Initial Public Offering (IPO): Registration Statement (General Form) — Form S-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-1 Registration Statement (General Form) 99 509K
2: EX-3.1 Amended & Restated Certificate 7 30K
3: EX-3.2 Amended & Restated Bylaws 21 98K
4: EX-3.3 Amended & Restated Certification of Incorporation 20 85K
5: EX-3.4 Certificate of Correction 2 13K
6: EX-3.5 Bylaws of Replicase, Inc. 13 60K
7: EX-4.2 Registration Rights Agreement, Date June 22, 1998 16 68K
8: EX-4.3 Amended & Restated Reg. 15 75K
9: EX-4.4 Warrant Agreement, Dated July 12, 1999 11 66K
10: EX-4.5 Warrant Agreement, Dated Oct. 27, 1998 11 69K
11: EX-4.6 Warrant Agreement, Dated Oct. 27, 1998 12 69K
12: EX-4.7 Warrant Agreement, Dated Oct. 27, 1998 12 68K
13: EX-4.8 Letter of Comdisco 2± 13K
14: EX-4.9 Warrant Agreement to Purchase (Excite) 12 58K
15: EX-10.1 Registrant's 1998 Stock Option Plan 25 97K
24: EX-10.10 Employment Agreement, Brian M. Beattie 5 27K
25: EX-10.11 Employment Agreement, Jim Hilbert 5 25K
26: EX-10.12 Employment Agreement, Lucille Hoger 5 25K
27: EX-10.14 Sublease Agreement 11 51K
28: EX-10.15 Enterprise License Agreement, Dated May 27, 1999 11 55K
29: EX-10.16 Amend. #1 to Enterprise License Agreement 3 24K
16: EX-10.2 Registrant's 2000 Omnibus Equity Incentive Plan 39 153K
17: EX-10.3 Registrant's 2000 Employee Stock Plan 12 58K
18: EX-10.4 Form of Directors' & Officers' Indemnification 7 40K
19: EX-10.5 Employment Agreement, Tony Rodoni 3 18K
20: EX-10.6 Employment Letter, Michael O'Rourke 4 20K
21: EX-10.7 Employment Agreement, Radha R. Basu 5 27K
22: EX-10.8 Employment Letter, Scott Dale 8 38K
23: EX-10.9 Employment Agreement, Cadir Lee 8 38K
30: EX-23.1 Consent of Ernst & Young LLP 1 10K
31: EX-27.1 Financial Data Schedule 2 12K
As filed with the Securities and Exchange Commission on February 18, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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SUPPORT.COM, INC.
(Exact name of registrant as specified in its charter)
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Delaware 7389 94-3282005
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction
of incorporation or Classification Code Number) Identification No.)
organization)
575 Broadway
Redwood City, CA 94063
(650) 556-9440
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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RADHA RAMASWAMI BASU
Chief Executive Officer
SUPPORT.COM, INC.
575 Broadway
Redwood City, CA 94063
(650) 556-9440
(Name, address, including zip code and telephone number, including area code,
of agent for service of process)
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Copies to:
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Jorge del Calvo, Esq. Mark A. Bertelsen, Esq.
Allison Leopold Tilley, Esq. Jose F. Macias, Esq.
Davina K. Kaile, Esq. Betsey Sue, Esq.
Pillsbury Madison & Sutro LLP Wilson Sonsini Goodrich & Rosati
2550 Hanover Street 650 Page Mill Road
Palo Alto, CA 94304 Palo Alto, CA 94304
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement numbers of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF FILING FEE
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Proposed Maximum
Class of Securities Aggregate Offering Amount of
To Be Registered Price(1) Registration Fee
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Common Stock, $.001 par value....... $62,100,000 $16,395
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(1) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Includes up to shares that may be sold to cover over-allotments,
if any.
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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 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration filed with the Securities +
+and Exchange Commission is effective. This prospectus is not an offer to sell +
+securities, and we are not soliciting offers to buy these securities in any +
+state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 2000
Shares
(logo)
Common Stock
-----------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of the common stock is expected to be between
$ and $ per share. We have applied to list our common stock on The
Nasdaq Stock Market's National Market under the symbol "SPRT."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 6.
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Underwriting
Price to Discounts and Proceeds to
Public Commissions Support.com
-------- ------------- -----------
Per Share.................................... $ $ $
Total........................................ $ $ $
Delivery of the shares of common stock will be made on or about .
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Chase H&Q
Bear, Stearns & Co. Inc.
Wit SoundView
The date of this prospectus is .
GATEFOLD
Graphic depicting Support.com's business:
the new infrastructure of support
Support.com Logo
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Representative Corporate IT Internet Customers
Support.com provides web-enabled
list of automated, personalized support
Support outsourcers software for eBusiness and
corporate IT, e-Commerce companies that seek to
differentiate themselves through
support outsourcer, enhanced customer service.
Internet service Internet service Extranet Partners Business can lower costs, increase
provider Clients customer satisfaction and increase
provider and Suppliers revenue by using support.com's
Internet support infrastructure
application service Application service Intranet Employees to support customers, partners,
provider suppliers and employees over
provider customers. intranets and extranets and the
Internet.
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TABLE OF CONTENTS
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Page
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Summary............................. 3
Risk Factors........................ 6
Special Note Regarding Forward-
Looking Statements................. 19
Use of Proceeds..................... 20
Dividend policy..................... 20
Capitalization...................... 21
Dilution............................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 24
Business............................ 30
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Page
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Management....................... 47
Certain Transactions............. 57
Principal Stockholders........... 59
Description of Capital Stock..... 61
Shares Eligible for Future Sale.. 66
Underwriting..................... 68
Notice to Canadian Residents..... 71
Legal Matters.................... 72
Experts.......................... 72
Where You Can Find More
Information..................... 72
Index To Financial Statements.... F-1
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You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may be used only where it is
legal to sell these securities. The information in this document may only be
accurate on the date of this document.
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Dealer Prospectus Delivery Obligation
Until (25 days after the commencement of this offering), all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealer's obligation to deliver a prospectus when acting as an underwriter and
with respect to unsold allotments or subscriptions.
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SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully before making a decision
whether to purchase our common stock.
Support.com
We are a leading provider of eBusiness infrastructure software that
optimizes, automates and personalizes user support over the Internet. Our
comprehensive suite of eSupport software products and services is designed to
accelerate eBusiness growth by increasing the strategic value of support
organizations and reducing support inefficiencies that would otherwise
constrain expanding Internet initiatives. We offer customers the ability to
automate problem avoidance through self-healing, promote call avoidance through
user self-service and improve problem resolution through optimized assisted
support. We sell our products and services to corporate information technology
departments, Internet service providers, application service providers and
support outsourcers. Our customers include Bear Stearns, Compaq Professional
Services, Computer Sciences Corp., everdream, Excite@Home, Globo Cabo, JCPenney
and micronpc.com.
Businesses are seeking to deploy Internet, intranet and extranet technology
solutions that automate and optimize interactions between a business, its
employees, its customers, and members of its network of suppliers, distributors
and business partners. According to the Gartner Group, the volume of
nonfinancial goods and services sold through business-to-business e-commerce is
expected to reach over $7 trillion worldwide in 2004. As organizations leverage
the Internet to conduct business in this automated environment, high-quality
user support becomes a competitive asset that enables them to differentiate
their products and services and improve the efficiency of their operations.
We believe technical support is the most critical form of user support as
businesses and users increasingly rely on information technology infrastructure
and the Internet to conduct commerce. The growing complexity of information
systems, the proliferation of electronic devices, and the escalation in the
number of users has made technical support increasingly difficult to deliver.
In addition, many organizations lack an adequate support infrastructure to meet
the demands imposed by the increasing volume of Internet commerce transactions.
The growing complexity of support requires a highly personalized, automated
and Web-based approach to intelligently identify and resolve user problems.
Organizations need to transform eBusiness support operations from inefficient
cost centers to highly productive and scalable competitive assets that increase
customer loyalty, improve operational efficiencies and generate incremental
revenue. We believe this can only be accomplished by adopting comprehensive
eSupport solutions that deliver automated user support over the Internet. IDC
estimates that the market for these eSupport solutions will grow from $3
billion in 1999 to over $14 billion in 2003.
We offer a comprehensive suite of eSupport software products. Our product
suite consists of:
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. Healing Agent -- User-based support agent that promotes personalized
self-service and makes software self-healing by
proactively identifying and repairing problems.
. Support Center -- Centralized support infrastructure that optimizes remote
assisted service and enables enterprise-wide problem
resolution.
. Support Portal -- Web platform that enables interactive full service and
personalized online support.
. Foundry -- Web support content authoring environment for automating
support actions and managing support content.
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Our eSupport solution delivers the following benefits:
. Reduced costs through the automation and optimization of the support
process.
. Increased customer satisfaction through rapid problem resolution.
. Accelerated eBusiness growth by converting the traditional call center
into a revenue-generating business services desk.
We believe that our leadership in providing eSupport infrastructure software
gives us a competitive advantage as we develop solutions to address broader
customer support opportunities.
We were incorporated in Delaware in December 1997 under the name Replicase,
Inc. We changed our name to Tioga Systems, Inc. in October 1998 and to
Support.com in December 1999. Our principal executive offices are located at
575 Broadway, Redwood City, California 94063, and our telephone number at that
address is (650) 556-9440. Our Web site is located at www.support.com. The
information on our Web site is not part of this prospectus.
Unless otherwise indicated, the number of shares of our common stock to be
outstanding after this offering is based on the number of shares outstanding on
December 31, 1999 and assumes: (1) no exercise of the underwriters' over-
allotment option, (2) the exercise of warrants to purchase 136,972 shares of
our common stock that will expire if not exercised prior to completion of this
offering and (3) conversion of all outstanding shares of preferred stock into
common stock, and excludes: (1) 3,944,895 shares issuable upon exercise of
options outstanding at a weighted average exercise price of $0.47 per share,
(2) 146,678 shares issuable upon exercise of warrants outstanding and
(3) 7,307,545 additional shares available for future issuance under our stock
plans.
Our trademarks include Support.com, the Support.com logo, ContextResponse
Technology, Self-Healing, SupportAction and TierZero. This prospectus also
includes trade names, trademarks and service marks of other companies and
organizations.
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The Offering
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Common stock offered by Support.com................ shares
Common stock to be outstanding after the offering.. shares
Use of proceeds.................................... For repayment of debt and
general corporate
purposes, including
working capital. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol............. SPRT
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Summary Financial Data
(in thousands, except per share data)
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Period from
inception
(December 3, 1997) Year Ended
to December 31, December 31,
1998 1999
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Statement of Operations Data:
Total revenue................................. $ 18 $ 3,315
Loss from operations.......................... (2,804) (14,464)
Net loss...................................... (2,750) (14,294)
Accretion on redeemable convertible preferred
stock........................................ (214) (1,072)
Net loss attributable to common stockholders.. (2,964) (15,366)
Net loss per share:
Basic and diluted........................... (0.57) (2.31)
Weighted average shares--basic and diluted.. 5,227 6,643
Pro forma net loss per share:
Basic and diluted........................... (0.71)
Weighted average shares--basic and diluted.. 20,137
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December 31, 1999
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Pro Forma
Actual as Adjusted
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Balance Sheet Data:
Cash, cash equivalents and short-term investments......... $ 12,489 $
Working capital........................................... 9,338
Total assets.............................................. 17,525
Long-term obligations, net of current portion............. 2,277
Redeemable convertible preferred stock.................... 21,449
Stockholders' equity (deficit)............................ (13,253)
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The statement of operations for the year ended December 31, 1998 is
presented for the period from inception (December 3, 1997). Operating expenses
totaled approximately $9,000 for the period from inception (December 3, 1997)
to December 31, 1997.
Please see note 1 of the notes to the financial statements for an
explanation of the determination of the number of shares used in computing per
share data.
