Please address the following additional comments with respect to your response:
  •   Your response indicates the employment agreements are not compensatory in accordance with EITF 95-8. Please provide a full analysis of the factors in EITF 95-8 which supports your conclusion.
 
  •   Clarify why you have not allocated any purchase price consideration to these employee agreements. We refer you to paragraph 37.e and A14.d(9).
Our response letter dated October 4, 2006 was confusing because it implied that we entered into compensation agreements with the former management of Sunbelt System Software. We did not enter into any employment or compensation agreements with any former member of management of Sunbelt Systems Software. We did agree, however, to continue to compensate Sunbelt System Software’s Chairman in the amount and according to terms and conditions that were in effect prior to the closing date (Section 5.7 of the Share Purchase Agreement).
EITF 95-8 notes that the determination of whether contingent consideration based on earnings or other performance measures should be accounted for as an adjustment of the purchase price of the acquired enterprise or as compensation for services, use of property, or profit sharing is a matter of judgment that depends on the relevant facts and circumstances. The following factors or indicators have been considered in making the determination:
  •   Linkage of continuing employment and contingent consideration. There is no linkage between the continued employment of the Chairman of Sunbelt System Software (now called Double-Take EMEA), Jo Murciano and the amount or timing of the contingent consideration. Total contingent consideration payable and the portion received by Mr. Murciano will be the same whether or not he remains an employee of Double-Take EMEA. EITF 95-8 indicates that this may indicate that the contingent payments are additional purchase price rather than compensation.
 
  •   Duration of continuing employment: Mr. Murciano is employed by Double-take EMEA but has no obligation to remain an employee for any stipulated period of time. The contingent consideration Mr. Murciano will receive will not change whether or not he is employed by Double-Take EMEA. This situation indicates that the contingent payments are additional purchase price rather than compensation.

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 19
  •   Level of compensation. Mr. Murciano’s compensation including salary and bonus, without taking into account the contingent payments, is reasonable compared to that of other key employees in the combined enterprise and is the same as was in effect prior to the acquisition. Overall, we believe that Mr. Murciano’s compensation level is an indication that the contingent payments are additional purchase price rather than compensation.
 
  •   Contingent payments received by non-employee selling shareholders. The contingent payments are distributed to the selling shareholders in direct relation to their stock holding percentages. There are no adjustments to these percentages whether the selling shareholder is an employee of the new combined entity or not. This is an indication that the contingent payments are additional purchase price rather than compensation.
The factors listed above give a strong basis for considering the contingent payments as additional purchase price rather than compensation.
  27.   Your response to comment 17 of our letter dated September 6, 2006 indicates the deferred revenue acquired relates to support and related services that you are obligated to deliver and you value this liability at fair value. Your response further indicates the liability is equal to the expected cost of such services plus a normal profit margin. Clarify whether the fair value of the acquired deferred revenue included in the purchase price allocation is the same as the carrying value of the acquired deferred revenue on the acquisition date. Explain further how you computed the expected cost of providing the services plus the profit margin. Tell us the assumptions used to calculate the expected cost and the profit margin used. In addition, clarify whether you are obligated to provide unspecified upgrades and/or enhancements. If so, tell us your policy for valuing this portion of your deferred revenue; we refer you to paragraph 5 of the EITF 04-11 .
We recorded a liability for deferred revenue upon the acquisition of Sunbelt Systems Software (now called Double-Take EMEA) in accordance with SFAS 141 and EITF 01-3 as we have assumed Sunbelt’s legal obligation to provide services to its customers in connection with prior licensed software product sales. This obligation includes the provision of support services and unspecified upgrades and enhancements on a when-and-if available basis. This liability was recorded at its fair value, which was equal to the carrying value of the acquired deferred revenue on the acquisition date. The carrying value was determined to be fair value since it was derived from actual existing sales of product support to third parties prior to the acquisition date. There were no changes to the pricing of product support or the cost structure of Sunbelt Systems Software after it was acquired by Double-Take Software, Inc., so the margins received on product support remained the same. Therefore, the fair value of the deferred revenue used in the purchase price allocation is the cost to provide the service plus a normal profit margin based on Sunbelt cost structure and pricing. Additionally, the value recorded for the liability is equal to sales price at which such post contract support services continue to be sold to customers. With respect to

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 20
providing unspecified upgrades and enhancements, no portion of the deferred revenue includes the value of research and development activities as Sunbelt does not perform such activities.
Sunbelt System Software
Notes to the Consolidated Financial Statements
1 — Significant Accounting Policies
Revenue Recognition, page F-42
  28.   It appears that revenues earned by Sunbelt Systems Software have been presented on the gross basis. We note from your disclosure on page 31 that, “[s]ales of [y]our software and related services generated 93% of Double-Take EMEA’s revenue in 2005.” Please clarify how Sunbelt Systems Software evaluated the indicators in EITF 99-19 to determine that gross reporting is appropriate for the products and services sold. Please provide a complete analysis which supports the Company’s presentation for software licenses and maintenance and professional services.
EITF 99-19 discusses whether a company should report revenue based on (a) the gross amount billed to a customer because it has earned revenue from the sale of the goods or services or (b) the net amount retained (that is, the amount billed to a customer less the amount paid to a supplier) because it has earned a commission or fee.
In assessing whether to report the results of operations of Sunbelt Systems Software (Sunbelt) using the gross amount billed or the net amount retained, the following considerations were made:
  1.   Whether Sunbelt acted as principal in the transaction.
 
  2.   Whether Sunbelt took title to the products.
 
  3.   Whether Sunbelt has the risks and rewards of ownership, such as the risk of loss for collection, delivery or returns.
 
  4.   Whether Sunbelt acted as an agent or broker (including performing services, in substance, as an agent or broker) with compensation on a commission or fee basis.
The result of the analysis is discussed below:
  1.   Sunbelt did act as the principal in the transaction. Sunbelt was responsible for providing the software and the related installation and support to its customers. The end user ordered the product and services directly from Sunbelt and Sunbelt was responsible for fulfillment

 

 

United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Jay Ingram
November 7, 2006
Page 21
      of the transaction. The supplier (Double-Take Software, Inc.) had no role in any of these functions for any of Sunbelt’s sales.
  2.   Sunbelt had the risk associated with inventory. Sunbelt ordered software product from Double-Take from time to time and held that inventory at its offices. Sunbelt took title to the inventory at the time it was shipped by Double-Take Software and assumed all risks associated with it and had no right of return or price protection. Sunbelt fulfilled the orders it received from its customers from inventory on hand (inventory on hand before the product was ordered by a customer).
 
  3.   Sunbelt had latitude in establishing pricing to its end-user customers. Sunbelt established pricing for software, support and professional services as it deemed appropriate. Double-Take Software did not dictate pricing.
 
  4.   Sunbelt had credit risk. Sunbelt assumed credit loss for software sales, product support sales and professional services sales. Sunbelt evaluated the creditworthiness of each of its customers prior to sales and was responsible for collecting the gross amount of the sale from the customer. Additionally, Sunbelt was responsible for paying amounts owed to Double-Take Software in full regardless of whether it collected from its customer.
Based on these factors, Sunbelt determined that it had strong evidence to record its sales of software, maintenance and professional services on a gross basis. Note also that Sunbelt provided professional services using its own staff and did not make any payment to Double-Take related to those sales which reinforces the use of the gross method for those sales.
* * * *
If you have any questions concerning this letter or if you would like any additional information, please do not hesitate to call me at (410) 659-2741 or William I. Intner at (410) 659-2778.
Very truly yours,
/s/ MICHAEL J. SILVER
Michael J. Silver

 

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