The pro forma as adjusted balance sheet data gives effect to the sale of the
shares of common stock that we are offering under this prospectus at an
assumed initial public offering price of $ per share and after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses payable by us. See "Use of Proceeds" and "Capitalization."
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RISK FACTORS
Any investment in our shares of common stock involves a high degree of risk.
You should carefully consider the risks described below and the other
information in this prospectus before deciding to invest in shares of our
common stock. If any of the following risks actually occur, our business,
results of operations and financial condition would likely suffer. In these
circumstances, the market price of our common stock could decline, and you may
lose all or part of your investment.
Risks Related to Support.com
We expect continuing losses and may never achieve profitability, which may harm
our future operating performance and may cause the market price of our stock to
decline.
We incurred net losses of approximately $17.0 million for the period from
December 3, 1997 (inception) through December 31, 1999. We expect to continue
to incur substantial net losses for the foreseeable future. If we continue to
incur net losses, we may not be able to increase our number of employees or our
investment in capital equipment, sales, marketing and research and development
programs in accordance with our present plans. We do not know when or if we
will become profitable. If we do not become profitable within the timeframe
expected by securities analysts or investors, the market price of our stock
will likely decline. If we do achieve profitability, we may not sustain or
increase profitability in the future and may not be able to continue to
operate.
If we do not meet quarterly financial expectations, our stock price could
decline.
We were incorporated in December 1997. Because of our limited operating
history and other factors, our quarterly revenue and operating results are
difficult to predict. In addition, due to the emerging nature of the eSupport
market and other factors, our quarterly revenue and operating results may
fluctuate from quarter to quarter. It is possible that our operating results in
some quarters may fall below the expectations of securities analysts or
investors. In this event, the market price of our common stock will likely
decline.
A number of factors are likely to cause fluctuations in our operating
results, including, but not limited to, the following:
. the growth rate of the eSupport market generally;
. demand for our eSupport infrastructure software;
. the price and mix of products and services we offer;
. our ability to attract and retain customers and maintain customer
satisfaction;
. the amount and timing of operating costs and capital expenditures
relating to expansion of our business and infrastructure;
. technical difficulties or system outages; and
. the announcement, introduction, pricing and market acceptance of new or
enhanced products and services by us or our competitors.
Our quarterly results depend on the size of a small number of orders, so the
delay or loss of any single large order during a quarterly period, and
especially an order for a perpetual license rather than a subscription license,
could harm that quarter's results and cause our stock price to decline.
Each quarter, we derive a significant portion of our license revenue from a
small number of relatively large orders for the licensing of our eSupport
infrastructure software. We also license our eSupport infrastructure software
under perpetual and subscription licenses. Perpetual licenses typically result
in our
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recognition of a larger amount of revenue in the quarter in which the license
is granted as compared with subscription licenses. Revenue from a perpetual
license is generally recognized upon delivery of a product. Revenue from a
subscription license is recognized on a monthly basis over the term of the
subscription, which is typically three years. In 1999, though 18% of our
licenses were perpetual, these licenses accounted for 67% of our revenue. As a
result, our operating results could suffer if any large orders, and especially
orders for perpetual licenses, are delayed or cancelled in any future period.
We expect that we will continue to depend upon a small number of large orders
for a significant portion of our license revenue.
Because a small number of customers has accounted for and may continue to
account for substantial portions of our revenue, our revenue could decline due
to the delay of customer orders or the failure of existing customers to renew
licenses.
In 1999, Bear Stearns accounted for 53% of our total revenue. No other
single customer accounted for 10% or more of our total revenue in 1999,
although our top four customers together accounted for approximately 81% of our
total revenue in 1999. Because we have a small number of customers and a few
customers are likely to continue to account for a significant portion of our
revenue, our revenue could decline due to the loss or delay of a single
customer order or the failure of an existing customer to renew its subscription
license. We may not obtain additional customers. The failure to obtain
additional customers, the loss or delay of customer orders and the failure of
existing customers to renew licenses will harm our business and operating
results.
Our business will suffer if our gross margin fluctuates.
Our competitors may offer eSupport infrastructure software that meets or
exceeds the performance and capabilities of our products. If competitive price
pressures cause prices to fall faster than we expect or if we must reduce our
prices for any reason, we may experience pressure on our gross margin. In
addition, our gross margin will depend in part on the following:
. our ability to introduce new products and services to the market;
. our competitors' prices, products and services and market share;
. our costs related to third-party technologies in our product offerings;
. increased services-related costs associated with increased services
orders;
. increased licenses and sales through indirect channels which typically
carry lower gross margins; and
. general economic conditions.
In addition, we expect to continue to spend substantial financial and other
resources on developing and introducing new products and services, and
expanding our sales and marketing organization and operating infrastructure. We
expect that our operating expenses will continue to increase in absolute
dollars and may increase as a percentage of revenue. If our revenue does not
correspondingly increase, our business and operating results could suffer. We
base our expense levels in part on our expectations regarding future revenue
levels. If our revenue for a particular quarter is lower than we expect, we may
be unable to proportionately reduce our operating expenses for that quarter.
Our future success depends on the broad adoption and acceptance of our products
and services.
We must successfully offer our customers a comprehensive, integrated support
solution to enable us to expand market acceptance of our eSupport solution.
Specifically, we must encourage our customers to transition from using
traditional support methods. To accomplish this, we must:
. continually improve the performance, features and reliability of our
products and services;
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. develop new products, services, functionality, compatibility and
technologies that address changing industry standards and customer needs;
and
. develop integration with other support-related technologies.
We may not be successful in achieving any of these objectives. If our
efforts to achieve broad market acceptance and adoption of our products and
services fail, our business and operating results will suffer. Factors that
might influence market acceptance of our solution include the following, over
which we have little or no control:
. willingness of enterprises to transition to automated support and
eSupport;
. the growth of the Internet and commercial online services;
. the willingness of businesses to manage high volumes of customer
communications over the Internet;
. acceptance of competitors' automated support or eSupport solutions; and
. changes in security and reliability of online transactions and
communications.
We must attract and retain qualified personnel, which is particularly difficult
for us because we are headquartered in the San Francisco Bay Area, where
competition for personnel is extremely intense.
Our future success will also depend on our ability to attract, train, retain
and motivate other highly skilled engineering, technical, managerial, sales and
marketing and customer support personnel. We currently plan to substantially
increase the number of personnel over the next 12 months. Competition for these
personnel is intense, especially in the San Francisco Bay Area and after a
company has completed an initial public offering. We have had difficulty hiring
qualified personnel as quickly as we have desired. In particular, we may be
unable to hire a sufficient number of qualified support, training and
engineering professionals. Our inability to hire, integrate and retain
qualified personnel in sufficient numbers could reduce the quality of our
products and services. If we fail to retain and recruit the necessary
personnel, our ability to develop new products and services and to provide
acceptable levels of customer service could suffer. In addition, if we hire
employees from our competitors, these competitors may claim that we have
engaged in unfair hiring practices. We could incur substantial costs in
defending ourselves against any of these claims, regardless of the merits of
such claims.
If we fail to expand our sales and marketing activities, we may be unable to
expand our brand recognition and increase our revenue, which would harm our
business.
If we do not successfully expand our sales and marketing activities, we
cannot expand our business and our stock price could decline. We believe that
continued expansion of our brand recognition will be critical to achieve
widespread acceptance of our eSupport infrastructure software. Favorable public
perception of our brand will depend largely on our ability to continue
providing our customers with effective eSupport infrastructure software and the
success of our marketing efforts. Our brand promotion activities may not yield
increased revenue and, even if they do, any increased revenue may not offset
the expenses we incur in building our brand.
Failure to successfully develop and introduce new versions and releases of
eSupport infrastructure software that meet changing customer demands or
technological standards would harm our business.
Our industry is characterized by rapid technological change, frequent new
product introductions and enhancements, changes in customer demands and
evolving industry standards. Our existing products will be rendered obsolete if
we fail to introduce new products or product enhancements that meet new
customer
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demands, support new standards or integrate with new or upgraded versions of
packaged applications. In addition, the life cycle of our products is difficult
to estimate.
If we fail to develop, in a timely manner, new or enhanced versions of our
eSupport infrastructure software or to provide new products and services that
achieve rapid and broad market acceptance, our business will suffer. We may
fail to identify new product and service opportunities successfully or develop
and timely bring new products and services to market. In addition, we may incur
substantial expense in developing new or enhanced versions of our products and
services. If we experience delays in completing development of, enhancements
to, new or localized versions of, or cross platform capabilities for, our
products, our operating results would suffer. We also may need to develop and
acquire new software products or support services to broaden our product and
service offerings. We may be unable to develop or acquire marketable products
or services on a timely basis, if at all. In addition, product innovations may
not achieve the market penetration or price stability necessary for
profitability.
Our sales are currently concentrated in the corporate information technology,
support outsourcer and Internet service provider markets, and if our customers
in these markets decrease their spending on eSupport solutions, or we fail to
penetrate other industries, our revenue will likely decline.
Sales to customers in the corporate information technology, support
outsourcer and Internet service provider markets accounted for the majority of
our total revenue in 1998 and 1999. We expect to continue to direct our sales
and marketing efforts toward these markets. Given our market position, the high
degree of competition and the rapidly changing environment in these industries,
we may be unable to make sales to these types of businesses. In addition,
customers in these markets are likely to have different requirements and may
require us to change our product design or features, sales methods, support
capabilities or pricing policies. If our customers in these markets decrease
their spending on eSupport solutions, or we fail to penetrate other industries,
our revenue will likely decline.
If our product does not operate with the many hardware and software platforms
used by our customers, our business may fail.
We currently serve a customer base with a wide variety of constantly
changing hardware, packaged software applications and networking platforms.
With the exception of our Support Portal, our eSupport infrastructure software
is currently available only on Microsoft Windows operating systems. If there is
widespread adoption of other operating system environments, or if we fail to
release versions of our eSupport infrastructure software that are compatible
with these other operating systems, our business and operating results will
suffer. Our future success also depends on several factors, including:
. our ability to integrate our product with multiple platforms and
existing, or legacy, systems and to modify our product as new versions of
packaged applications are introduced;
. the portability of our product, particularly the number of operating
systems and databases that our product can source or target;
. our ability to anticipate and support new standards, especially Internet
standards;
. the integration of additional software modules under development with our
existing product; and
. our management of software being developed by third parties for our
customers or for use with our product.
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Our business may not sustain revenue growth or be profitable and we may change
our business model in an effort to become profitable.
Our business depends on our ability to generate revenue streams from
multiple sources, including direct and indirect sales of software products and
sales of our services. The demand for our product and service offerings is
largely undetermined at this time. We do not know if our business model will
succeed or be sustainable as our business grows. Furthermore, we may revise our
business model as consumer preferences change and new competitors emerge. As e-
commerce and the demand for eSupport continue to evolve, we may need to develop
complementary products and services as additional sources of revenue.
Accordingly, we may change our business model to attempt to take advantage of
new business opportunities, including business areas in which we do not have
extensive experience. If we make these changes to our business model and are
not successful, it will harm our business and reputation.
Our products and services rely on third-party programming tools and
applications, and if we lose access to these tools and applications or are
unable to modify our product in response to changes in these tools and
applications, our revenue could decline.
Our programs utilize third-party programming tools and applications. We also
depend upon access to the application program interfaces, known as APIs, used
for integration of external software products and our software. Our access to
APIs of third-party applications is controlled by the providers of these
applications. If the application provider denies or delays our access to APIs,
our business may be harmed. Some application providers may become competitors
or establish alliances with our competitors, increasing the likelihood that we
would not be granted access to their APIs. Loss of the ability to use these
technologies, delays in upgrades or failure of these third parties to support
these technologies could cause our revenue to decline.
Our failure to integrate third-party technologies could harm our business.
We intend to continue to license technologies from third parties including
applications used in our research and development activities and technologies,
which are integrated into our products and services. These technologies may not
continue to be available to us on commercially reasonable terms or at all. In
addition, we may fail to successfully integrate any licensed technology into
our products or services. Third-party licenses expose us to increased risks,
including, but not limited to, risks with the integration of new technology,
the diversion of resources from the development of our own proprietary
technology, our inability to generate revenue from new technology sufficient to
offset associated acquisition and maintenance costs. Our inability to obtain
any of these licenses could delay product and service development until
equivalent technology can be identified, licensed and integrated. This in turn
would harm our business and operating results.
We may engage in future acquisitions or investments that could dilute our
existing stockholders, cause us to incur significant expenses or harm our
business.
We may use a portion of the net proceeds of this offering to acquire or
invest in complementary businesses, technologies or products, although we
currently have no specific agreements or commitments and are not currently
engaged in any negotiations with respect to these transactions. Integrating any
newly acquired businesses, technologies or products may be expensive and time-
consuming. To finance any acquisitions, it may be necessary for us to raise
additional funds through public or private financings. Additional funds may not
be available on terms that are favorable to us and, in the case of equity
financings, may result in dilution to our stockholders. We may be unable to
complete any acquisitions or investments on commercially reasonable terms, if
at all. Even if completed, we may be unable to operate any acquired businesses
profitably or otherwise implement our growth strategy successfully. If we are
unable to integrate any newly acquired entities or technologies effectively,
our operating results could suffer. Future acquisitions by us could also result
in large and immediate write-offs, incurrence of debt and contingent
liabilities or amortization of expenses related to goodwill and other
intangibles, any of which could harm our operating results.
10
Our recent growth has placed a strain on our management systems and resources
and if we fail to integrate new employees or manage our future growth, our
business could suffer.
We are currently experiencing a period of rapid expansion in our personnel,
facilities, systems and infrastructure. For example, substantially all of our
employees were hired in 1999, and we expect that our hiring rate will continue
at a rapid pace. We expect further significant expansion, including expansion
outside the San Francisco Bay Area, will be required to address any future
growth in our consumer base, the breadth of our product and service offerings
and other opportunities. For example, we will need to obtain additional office
space prior to the end of 2000, and if we fail to obtain sufficient space, our
business could suffer. Our expansion has placed, and we expect that it will
continue to place, a significant strain on our management controls and
operational and financial resources and may negatively impact our ability to
provide adequate levels of service to our customer. Our failure to expand,
train and motivate our workforce and to manage growth could disrupt our
operations, delay execution of our business plan and consequently harm our
business.
The integration of new senior management personnel into our management team may
interfere with our operations.
Over the last 12 months, we have hired a number of new officers, including
our Chief Executive Officer, Radha R. Basu, our Chief Financial Officer, Brian
M. Beattie, and our Senior Vice President of Sales and Business Development,
Jim R. Hilbert. To integrate into our company, these individuals must spend a
significant amount of time learning our business model and management system,
in addition to performing their regular duties. Accordingly, the integration of
new personnel could result in some disruption to our ongoing operations. In
addition, if our senior management are unable to work effectively as a team,
our business operations could be harmed.
If we lose the services of any of our senior management or other key personnel,
our business may be harmed.
Our success will depend on the skills, experience and performance of our
senior management, engineering, sales, marketing and other key personnel, many
of whom have worked together for only a short period of time. We do not have
long-term employment agreements with many of our key employees. The loss of the
services of any of our senior management or other key personnel, including our
Chief Executive Officer, Radha R. Basu, our Chief Financial Officer, Brian
Beattie, our Chief Technology Officer, Scott W. Dale, and our Chief Software
Officer, Cadir B. Lee, could harm our business.
Our failure to expand our strategic alliances would impede our revenue growth.
We must successfully establish relationships that can enable us to expand
market acceptance of our eSupport infrastructure software. Specifically, we
must establish and extend existing distribution alliances with specialized
technology and services firms such as support outsourcers. These relationships
are intended to provide us access to the marketing and lead generation
capabilities of these firms, which have already established relationships with
small- to medium-sized businesses, Internet service providers and large
corporate customers. We must also establish and extend existing solutions
alliances with leading providers of complementary support technologies such as
call center/help desk management companies, knowledge management companies and
systems management firms. Without adequate strategic alliances, we may have to
devote substantially more resources than we would otherwise to the sales,
marketing and implementation of our products and the development of
complementary products in order to deliver comprehensive support solutions, and
our efforts may not be as effective as those who have such alliances. In many
cases, the firms with which we wish to ally have extensive relationships with
our existing and potential customers and influence the decisions of these
customers by recommending products. If we fail to maintain, establish or
successfully implement these alliances, our ability to achieve market
acceptance of our eSupport infrastructure software will suffer and our business
and operating results will be harmed.
11
Failure to expand and upgrade our infrastructure to meet customer requirements
would harm our business.
As the volume and complexity of customers' needs increase, we will need to
expand our systems and network infrastructure. In addition, in the event we
transition to new delivery models for our support products, we may need to
expand our systems and network infrastructure. The expansion and adaptation of
our network infrastructure for any reason will require substantial financial,
operational and management resources as well as uncertain equipment
incompatibility and capacity issues. We may not be able to expand or adapt our
network infrastructure to meet additional demand or our customers' changing
requirements in a timely manner or at all.
Our business could suffer if our products fail to perform properly due to
undetected errors or similar problems.
Our eSupport infrastructure software depend on complex software, both
internally developed and licensed from third parties. Complex software often
contains undetected errors or "bugs." Although we conduct testing during
product development, we may be forced to delay commercial release of software
until problems are corrected and, in some cases, may need to provide
enhancements to correct errors in released software. If we do detect any errors
before we ship a product, we might have to limit product shipment for an
extended period of time while we address the problem. We may not discover
software errors that affect our new or current products or enhancements until
after they are deployed. Therefore, it is possible that, despite testing by us,
errors may occur in our software. These errors could result in:
. damage to our reputation;
. lost sales;
. delays in commercial release;
. product liability claims;
. delays in or loss of market acceptance of our products;
. product returns; and
. unexpected expenses and diversion of resources to remedy errors.
If our system security is breached, our business and reputation could suffer.
A fundamental requirement for online communications, transactions and
support is the secure transmission of confidential information. Third parties
may attempt to breach our security or that of our customers. We may be liable
to our customers for any breach in such security and any breach could harm our
customers, our business and our reputation. In addition, our software contains
features which may allow us or our customers to control, monitor or collect
data from computers running the software without notice to the computing users.
Therefore we may be subject to claims associated with invasion of privacy or
inappropriate disclosure, use or loss of this information. Any imposition of
liability, particularly liability that is not covered by insurance or is in
excess of insurance coverage, could harm our reputation and our business and
operating results. Also, computers are vulnerable to computer viruses, physical
or electronic break-ins and similar disruptions, which could lead to
interruptions, delays or loss of data. We may be required to expend significant
capital and other resources to further protect against security breaches or to
rectify problems caused by any breach.
Due to the lengthy sales cycles of some of our products, the timing of our
sales is difficult to predict and may cause us to miss our revenue
expectations.
Our sales cycle for our eSupport infrastructure software can be as long as
nine months or more and may vary substantially from customer to customer. While
our customers are evaluating our products and services,
12
we may incur substantial sales and marketing expenses and spend significant
management effort. Consequently, if revenue forecasted from a specific customer
for a particular quarter is not realized in that quarter, we may incur
significant expenses that are not offset by corresponding sales. This makes it
more difficult to predict quarterly financial performance, or to achieve it,
and any delay in completing sales in a particular quarter could harm our
business and cause our operating results to vary significantly.
If we do not successfully address the risks inherent in the expansion of our
international operations, our business could suffer.
We intend to expand further into international markets. If our revenue from
international operations does not exceed the expense associated with
establishing and maintaining our international operations, our business could
suffer. We have limited experience in international operations and may not be
able to compete effectively in international markets. Some risks we face in
conducting business internationally include:
. difficulties and costs of staffing and managing international operations;
. differing technology standards;
. difficulties in collecting accounts receivable and longer collection
periods;
. political and economic instability;
. fluctuations in currency exchange rates;
. imposition of currency exchange controls;
. potentially adverse tax consequences;
. reduced protection for intellectual property rights in foreign countries;
. dependence on local vendors;
. compliance with multiple conflicting and changing governmental laws and
regulations;
. longer sales cycles; and
. import and export restrictions and tariffs.
Technical problems with either our internal or our outsourced computer and
communications systems could reduce our ability to provide eSupport services
and could harm our business and our reputation.
The success of our eSupport infrastructure software depends on the efficient
and uninterrupted operation of our own and outsourced computer and
communications hardware and software systems. These systems and operations are
vulnerable to damage or interruption from human error, natural disasters,
telecommunications failures, break-ins, sabotage, computer viruses, intentional
acts of vandalism and similar events. Since all of our internal computer and
communications hardware and networks systems are located in the San Francisco
Bay Area, an earthquake or other natural disaster could affect all of our
facilities and our systems located there simultaneously. We have no formal
disaster recovery plan in the event of damage to or interruption of our
internal or outsourced systems, and business interruption insurance may not
adequately compensate us for losses that may occur. Any system failure that
causes an interruption in our customers' ability to use our eSupport products
or services or a decrease in their performance could harm our relationships
with our customers and result in reduced revenue.
Problems arising from use of our products with other vendors' products could
cause us to incur significant costs, divert attention from our product
development efforts and cause customer relations problems.
Our customers may use our eSupport products together with products from
other companies. As a result, when problems occur, it may be difficult to
identify the source of the problem. Even when these problems are
13
not caused by our products, they may cause us to incur significant warranty
costs, divert the attention of our engineering personnel from our product
development efforts and cause significant customer relations problems.
Our pending patents may never be issued and, even if issued, may provide us
with little protection.
Our success and ability to compete depend to a significant degree upon the
protection of our software and other proprietary technology rights. We regard
the protection of patentable inventions as important to our future
opportunities. It is possible that:
. our pending patent applications may not result in the issuance of
patents;
. any patents issued to us may not be broad enough to protect our
proprietary rights;
. any issued patent could be successfully challenged by one or more third
parties, which could result in our loss of the right to prevent others
from exploiting the inventions claimed in those patents;
. current and future competitors may independently develop similar
technologies, duplicate our products or design around any of our patents;
and
. effective patent protection may not be available in every country in
which we do business.
We rely upon trademarks, copyrights and trade secrets to protect our
proprietary rights, which may not be sufficient to protect our intellectual
property.
We also rely on a combination of laws, such as copyright, trademark and
trade secret laws, and contractual restrictions, such as confidentiality
agreements and licenses, to establish and protect our proprietary rights.
However, despite any precautions that we have taken,
. laws and contractual restrictions may not be sufficient to prevent
misappropriation of our technologies or deter others from developing
similar technologies;
. current federal laws that prohibit software copying provide only limited
protection from software "pirates," and effective trademark, copyright
and trade secret protection may be unavailable or limited in foreign
countries;
. other companies may claim common law trademark rights based upon state or
foreign laws that precede the federal registration of our marks; and
. policing unauthorized use of our products and trademarks is difficult,
expensive and time-consuming, and we may be unable to determine the
extent of this unauthorized use.
Also, the laws of other countries in which we market our products may offer
little or no effective protection of our proprietary technologies. Reverse
engineering, unauthorized copying or other misappropriation of our proprietary
technologies could enable third parties to benefit from our technologies
without paying us for it, which would significantly harm our business.
We may face intellectual property infringement claims that could be costly to
defend and result in our loss of significant rights.
Third parties may infringe or misappropriate our copyrights, trademarks and
similar proprietary rights. In addition, other parties may assert infringement
claims against us. Although we have not received notice of any alleged
infringement, our products may infringe issued patents that may relate to our
products. In addition, because the contents of patent applications in the
United States are not publicly disclosed until the patent is issued,
applications may have been filed which relate to our software products. We and
our customers may be
14
subject to legal proceedings and claims from time to time, including claims of
alleged infringement of the trademarks and other intellectual property rights
of third parties. Intellectual property litigation is expensive and time-
consuming and could divert management's attention away from running our
business. This litigation could also require us to develop non-infringing
technology or enter into royalty or license agreements. These royalty or
license agreements, if required, may not be available on acceptable terms, if
at all, in the event of a successful claim of infringement. Our failure or
inability to develop non-infringing technologies or license the proprietary
rights on a timely basis would harm our business.
We might have liability for Internet content and we may not have adequate
liability insurance.
As a provider of eSupport services to Internet-related businesses, we face
potential liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
transmitted via the Internet. Furthermore, some foreign governments, such as
Germany, have enforced laws and regulations related to content distributed over
the Internet that are more strict than those currently in place in the United
States.
Although we carry general liability and umbrella liability insurance, our
insurance may not cover claims of these types or may not be adequate to
indemnify us for all liability that may be imposed. There is a risk that a
single claim or multiple claims, if successfully asserted against us, could
exceed the total of our coverage limits. There is also a risk that single claim
or multiple claims asserted against us may not qualify for coverage under our
insurance policies as a result of coverage exclusions that are contained within
these policies. Should either of these risks occur, capital contributed by our
shareholders may need to be used in order to settle claims. Any imposition of
liability, particularly liability that is not covered by insurance or is in
excess of insurance coverage, could have a material adverse effect on our
reputation and our business and operating results, or could result in the
imposition of criminal penalties.
Industry Risks
We must compete successfully in the eSupport market or our business will fail.
We may encounter competition from companies such as customer communications
software companies, question/answer companies, customer relationship management
solution providers, consolidated service desk solution vendors, Internet
infrastructure companies and operating systems providers. The market for our
products is intensely competitive, subject to rapid change and significantly
affected by new product introductions and other market activities of industry
participants. Although we do not currently compete against any one entity with
respect to all aspects of our eSupport solution, our integrated software
solution does compete against various vendors' software products designed to
accomplish specific elements of a complete eSupport solution. For example, we
currently compete with companies that provide automated development of support
solutions such as Serena Software, Inc., as well as with companies that provide
automated delivery of support solutions such as Motive Communications, Inc.
Our potential competitors may have longer operating histories, significantly
greater financial, technical, and other resources or greater name recognition
than we do. Our competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements. Competitive
pressures could reduce our market share or require us to reduce the price of
products and services, any of which could harm our business and operating
results.
Our success depends on the continued growth and levels of performance of
Internet usage.
Because a majority of our products are designed to support businesses
operating over the Internet, our revenue growth depends on the continued
development and maintenance of the Internet infrastructure. This continued
development of the Internet would include maintenance of a reliable network
with the necessary speed, data capacity and security, as well as timely
development of complementary products, including high
15
speed modems, for providing reliable Internet access and services. Because
global commerce on the Internet and the online exchange of information is new
and evolving, we cannot predict whether the Internet will prove to be a viable
commercial marketplace in the long term. The success of our business will rely
on the continued improvement of the Internet as a convenient means of consumer
interaction and commerce, as well as an efficient medium for the delivery and
distribution of information by enterprises to their employees.
Governmental regulation and legal uncertainties could impair the growth of the
Internet and decrease demand for our products or increase our cost of doing
business.
The laws and regulations that govern our business change rapidly. Although
our operations are currently based in California, the United States government
and the governments of other states and foreign countries have attempted to
regulate activities on the Internet and the manufacture of computer software
and distribution. Although there are currently few laws and regulations
directly applicable to the Internet and the use of the Internet as a commercial
medium, a number of laws have been proposed involving the Internet. These
proposed laws include laws addressing user privacy, pricing, content,
copyrights, distribution, antitrust and characteristics and quality of products
and services. Moreover, the applicability to the Internet of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes, libel and personal privacy is uncertain and may take years to
resolve. Evolving areas of law that are relevant to our business include
privacy law, proposed encryption laws, content regulation and sales and use tax
laws and regulations. Because of this rapidly evolving and uncertain regulatory
environment, we cannot predict how these laws and regulations might affect our
business. Any new laws and regulations could harm us by subjecting us to
liability or forcing us to change how we do business. For example, in 1998,
Congress passed the Internet Freedom Act, which imposes a three-year moratorium
on state and local taxes on Internet-based transactions. We cannot assure you
that this moratorium will be extended. Failure to renew this moratorium would
allow various states to impose taxes on e-commerce, which might harm our
business directly and indirectly by harming the businesses of our customers,
potential customers and business alliances.
Our business could be disrupted if any of the computer systems or software we
rely on experience Year 2000 problems.
We have executed a plan designed to make our computer systems, applications,
computer and manufacturing equipment and facilities Year 2000 ready. To date,
none of our systems, applications, equipment or facilities have experienced
material difficulties from the transition to Year 2000. Although we have not
experienced any Year 2000 problems, it is possible that we could still face
problems or disruptions. For instance, we may face problems with systems that
have not been utilized since 1999 or in connection with the leap year. While we
believe that all of our systems are Year 2000 compliant, we cannot assure you
that we will not discover a problem during 2000 that needs to be upgraded,
modified or replaced. In addition, we depend on a number of third-party vendors
to provide both information and non-information technology systems and
services. While we believe that our material third-party systems and services
are Year 2000 compliant, we cannot be sure that we will not experience any
problems with these systems and services during 2000. We also cannot provide
any assurance that governmental agencies, utility companies, Internet access
companies and others outside of our control will not experience any future Year
2000 problems.
Offering Risks
Our stock price may be volatile, and you may not be able to sell your shares at
or above the offering price.
Prior to this offering, our common stock has not been publicly traded, and
an active trading market may not develop or be sustained after this offering.
You may not be able to sell your shares at or above the offering price. The
price at which our common stock will trade after this offering is likely to be
highly volatile and may fluctuate substantially due to factors such as the
following:
. actual or anticipated fluctuations in our operating results;
16
. changes in or our failure to meet securities analysts' expectations;
. announcements of technological innovations;
. introduction of new competitors;
. introduction of new products and services by us or our competitors;
. developments with respect to intellectual property rights;
. additions or departures of key personnel;
. conditions and trends in the Internet and other technology industries;
. fluctuations in stock market price and volume, which are particularly
common among securities of software and internet-oriented companies; and
. general market conditions.
Purchasers of our common stock will suffer immediate and substantial dilution.
Purchasers of our common stock in this offering will experience immediate
dilution of $ in the pro forma net tangible book value per share of common
stock, based on an assumed initial public offering price of $ per share.
Purchasers will also experience additional dilution upon the exercise of
outstanding stock options and warrants. The initial public offering price is
expected to be substantially higher than the book value per share of our common
stock. Some elements of our market value do not originate from measurable
transactions. Therefore, there is not a corresponding rise in "book," or
historical accounting, value for our rise in market value, if any. Examples of
these elements include the perceived value associated with our strategic
relationships, perceived growth prospects of our market and our perceived
competitive position within that market.
After this offering, our directors, executive officers and principal
stockholders will continue to have substantial control over matters requiring
stockholder approval and may not vote in the same manner as our other
stockholders.
After this offering, our directors, executive officers and stockholders who
currently own over 5% of our common stock will collectively beneficially own,
in the aggregate, approximately % of our outstanding common stock. These
stockholders, if they vote together, will be able to significantly influence
all matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions. This concentration of
ownership may also delay or prevent a change in control of Support.com.
Future sales of our common stock may depress our stock price.
Sales of a substantial number of shares of common stock, including shares
issued upon the exercise of outstanding options and warrants, in the public
market after this offering or after the expiration of lockup and holding
periods could cause the market price of our common stock to decline. After this
offering, we will have approximately shares of common stock
outstanding. All the shares sold in this offering will be freely tradable. The
remaining shares of common stock outstanding after this offering are
subject to lock-up agreements that prohibit the sale of the shares for 180 days
after the date of this prospectus. Any or all of these shares may be released
prior to expiration of the 180-day lockup period at the discretion of Credit
Suisse First Boston Corporation. Immediately after the 180-day lockup period,
of these shares of outstanding options and warrants will become
available for sale. The remaining shares of our common stock will become
available at various times thereafter upon the expiration of one-year holding
periods.
Due to our expected stock price volatility, we may become involved in
securities class action litigation, which could divert management's attention
and harm our business.
The stock market has from time to time experienced significant price and
volume fluctuations that have affected the market prices for the common stocks
of technology companies, particularly Internet companies.
17
These broad market fluctuations may cause the market price of our common stock
to decline. In the past, following periods of volatility in the market price of
a particular company's securities, securities class action litigation has often
been brought against that company. We may become involved in this type of
litigation in the future. Litigation is often expensive and diverts
management's attention and resources, which could harm our business and
operating results.
We may need additional capital, and raising additional capital may dilute
existing stockholders.
We believe that our existing capital resources, including the anticipated
proceeds of this offering, will enable us to maintain our current and planned
operations for at least the next 12 months. However, we may choose to, or be
required to, raise additional funds due to unforeseen circumstances. If our
capital requirements vary materially from those currently planned, we may
require additional financing sooner than anticipated. This financing may not be
available in sufficient amounts or on terms acceptable to us and may be
dilutive to existing stockholders. If adequate funds are not available or are
not available on acceptable terms, our ability to hire, train or retain
employees, to fund our expansion, take advantage of unanticipated
opportunities, develop or enhance services or products, or otherwise respond to
competitive pressures would be significantly limited.
Our certificate of incorporation, bylaws and Delaware corporate law contain
provisions which could delay or prevent a change in control even if the change
in control would be beneficial to our stockholders.
Delaware law as well as our certificate of incorporation and bylaws contain
provisions that could delay or prevent a change in control of Support.com, even
if it were beneficial to the stockholders to do so. These provisions could
limit the price that investors might be willing to pay in the future for shares
of our common stock. These provisions:
. authorize the issuance of preferred stock that can be created and issued
by the board of directors without prior stockholder approval to increase
the number of outstanding shares and deter or prevent a takeover attempt;
. prohibit stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders;
. prohibit cumulative voting in the election of directors, which would
otherwise allow less than a majority of stockholders to elect director
candidates;
. limit the ability of stockholders to call special meetings of
stockholders; and
. establish advance notice requirements for nominations for election to the
board of directors or for proposing matters that can be acted upon by
stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law and the
terms of our stock option plans may discourage, delay or prevent a change in
control of Support.com.
If we do not use the proceeds in a manner that increases our operating results
or market value, our business could suffer.
Our management will have significant flexibility in applying the net
proceeds of this offering. The net proceeds could be applied in ways that do
not increase our operating results or market share. We intend generally to use
the net proceeds from this offering to repay $2.4 million in principal under
secured and subordinated debt facilities and for general corporate purposes,
including working capital. We have not yet determined the actual expected
expenditures and thus cannot estimate the amounts to be used for each specified
purpose. The actual amounts and timing of these expenditures will vary
significantly depending on a number of factors, including, but not limited to,
the amount of cash used in or generated by our operations and the market
response to the introduction of any new product and service offerings.
Depending on future developments and
18
circumstances, we may use some of the proceeds for purposes other than those
described above. You will not have the opportunity, as part of your investment
decision, to assess whether proceeds are being used appropriately.
Shares issued, and option grants made, under our 1998 Stock Option Plan
violated the registration requirements of state securities laws.
Shares issued and options granted under our 1998 Stock Option Plan violated
state securities laws because these stock issuances and option grants were not
exempt from registration or qualification under state securities laws and
registration or qualification was not obtained. If the rescission offer that we
intend to make to the holders of these shares and options beginning
approximately 30 days after the effective date of this offering is accepted, we
could be required to make aggregate payments to the holders of these shares and
options of up to $ plus statutory interest. If any or all of the offerees
reject the rescission offer, we may continue to be liable under state
securities laws for up to an aggregate amount of approximately $ plus
statutory interest. See "Rescission Offer."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate
to our, and in some cases our customers' and/or alliance partners', future
plans, objectives, expectations, intentions and financial performance, and the
assumptions that underlie these statements. In some cases, you can identify
forward-looking statements because they use terms such as "anticipates,"
"believes," "continue," "could," "estimates," "expects," "intends," "may,"
"plans," "potential," "predicts," "should" or "will" or the negative of those
terms or other comparable words. These statements involve known and unknown
risks, uncertainties and other factors that may cause industry trends or our
actual results, level of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these statements. These factors include
those listed under "Risk Factors," "Business," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in
this prospectus.
Although we believe that expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results or changes in our expectations. You should not place undue
reliance on these forward-looking statements, which apply only as of the date
of this prospectus.
19
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $
million from the sale of shares of our common stock, and $
million if the underwriters' over-allotment option is exercised in full at the
initial public offering price of $ per share, after deducting the
estimated underwriting discounts and commissions and the estimated offering
expenses payable by us.
We intend to use the net proceeds of this offering to repay $2.4 million in
principal under secured and subordinated debt facilities and for general
corporate purposes, including working capital. We do not have more specific
plans for the net proceeds from this offering. The amounts and timing of these
expenditures will vary depending on a number of factors, including the amount
of cash generated by our operations, competitive and technological developments
and the rate of growth, if any, of our business. We may also use a portion of
the net proceeds to acquire additional businesses, products and technologies,
to lease additional facilities, or to establish joint ventures that we believe
will complement our current or future business. However, we have no specific
plans, agreements or commitments to do so and are not currently engaged in any
negotiations for any acquisition or joint venture. As a result, we will retain
broad discretion in the allocation of the net proceeds of this offering.
Pending the uses described above, we will invest the net proceeds of this
offering in short term interest bearing, investment-grade securities. We cannot
predict whether the proceeds will be invested to yield a favorable return. We
believe that our available cash, together with the net proceeds of this
offering, will be sufficient to meet our capital requirements for at least the
next 12 months.
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock and do not
anticipate paying any dividends in the foreseeable future. We currently expect
to retain our earnings, if any, for the development of our business. Our bank
line of credit currently prohibits the payment of dividends.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
. on an actual basis;
. on a pro forma basis after giving effect to:
. the assumed exercise of outstanding warrants to purchase an aggregate
of 136,972 shares of common stock that expire upon completion of this
offering; and
. the conversion of all outstanding shares of preferred stock into common
stock and changes to our authorized capital stock upon completion of
this offering;
. on the same pro forma basis as adjusted to give effect to the sale of
shares of common stock by us at an assumed initial public
offering price of $ per share and after deducting the
underwriting discounts and commissions and estimated offering expenses
payable by us.
[Download Table]
December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma as Adjusted
-------- --------- -----------
(in thousands except share
data)
Long-term obligations, excluding current
portion....................................... $ 2,277 $ 2,277 $
-------- -------- ----
Redeemable convertible preferred stock:
12,156,108 shares authorized:
Series B--7,346,108 shares designated,
7,346,108 issued and outstanding actual,
none authorized, issued and outstanding pro
forma and pro forma as adjusted............. 5,641 -- --
Series C--4,810,000 shares authorized,
4,638,618 issued and outstanding actual,
none authorized, issued and outstanding pro
forma and pro forma as adjusted............. 15,808 -- --
Stockholders' equity (net capital deficiency):
Series A preferred stock, 3,571,600 shares
authorized, 3,571,600 shares issued and
outstanding actual, none authorized, issued
and outstanding pro forma and pro forma as
adjusted.................................... 1 -- --
Common Stock, 31,060,000 shares authorized,
10,874,374 shares issued and outstanding
actual; 150,000,000 shares authorized,
26,567,672 shares issued and outstanding pro
forma; shares issued and
outstanding pro forma as adjusted........... 1 3
Additional paid-in capital................... 19,491 41,384
Receivable from stockholders................. (1,450) (1,450)
Deferred compensation........................ (14,252) (14,252)
Accumulated deficit.......................... (17,044) (17,044)
-------- -------- ----
Total stockholders' equity (deficit)....... (13,253) (8,641)
-------- -------- ----
Total capitalization....................... $ 10,473 $ 10,918
======== ======== ====
This table excludes the following shares:
. 146,678 shares of common stock issuable upon exercise of warrants that
will be outstanding after this offering;
. 3,944,895 shares of common stock subject to options outstanding under our
1998 Stock Option Plan as of December 31, 1999; and
. 7,307,545 shares of common stock reserved for issuance under our 1998
Stock Option Plan, 2000 Omnibus Equity Incentive Plan and our 2000
Employee Stock Purchase Plan.
21
DILUTION
The pro forma net tangible book value of our common stock, on December 31,
1999, assuming the issuance of 136,972 shares of common stock upon the exercise
of warrants that will expire upon completion of the offering, and after giving
effect to the conversion of all outstanding shares of preferred stock upon
completion of the offering, was approximately $8.6 million, or approximately
$0.33 per share. Pro forma net tangible book value per share represents the
amount of our total tangible assets less total liabilities divided by the
number of shares of common stock outstanding. Dilution in net tangible book
value per share represents the difference between the amount per share paid by
purchasers of our common stock in this offering and the net tangible book value
per share of our common stock immediately afterwards. Assuming our sale of
shares of common stock offered by this prospectus at an assumed
initial public offering price of $ per share, and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses, our pro forma net tangible book value at December 31, 1999 would have
been approximately $ million or $ per share. This represents an
immediate increase in net tangible book value of $ per share to the
existing stockholders and an immediate dilution of $ per share to new
investors purchasing common stock in this offering. The following table
illustrates this per share dilution:
[Download Table]
Assumed initial public offering price per share..................... $
Pro forma net tangible book value per share at December 31, 1999... $0.33
Increase per share attributable to new investors...................
-----
Pro forma net tangible book value per share after this offering.....
----
Pro forma dilution per share to new investors....................... $
====
The following table summarizes, on a pro forma basis, as of December 31,
1999, the differences between the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
existing stockholders and by the new investors purchasing shares in this
offering. We used the assumed initial public offering price of $ per
share, and we have not deducted estimated underwriting discounts and
commissions and estimated offering expenses in our calculations.
[Download Table]
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
Existing stockholders.......... 26,567,672 % $22,772,000 % $0.86
New investors.................. $ $
---------- ------ ----------- ------
Total........................ 100.00% $ 100.00%
========== ====== =========== ======
The foregoing discussion and table assume no exercise of any outstanding
stock options. The exercise of options outstanding under our stock option plans
having an exercise price less than the offering price would increase the
dilutive effect to new investors.
If the underwriters exercise the over-allotment in full, the following will
occur:
. the number of shares of common stock held by existing stockholders will
decrease to approximately % of the total number of shares of our
outstanding common stock; and
. the number of shares held by new investors will increase to ,
or approximately % of the total number of shares of our common stock
outstanding after completion of this offering.
22
SELECTED FINANCIAL DATA
The following selected statement of operations data for the period from
inception (December 3, 1997) through December 31, 1998 and the year ended
December 31, 1999 and the selected balance sheet data as of December 31, 1998
and 1999 are derived from our audited financial statements included elsewhere
in this prospectus. Our historical results are not necessarily indicative of
results to be expected for any future period. The data have been derived from
financial statements that have been prepared in accordance with generally
accepted accounting principles and should be read together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and related notes included elsewhere in this
prospectus. See note 1 of the notes to our financial statements for an
explanation of the determination of the number of shares used in computing
basic and diluted net loss per share.
[Download Table]
Period from
inception
(December 3, 1997) Year ended
to December 31, December 31,
1998 1999
------------------ ------------
(in thousands
except per share data)
Statement of Operations Data:
Revenue:
License fees................................ $ 18 $ 2,746
Services.................................... -- 569
------- --------
Total revenue............................. 18 3,315
Costs and expenses:
Cost of license fees........................ -- 4
Cost of services............................ -- 965
Research and development.................... 1,132 2,401
Sales and marketing......................... 1,197 8,974
General and administrative.................. 477 1,881
Amortization of deferred compensation....... 16 3,554
------- --------
Total costs and expenses.................. 2,822 17,779
------- --------
Loss from operations.......................... (2,804) (14,464)
Interest and other income (expense), net...... 54 170
------- --------
Net loss...................................... (2,750) (14,294)
Accretion on redeemable convertible preferred
stock........................................ (214) (1,072)
------- --------
Net loss attributable to common stockholders.. $(2,964) $(15,366)
======= ========
Basic and diluted net loss per share.......... $ (0.57) $ (2.31)
======= ========
Shares used in computing basic and diluted net
loss per share............................... 5,227 6,643
======= ========
Unaudited pro forma basic and diluted net loss
per share.................................... $ (0.71)
========
Shares used in computing unaudited pro forma
basic and diluted net loss per share......... 20,137
========
[Download Table]
December 31,
-----------------
1998 1999
------- --------
(in thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term investments............ $ 2,807 $ 12,489
Working capital (deficit).................................... 2,979 9,338
Total assets................................................. 3,672 17,525
Long-term obligations, net of current portion................ 449 2,277
Redeemable convertible preferred stock....................... 5,237 21,449
Total stockholders' equity (deficit)......................... (2,423) (13,253)
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with the financial
statements and the related notes included elsewhere in this prospectus. The
following discussion contains forward-looking statements. Our actual results
may differ significantly from those projected in the forward-looking
statements. Factors that might cause future results to differ materially from
those projected in the forward-looking statements include, but are not limited
to, those discussed below and elsewhere in this prospectus, particularly in
"Risk Factors."
Overview
We are a leading provider of eSupport infrastructure software that automates
and personalizes the delivery of support to users over the Internet. We were
incorporated in December 1997. From our founding through the end of 1998, we
primarily engaged in research activities and developing and marketing our
products. We first began generating revenue from software license fees from the
initial version of our products in December 1998. During 1999, we continued to
enhance the core functionality of our products, and build our management team
and operational infrastructure. In June 1999, we began shipping the second
version of our products and in January 2000, we began shipping the third
version of our products. As our revenue increased sequentially from quarter to
quarter during 1999, we also incurred significant operating expenses as we
expanded our research and development organization, our direct sales force and
professional services department. At December 31, 1999, we had an accumulated
deficit of $17.0 million.
Our revenue is principally generated from software licenses and related
professional services. We market our products through a combination of direct
sales, resellers, support outsourcers and distributors. Through 1999,
substantially all of our revenue was derived from direct sales. We focused on
building our indirect sales channel in the fourth quarter of 1999. Although we
expect direct sales to continue to account for a majority of revenue in the
future, we anticipate a more significant portion of sales to be generated
through our indirect channel. In 1998, no revenue was attributable to licenses
to customers outside of North America and, in 1999, 2% of our revenue was
attributable to these customers. We plan to expand our international operations
significantly, particularly in Europe and Asia.
We license our software under subscription and perpetual licenses. Revenue
under subscription licenses is recognized ratably over the term of the
subscription period beginning upon delivery of the product. Subscription
licenses typically have a term of three years. Payments under a subscription
agreement are typically made at the beginning of each annual period. We began
licensing software under a subscription model in June 1999. Due to the fact
that revenue under perpetual license agreements is recognized more rapidly than
subscription-based revenue, a majority of the revenue recognized to date has
been derived from perpetual licenses. However, to date, a majority of the
licenses executed were subscription-based. We recognize revenue from perpetual
licenses when persuasive evidence of an agreement exists, product has been
delivered, no obligations remain, the fee is fixed and determinable and
collectibility is probable. When services are an essential element of an
arrangement, we recognize revenue under the arrangement as the services are
delivered. We do not recognize revenue from sales to resellers and other
distributors until our product is delivered to the end user.
Services revenue consist primarily of fees from professional services, such
as consulting services, maintenance and support. Services revenue from
professional services is recognized as the services are delivered. Our
maintenance arrangements provide technical support and include the right to
unspecified upgrades. Maintenance revenue is typically based on a percentage of
the license fee and is recognized over the life of the related agreement.
Customer advances and billed amounts due from customers in excess of revenue
recognized under subscription and maintenance agreements are recorded as
deferred revenue.
24
We intend to continue to invest in product development and technologies to
enhance our current products and services, develop new products and services
and further advance our solution offerings. In addition, an important part of
our strategy is to expand our operations and employee base and build our sales,
marketing, customer support, technical and operational resources. As a result,
we expect to continue to incur substantial operating losses for the foreseeable
future, and our expected increase in operating expenses will require
significant increases in revenue before we become profitable.
For purposes of this discussion, references to 1998 include the period from
our inception on December 3, 1997 to December 31, 1998.
Results of Operations
Revenue
Total revenue increased from $18,000 in 1998 to $3.3 million in 1999. Bear
Stearns, which licensed our software under a perpetual licensing arrangement,
accounted for 53% of our total revenue in 1999. No other single customer
accounted for more than 10% of our total revenue.
License revenue
License revenue increased from approximately $18,000 in 1998 to $2.7 million
in 1999. This increase was primarily due to the fact that we did not ship our
first product until December 1998.
Services revenue
Services revenue increased from $0 in 1998 to $569,000 in 1999. This
increase was primarily due to maintenance on new licenses and increased
implementation and consulting services performed in connection with increased
license sales.
Cost of revenue
Total cost of revenue increased from $0 in 1998 to approximately $969,000 in
1999.
Cost of license revenue
Cost of license revenue in 1999 consists primarily of expenses incurred to
manufacture, package and distribute software products and related documentation
and license fees paid to third parties under technology license arrangements
which have not been significant to date. Cost of license revenue increased from
$0 in 1998 to approximately $4,000 in 1999. We expect cost of license revenue
to continue to remain a relatively small percentage of total revenue and to
grow in absolute dollars as we license third party technologies.
Cost of services revenue
Cost of services revenue includes salaries and other expenses related to our
customer support organization and related overhead expenses, and payments made
to third parties for consulting services provided to our customers. Cost of
services revenue increased from $0 in 1998 to approximately $965,000 in 1999.
This increase was primarily due to an increase in the number of employees in
our customer support and professional services organizations from no employees
at December 31, 1998 to 13 at December 31, 1999. Cost of services revenue
exceeds services revenue during 1999 due to the increase in the number of
personnel in our services and organization and our investment in experienced
management in anticipation of future growth. We expect to continue to invest
heavily in customer support, professional services, consulting and training and
expect cost of services revenue to increase accordingly.
25
Operating Expense
Research and development. Research and development expense consists
primarily of payroll expenses and related costs for research and development
personnel. Research and development expense is expensed as incurred. Research
and development expenses increased from approximately $1.1 million in 1998 to
approximately $2.4 million in 1999. This increase was primarily due to the
increase in the number of engineering personnel from 10 at December 31, 1998 to
30 at December 31, 1999. We expect research and development expense to increase
in absolute dollars in 2000 as we continue to hire additional research and
development personnel and spend additional amounts on third party development
efforts.
Sales and marketing. Sales and marketing expense consists primarily of
payroll expense, including salaries and commissions and related costs for sales
and marketing personnel, promotional expenditures, including public relations,
advertising and trade shows. Sales and marketing expense increased from
approximately $1.2 million in 1998 to approximately $9.0 million in 1999. This
increase was primarily due to an increase in the number of direct sales, pre-
sales support and marketing employees from 10 employees at December 31, 1998 to
43 employees at December 31, 1999. We also increased the number of regional and
international sales offices from two at December 31, 1998 to 11 at December 31,
1999. In addition, we expense sales commissions in the period in which a sale
occurs. As a result, we expect that sales and marketing expense will continue
to be a significant component of operating expense. We expect sales and
marketing expense will increase in absolute dollars as we increase our sales
force, establish sales offices in additional domestic and international
locations and increase advertising and marketing programs and other promotional
activities.
General and administrative. General and administrative expense consists
primarily of payroll expense and related costs of administrative personnel and
professional fees for legal, accounting and other professional services.
General and administrative expense increased from approximately $477,000 in
1998 to approximately $1.9 million in 1999. The increase was primarily due to
increased numbers of administrative personnel from five at December 31, 1998 to
15 at December 31, 1999. We expect general and administrative expense to
increase as we hire additional administrative personnel to support the
anticipated growth of our business and our operations as a public company.
Deferred stock-based compensation. In connection with the grant of stock
options to employees and consultants, we have recorded deferred stock-based
compensation related to stock options through December 31, 1999 of
approximately $17.8 million. This amount represents the difference between the
exercise price of these stock option grants and the deemed fair value of the
common stock at the time of grant. Of this amount, we amortized approximately
$3.5 million through December 31, 1999. The remaining $14.3 million and the
additional amount of stock-based compensation from recent grants will be
amortized using the graded vesting method over the remaining vesting period of
the options. Based on option grants through December 31, 1999, we expect to
amortize approximately $2.7 million in the first quarter of 2000, $2.7 million
in the second quarter of 2000, $2.1 million in the third quarter of 2000 and
$1.8 million in the fourth quarter of 2000 and lower amortization amounts in
subsequent quarters.
Interest and other income (expense), net. Interest income, net consists
primarily of interest earned on our cash, cash equivalents and short term
investments offset by interest expenses associated with our capital leases and
equipment advances. Interest and other income, net was approximately $54,000 in
1998 and approximately $170,000 in 1999. The increase in interest income and
other income, net relates primarily to increased average cash balances
resulting from our equity financing in June 1999.
Provision for income taxes. From inception through December 31, 1999, we
incurred net losses for federal and state tax purposes and have not recognized
any tax provision or benefit. As of December 31, 1999, we had $10.1 million of
federal and state net operating loss carryforwards to offset future taxable
income. The net operating loss carryforwards begin to expire on varying dates
beginning in 2005 through 2019. Given our limited operating history, our losses
incurred to date and the difficulty in accurately forecasting our future
26
results, management does not believe that the realization of the related
deferred income tax asset meets the criteria required by generally accepted
accounting principles. Therefore we have recorded a 100% valuation allowance
against the deferred income tax asset.
Quarterly Results of Operations
The following table sets forth certain unaudited quarterly statement of
operations data for the four quarters ended December 31, 1999. This information
has been derived from our unaudited financial statements, which, in
management's opinion, have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information for
the quarters presented. This information should be read in conjunction with the
audited financial statements and related notes included elsewhere in this
prospectus. The operating results for any quarter are not necessarily
indicative of the operating results for any future period.
[Download Table]
Three months ended
----------------------------------
Mar. June Sept. Dec.
31, 30, 30, 31,
1999 1999 1999 1999
------- ------- ------- -------
Statement of Operations Data:
Revenue
License fees............................. $ 330 $ 492 $ 624 $ 1,300
Services................................. 4 21 154 390
------- ------- ------- -------
Total revenue.......................... 334 513 778 1,690
Costs and expenses
Cost of license fees..................... 1 -- 2 1
Cost of services......................... 73 128 240 524
Research and development................. 373 370 787 871
Sales and marketing...................... 862 1,648 2,576 3,888
General and administrative............... 182 322 488 889
Amortization of deferred compensation.... 52 183 1,324 1,995
------- ------- ------- -------
Total costs and expenses............... 1,543 2,651 5,417 8,168
------- ------- ------- -------
Loss from operations....................... (1,209) (2,138) (4,639) (6,478)
Interest and other income (expense), net... 2 (22) 88 102
------- ------- ------- -------
Net loss................................... $(1,207) $(2,160) $(4,551) $(6,376)
======= ======= ======= =======
Our quarterly revenue increased sequentially in 1999 due to the introduction
of and increased demand for our software products as well as the growth of our
direct sales force. Additionally, in June 1999, we began offering subscription
licenses of our software. Services revenue consisting of the maintenance
components of our license agreements and consulting services commenced in the
second quarter. Services revenue and related costs increased sequentially as we
hired services personnel and grew our customer base.
On a quarterly basis we have increased the level of spending throughout the
organization. Total operating expenses increased primarily due to expenses
associated with building a sales and marketing infrastructure, and increased
spending on research and development to support new product introductions.
Specifically:
. Sales and Marketing. During the third and fourth quarters, sales and
marketing expenses increased due to additional personnel costs which
include commissions and travel expenditures, as we grew our direct sales
force and indirect sales channel. We also incurred expenses in this
period in connection with the launch and branding of the Support.com
name and Web site.
. Research and Development. In the third quarter, research and development
costs increased due to additional hiring of engineering personnel, as
well as legal expenses associated with obtaining patents on intellectual
property.
27
. General and Administrative. In the fourth quarter, general and
administrative costs increased as we hired additional personnel to
manage our expanding operations and incurred expenses associated with
executive recruiting, information technology and other infrastructure
developments.
Interest and other income (expense), net increased in the third and fourth
quarters primarily due to the financing we obtained in June 1999. We invested
the proceeds of the financing in short term investments.
We have incurred operating losses since inception, and we may never achieve
profitability in the future. In the past a significant portion of our sales
have been realized near the end of the quarter. Accordingly, a delay in an
anticipated sale past the end of a particular quarter could negatively impact
our results of operations for that quarter. We believe that future operating
results will be subject to quarterly fluctuations due to a variety of factors,
many of which are beyond our control.
Liquidity and Capital Resources
Since our inception in December 1997, we have financed our operations
primarily through the private placement of our preferred stock, and to a lesser
extent through revenues, bank borrowings and capital equipment lease financing.
As of December 31, 1999, we had $12.5 million in cash, cash equivalents and
short-term investments. Net cash provided by financing activities was $17.9
million in 1999 and $5.5 million in 1998. In both cases, the cash was primarily
attributable to net proceeds from the issuance of preferred stock.
We have both a secured and subordinated debt facility with a single lender
under which we are entitled to borrow up to $2.5 million, all of which has been
used. We intend to repay $2.4 million in principal under secured and
subordinated debt facilities with the proceeds of this offering. We also have
an aggregate of $2.5 million available under equipment lease credit facilities,
of which $1.1 million is currently outstanding. Under the equipment lease line,
we are entitled to lease equipment with payment terms extending 48 months. The
ability to lease new equipment expires in July 2001. Amounts outstanding under
these facilities bear interest at rates ranging from 9.0% to 12.0% and are
secured by substantially all of our assets.
Net cash used in operating activities was $2.4 million in 1998 and $8.0
million in 1999. Cash used in operating activities was primarily the result of
net losses and increases in accounts receivable, partially offset by increases
in deferred revenue accounts payable and accrued expenses.
Net cash used in investing activities was $307,000 in 1998 and $8.7 million
in 1999. Net cash used in investing activities during 1999 included $8.5
million net purchases of short-term investments.
As of December 31, 1999, our principal commitments consisted of obligations
outstanding under notes payable, capital and operating leases. Although we have
no material commitments for capital expenditures, we anticipate a substantial
increase in our capital expenditures and lease commitments consistent with our
anticipated growth in operations, infrastructure and personnel. As of December
31, 1999, future lease commitments for our office facility were $1.3 million in
2000 and $850,000 in 2001. We expect to require additional space to meet our
needs in the next 12 months. Adequate space may not be available on
commercially reasonable terms.
We believe that the net proceeds from the sale of common stock in this
offering, together with our current cash balances, will be sufficient to meet
our working capital and capital expenditure requirements for at least the next
12 months. In addition, although there are no present understandings,
commitments or agreements with respect to any acquisition of other businesses,
products and technologies, we from time to time evaluate potential acquisitions
of other businesses, products and technologies and may in the future require
additional equity or debt financings to consummate any potential acquisitions.
If we require additional capital resources to grow our business internally
or to acquire complementary technologies and businesses at any time in the
future, we may seek to sell additional equity or debt securities. The sale of
additional equity or convertible debt securities could result in additional
dilution to our
28
stockholders. We cannot assure you that any financing arrangements will be
available to us, or be available in amounts or on terms acceptably to us.
Year 2000 Issues
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations for any company using such computer programs or hardware. We have
executed a plan designed to make our computer systems, applications, computer
and manufacturing equipment and facilities Year 2000 ready. To date, none of
our systems, applications, equipment or facilities have experienced material
difficulties from the transition to Year 2000. Although we have not experienced
any Year 2000 problems, it is possible that we could still face problems or
disruptions. For instance, we may face problems with systems that have not been
utilized since 1999 or in connection with the leap year. While we believe that
all of our systems are Year 2000 compliant, we cannot assure you that we will
not discover a problem during 2000 that needs to be upgraded, modified or
replaced. In addition, we depend on a number of third-party vendors to provide
both information and non-information technology systems and services. While we
believe that our material third-party systems and services are Year 2000
compliant, we cannot be sure that we will not experience any problems with
these systems and services during 2000. We also cannot provide any assurance
that governmental agencies, utility companies, Internet access companies and
others outside of our control will not experience any future Year 2000
problems.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities," which provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS 133 is effective for all fiscal quarters for fiscal
years beginning after June 15, 2000 and is not anticipated to have a
significant impact on our operating results or financial condition when
adopted.
Qualitative and Quantitative Disclosures about Market Risk
We develop products in the United States and market and sell in North
America, South American, Asia and Europe. As a result, our financial results
could be affected by factors such as changes in foreign currency exchange rates
or weak economic conditions in foreign markets. As all sales are currently made
in U.S. dollars, a strengthening of the dollar could make our products less
competitive in foreign markets. Our interest income is sensitive to changes in
the general level of U.S. interest rates, particularly since the majority of
our investments are in short-term instruments. Due to the nature of our short-
term investments, we have concluded that there is no material market risk
exposure.
Our investment policy requires us to invest funds in excess of current
operating requirements in:
. obligations of the U.S. government and its agencies;
. investment grade state and local government obligations;
. securities of U.S. corporations rated A1 or AA by Standard and Poors or
the Moody's equivalent; and
. money market funds, deposits or notes issued or guaranteed by U.S. and
non-U.S. commercial banks, meeting certain credit rating and net worth
requirements with maturities of less than two years.
At December 31, 1999, our cash and cash equivalents consisted primarily of
demand deposits and money market funds held by large institutions in the U.S.
and our short-term investments were invested in corporate debt securities
maturing in less than one year.
29
BUSINESS
Overview
We are a leading provider of eBusiness infrastructure software that
optimizes, automates and personalizes user support over the Internet. Our
comprehensive suite of eSupport software services is designed to accelerate
eBusiness growth by increasing the strategic value of support organizations and
reducing support inefficiencies that would otherwise constrain expanding
Internet initiatives. We offer customers the ability to automate problem
avoidance through self-healing, promote call avoidance through user self-
service and improve problem resolution through optimized, assisted support. By
deploying our eSupport infrastructure, customers can transform eBusiness
support operations from inefficient cost centers to highly productive and
scalable competitive assets that increase customer loyalty, improve operational
efficiencies and generate incremental revenue. We sell our products and
services to corporate information technology departments, Internet service
providers, application service providers and support outsourcers. Our customers
include Bear Stearns, Compaq Professional Services, Computer Sciences Corp.,
everdream, Excite@Home, Globo Cabo, JCPenney and micronpc.com.
Industry Background
User Support Is Critical for eBusiness
Businesses are increasingly relying on the Internet to sell more products
and services, drive efficiencies in supply chains and distribution channels,
establish and improve customer relationships and increase employee
productivity. Among these organizations are traditional businesses that are
increasingly conducting business over the Internet, companies that are formed
specifically to deliver products and services over the Internet, and Internet-
related technology vendors and service providers. To support their eBusiness
initiatives, businesses are deploying Internet, intranet and extranet
technology solutions that automate and optimize the interaction between the
enterprise and its employees and customers, as well as the members of an
extended enterprise of suppliers, distributors and business partners.
In this environment, high-quality support is critical for customers and
eBusiness infrastructure users and the growth of eBusiness initiatives. As
businesses increase their reliance on the Internet, user support becomes a
primary interface between a business and its employees, supply chain partners
and customers. High-quality, personalized and continuous user support enables
internal and external systems to run more efficiently, improves employee
productivity and increases customer acquisition, retention and satisfaction.
Therefore, deploying a comprehensive Internet-based support infrastructure is
becoming a competitive asset that enables a company to differentiate its
products and services and improve the efficiency of its operations.
The Growing Difficulty in Delivering User Support
We believe technical support has become the most critical form of user
support, as businesses and users increasingly rely upon complex IT
infrastructure and the Internet to conduct business. IDC estimates that 59% of
businesses either lose business, or are no longer able to conduct business, if
their system or network is not available. In addition, delivering technical
support is increasingly complex and difficult as systems become more
sophisticated, different electronic devices proliferate and the number of users
and their demands grow.
Millions of Unique Users Are Leveraging the Power of the Web. According to
IDC, the number of people using the Web will grow from 196 million in 1999 to
502 million in 2003. These users have a broad range of support requirements and
levels of sophistication. Supporting this growing demographic is further
complicated by each user's dependence on different applications and devices.
These users also face a proliferation of new Web-based services and require
real-time training and electronic support.
Computing Environments Are Becoming More Complicated. A typical business
uses a broad range of operating systems, networking technologies, e-commerce
software, security solutions, server applications,
30
legacy systems, packaged and internally developed applications and productivity
tools. In many cases, these applications are integrated within the corporation
and with the systems and applications of the extended enterprise, through a
variety of networks and protocols.
Electronic Devices Are Proliferating. Businesses and consumers use many
different electronic devices to conduct business, access the Internet and
purchase products and services, such as personal computers, personal digital
assistants and other mobile devices. Each device bears an individual profile--a
different configuration of applications, operating system components, network
access protocols and personal settings. To illustrate this proliferation,
according to IDC, the number of shipped personal computers alone will grow from
approximately 112 million in 1999 to 190 million in 2003.
Applications Are Multiplying. Meta Group estimates that the number of
programs on the average personal computer has risen from approximately 200 in
1997 to over 600 in 1999. These applications are frequently upgraded, and
combinations will increase exponentially. In addition, we believe that the
variability of device configurations will increase as customers download,
install and use thousands of programs from the Internet or access hosted
applications.
Existing Support Solutions Are Inadequate
Existing approaches to user support are increasingly inefficient and costly
in today's rapidly evolving and dynamic Internet economy. Providing scalable,
personalized technical support is especially difficult. Businesses have
traditionally provided support to users on-site or remotely through call
centers and help desks. These methods are highly labor intensive because
support is typically provided through time consuming phone interaction, e-mail
or on-site visits. Moreover, call centers and help desks generally experience
high turnover and have difficulty scaling. Support professionals are provided
with limited knowledge of users, their systems and business needs and therefore
cannot properly and rapidly diagnose and resolve users' problems. In addition,
user self-help options such as manuals and software help features have been of
limited effectiveness, as they are static and require intensive user effort.
The increasing complexity of support requires a highly personalized,
automated and Web-based approach to the development and delivery of support. To
date, support infrastructure technology investments have primarily focused on
making incremental improvements to existing call center and help desk
solutions. For example, work-flow solutions, such as automated call-tracking,
knowledge management systems, which develop knowledge bases, and Web-based
applications, such as email response management systems, have increased the
efficiency of support delivery. However, these solutions do not reduce the need
for assisted support, offer automated proactive support or provide Web-based
technologies for personalized problem diagnosis or resolution.
The Growth of eSupport
According to the Gartner Group, the volume of nonfinancial goods and
services sold through business-to-business e-commerce is expected to reach over
$7 trillion worldwide in 2004. However, most organizations lack an adequate
support infrastructure to meet the demands imposed by this increasing volume of
Internet commerce. The inadequacy of existing support infrastructure impedes
the growth and rapid acceptance of eBusiness. Therefore, businesses are seeking
more effective and efficient ways to deliver user support. Support solutions
must deliver highly personalized services that are able to automatically and
intelligently identify and resolve user problems and questions. Organizations
need to transform eBusiness support operations from inefficient cost centers to
highly productive and scalable competitive assets that increase customer
loyalty, improve operational efficiencies and generate incremental revenue. To
do so, businesses must fully build out their Web-based support infrastructure.
The market for eSupport, the automated delivery of user support over the
Internet, is estimated by IDC to grow from $3 billion in 1999 to over $14
billion in 2003.
The Support.com Solution
We are a leading provider of comprehensive eSupport infrastructure software
that optimizes, automates and personalizes user support. We sell and market our
products to corporate information technology
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departments, support outsourcers, Internet service providers, applications
service providers and other businesses that leverage the Internet. We offer a
comprehensive eSupport solution that automates problem avoidance through self-
healing, promotes call avoidance through user self-service, and optimizes
online assisted support. Our Web-based offerings are available in a variety of
configurations, including a full-service Web site, or support portal, that
serves as the nexus of an eBusiness support infrastructure.
The key features of our products include:
Personalized Support. Our software automatically discovers and tracks the
unique characteristics of each user's system and that system's components in
order to personalize and optimize the support process.
Self-Healing. Our software dynamically recognizes, diagnoses and proactively
resolves potential problems as they arise, without the need for the user to
request specific assistance.
Self-Service. Our software empowers users to resolve their own problems
through a single, intuitive interface that provides adaptive, context-sensitive
resolution of problems and queries.
Assisted Service. Our solution ensures that, if and when a problem or query
is escalated to the level at which it requires the assistance of a support
analyst, that analyst will have detailed information about the user's system
and access to dynamically evolving sets of support actions to optimize problem
resolution.
Web Support Content Authoring. Our solution enables support analysts to
develop support actions that automatically implement problem diagnosis and
repair, user training and "just-in-time" help through the Web. These actions
are made available to other support analysts and users to further automate the
support process.
Internet-Based Architecture. Our products are primarily Web-based, meaning
that they can be delivered and updated through the Internet, are secure,
scalable and extensible. By structuring our software this way, we are able to
offer solutions to users, corporate information technology departments and
other support providers that are geographically unconstrained and easy to use
and deploy. By leveraging the Internet to architect a new eSupport process, we
are able to fundamentally improve the effectiveness of support with dynamic and
detailed information exchange.
Through the above features, our solutions:
Accelerate eBusiness Growth. Our software's high degree of automation and
scalability provides our customers with a means for eliminating the support
bottlenecks that would otherwise constrain their rapidly expanding eBusiness
initiatives. Our products provide extensive information-gathering capabilities
that can add value outside the technical support context by helping our
customers convert the traditional help desk into a revenue generating business
services desk. For instance, one of our customers utilizes our eSupport
solution in their support portal to drive sales of additional products and
services.
Leverage the Web to Reduce Support Costs. Traditional support solutions
involve multiple instances of human interaction by telephone and in person. Our
products enable fully automated problem and query resolution directly by
users--that is, without necessarily requiring remote or in-person assistance.
We refer to this user self-service as "Tier Zero," and believe that it is a
uniquely effective and efficient means of providing support. By providing a 24
hour, seven-days-a-week automated "support button" on systems, our software
minimizes escalation of problems from Tier Zero to levels requiring human
interaction. As a result, our customers can leverage their existing support
infrastructure, significantly reduce their overall support costs, and create an
internal environment that allows them to attract and retain high-quality
support analysts.
Increase Customer Satisfaction through Rapid Problem Resolution. Our
products are personalized, context-sensitive, and adapt to dynamically changing
system environments. Our patented DNA Probe, for example, recognizes individual
system settings and provides our eSupport solution with the information
necessary to resolve technical problems at Tier Zero. In situations where
problems are not eliminated at Tier Zero, the Support.com infrastructure also
proactively provides support analysts with detailed user and process
information and problem history. Our approach resolves user problems faster and
more proactively than traditional support solutions, which significantly
increases user satisfaction and reduces downtime.
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Rapidly Deploy and Integrate with Existing Solutions. Our products are
architected to reduce customer configuration deployment times and installation
costs. Our software helps customers to preserve their investments in and
deployments of call center and help desk products, workflow tools, knowledge
bases and other applications. Our solution enhances these capabilities and
integrates them into a cohesive, automated and personalized Internet support
infrastructure. In addition to integrating with a customer's existing support
infrastructure, our solution is designed to effectively support third-party
software and does not require lengthy development, testing or maintenance
cycles.
Enable Businesses to Achieve Competitive Advantage. Our comprehensive
eSupport solution effectively accelerates problem resolution, reduces system
downtime and increases user productivity, each of which is important to
maintaining a competitive advantage in today's Internet economy. In addition,
we offer our customers the ability to differentiate their product offerings,
improve their customer satisfaction and enhance their online presence by
enabling them to brand their own version of our support portal.
Support.com Strategy
Our mission is to be the leading provider of comprehensive eSupport
infrastructure software. Key components of our strategy include:
Capitalize on the Growth of eBusiness and the Internet. We believe that as
businesses continue to leverage the power of the Internet to realize
efficiencies in their interactions with customers, supply chain partners and
employees, the opportunities to provide Web-based products that address the
support needs of these constituencies will be substantial. As companies
increasingly use the Internet to automate business processes, their contact
with customers is progressively becoming limited to those support interactions
that occur when a user has a problem. Our goal is to leverage our technologies
and Web-based architecture to help our customers capitalize on these
interactions, ultimately providing unprecedented levels of customer care via
the Internet.
Continue to Develop Leading-Edge Support Technologies. Our eSupport product
offerings are based on patented technology and solve many complex user support
problems, namely those revolving around technical support. We intend to
continue investing substantial resources in developing innovative technologies
that enhance the personalization, automation and overall effectiveness of our
solutions. We also plan to continue developing technologies to support
additional platforms and applications and to address the complex and evolving
natures of corporate computing environments and the Internet. We believe that
our focus on providing technical support infrastructure gives us a competitive
advantage as we develop solutions to address broader customer support
opportunities.
Extend Market Leadership Position by Expanding Our Sales and Distribution
Capabilities. We plan to continue developing both our internal sales force and
our indirect sales channel of resellers, systems integrators, support
outsourcers and other service providers. We also intend to expand our Web-based
sales strategies. We believe that leveraging our indirect sales channel and Web
sales will add tremendous cost efficiencies to and increase the scalability of
our sales process. Distribution of our products through Internet service
providers and application service providers, which typically have large numbers
of customers, will help promote recognition of our brand and enhance our market
penetration and position. We intend to further penetrate our markets by
leveraging our existing base of reference accounts to support our consultative
selling efforts and to attract new customers.
Leverage and Expand our Technology Relationships. Our relationships with key
technology vendors are important to delivering a comprehensive and robust
support solution and increasing our brand recognition. We work with leading
technology companies in such areas as knowledge management, customer
communications, call center and help desk software to ensure that our offerings
can be integrated with our customers' existing infrastructure. We intend to
deepen our relationships with these and other key technology providers in an
effort to enhance the functionality of our solutions, support additional
platforms and applications and extend the reach of our product offerings.
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Continue to Enhance Customer Value. We work in close partnership with our
customers to develop an in-depth understanding of their businesses, to optimize
their eSupport infrastructure and to increase their return on investment. We
intend to continue to provide a high level of customer service and support
through our services organization and by using our own eSupport technologies.
We will continue to proactively work with our customers to improve the quality
of our product offerings and to identify and address their new support
challenges as they grow with the Internet.
Products
Our eSupport infrastructure products and services enable our customers to
support their customers, supply chain partners and employees automatically and
via the Internet, extranets or intranets. Our software allows our customers to
provide their users with personalized, automated support solutions tailored to
meet the needs of their respective business environments. Support solutions
generated by our products are unique for each user and are "intelligent" in
that they are interactive, adaptable and have the capability to automatically
update themselves as the user's support requirements change. In addition, our
products are Web-based, which reduces user deployment and installation
expenses. This ease of deployment makes our software particularly scalable in
corporate environments.
The following table highlights the features of our products:
[Download Table]
Product Description
Healing Agent A comprehensive, context-sensitive user-based support
application that enables personalized self-service and makes
software self-healing by proactively identifying and repairing
problems on users' systems.
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Support Center A centralized support infrastructure and a suite of software
components for remote assisted service, enterprise-wide
problem resolution and management and administration of the
overall support environment. Builds on the Healing Agent's
support capabilities to optimize the support process when a
support request is escalated to a support analyst.
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Support Portal An interactive Web platform that enables companies to drive
enhanced self-service and assisted service. Works with the
Internet-enabled Support Center and Healing Agent to provide
support organizations with the components and infrastructure
they need to provide interactive, full-service and
personalized online support.
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Foundry A comprehensive application for authoring automated support
actions and managing support content that can then be utilized
by the Healing Agent, Support Center and Support Portal.
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Our eSupport suite consists of four products that provide a modular approach
to building comprehensive eSupport solutions. The following diagram illustrates
the components of our eSupport Suite and how they interact:
[GRAPHIC APPEARS HERE]
Healing Agent
The Healing Agent provides users with self-healing and automated self-
service capabilities to resolve problems and questions that otherwise would
require a call to the call center or help desk. The Healing Agent effectively
acts as the user's personalized, context-sensitive support assistant,
proactively identifying and automatically solving problems as they arise. In
addition, the Healing Agent provides a single source of information for
addressing software and system malfunctions, known as "break/fix" problems, and
responding to users' queries, called "how-to" questions. The result is fewer
calls to the call center or help desk, shorter problem resolution cycles and a
more satisfying user experience. The Healing Agent serves as the foundation for
our comprehensive support infrastructure.
The Healing Agent includes the following features:
Self-Healing Capabilities. Proactively identifies problems and resolves them
before they manifest themselves. By actively monitoring the applications and
components of a user's changing system, the Healing Agent can intelligently
eliminate problems before they cause downtime.
Automated Self-Service. Enables users to address support problems that
otherwise would require calls to the call center or help desk, including
"break/fix" problems, "how-to" questions and requests for system modifications.
This reduces the number of calls to the call center and provides users with a
more efficient and satisfying support experience.
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Support for Disconnected and Mobile Users. Allows users to solve problems
when they are completely disconnected from their networks. The solutions
critical to disconnected and mobile users reside locally on the user's machine.
Undo Capability. Provides users with the ability to undo actions taken by
the Healing Agent. This increases receptiveness to self-service for both users
and support analysts by reducing the perceived risk of using the recommended
solution.
Support Center
The Support Center provides a centralized support infrastructure and a suite
of software components for remote assisted service, enterprise-wide problem
resolution and management and administration of the overall support
environment. This product suite provides support analysts with the ability to
deliver context-sensitive diagnosis and resolution of user problems. The
Support Center builds on the Healing Agent's support capabilities to optimize
the support process when a support request is escalated to the call center or
help desk. The Support Center provides support for a comprehensive range of
call types, including "break/fix" problems, "how-to" questions and requests for
system modifications.
The Support Center enables support analysts to provide enhanced assisted
service with a powerful set of tools for diagnosing and resolving problems from
remote locations. By integrating the Healing Agent's knowledge and user history
with remote assisted service, the Support Center automatically provides support
analysts with key information that they would otherwise have to gather
manually. The Support Center allows support analysts to automatically identify
the fundamental causes of problems and enable users and support staff to
systematically and rapidly resolve them without desktop visits or protracted
interactions between the user and the analyst. The result is significant
reductions in call times, which in turn results in improved service to users
and lower support costs.
The enterprise healing capabilities of the Support Center enable the support
organization to proactively solve problems for a large number of users across
the organization before user productivity becomes impaired. Enterprise healing
allows the support organization to identify problems that could potentially
affect large numbers of users and preemptively repair them before users suffer
downtime.
The administration and management capabilities of the Support Center provide
centralized user management, usage and status reporting, storage maintenance,
security administration and instructions for the Healing Agent. The Support
Center manages characteristics and privileges for users and support analysts
and reports on support activities. For instance, periodic maintenance can be
performed from the Support Center to manage security parameters and storage
requirements. The Support Center provides centralized instructions for the
Healing Agents, which control their behavior and activity.
The Support Center includes the following features:
Knowledge-Driven Remote Diagnosis. Provides the support analyst with the
knowledge and tools to remotely diagnose problems on a user's system. The
Support Center provides support analysts with information about the current
configuration of a user's system, a history of all prior actions taken to
resolve the user's problems and a comprehensive suite of tools to present
context-sensitive solutions to the support analyst for execution. This allows
for analysis of problems based on the status of the user's system and
personalized support requirements and results in better and quicker diagnosis
of the fundamental cause of the problem and its solution.
Remote Repair. Enables the support analyst to remotely solve problems with
no user interaction. This reduces desktop visits and costly, time-consuming
interaction with users. Remote repair allows the support analyst to initiate
online chat sessions with users, edit their files and execute commands on their
systems.
Reporting. Provides support organizations with information for monitoring
support transactions, proactively identifying trends and potential problems and
measuring the effectiveness of our eSupport suite.
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Extensibility. Provides an open architecture to enhance and extend the
capabilities of the Support Center to meet evolving support needs. In addition,
the Support Center enables support organizations to transfer and leverage
information with knowledge bases and automatically transfers information into
call tracking databases.
Security. The user can control which activities are allowed or disallowed by
the support analyst. In addition, support administrators manage overall user
and group security. All support activity occurs using industry standard
security, including encryption and the use of digital certificates.
Undo capabilities. Allows support analysts to undo actions taken from the
Support Center. This provides support analysts with flexibility in controlling
actions that may have a negative effect. This increases receptiveness to remote
assisted support for both users and support personnel by reducing the perceived
risk of using the recommended solution.
Support Portal
The Support Portal is an interactive Web platform that enables businesses to
add to or enhance self-service or assisted service capabilities. The Support
Portal works with the Internet-enabled Support Center and Healing Agent to
provide support organizations with the components and infrastructure they need
to build interactive, full-service, context-sensitive and personalized online
support. The Support Portal enhances existing support solutions, such as
knowledge bases and call tracking systems, by delivering context-sensitive
information that allows for better solution matching and automated problem
resolution. The result is a support experience in which the Support Portal
interacts with the user, the system and other support technologies to provide a
personalized solution to the user's support request.
The Support Portal includes the following features:
Web-Based Solution. Scales with the organization's eBusiness initiatives.
The Support Portal serves as a single point of integration for all support
content, technologies and processes.
Interactive, Context-Sensitive Support. Interacts with users' systems to
guide those users through the complexities of their specific environments,
offering them context-sensitive, personalized support.
Support Process Automation. Connects users to support providers and
automates and mitigates inefficiencies in the support process. This includes:
. self-service;
. routing of support requests to the support organization;
. user identification and privilege verification;
. problem description;
. diagnosis and repair; and
. logging of actions taken by all parties involved in the support
transaction.
Foundry
The Foundry is a development environment for authoring support actions and
managing support content that can then be utilized by the Healing Agent,
Support Center and Support Portal. The Foundry's authoring capabilities enable
support organizations to create automated solutions, or SupportActions, that
support user applications and operating system components, automate common
support activities and schedule jobs to manage user systems. SupportActions can
be created for a complete range of support requests, including "break/fix"
problems, "how-to" questions and requests for system modifications.
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The Foundry includes the following features:
Content Creation and Content Management. The Foundry enables support
organizations to create, publish, integrate and maintain automated
SupportActions. Product attributes include:
. a platform for authoring automated SupportActions from a point-and-click
interface. This includes support content automation and the ability to
easily integrate existing support content into a database of solutions
and content.
. automated categorizing and indexing of support content and
SupportActions, which enables users to quickly find the appropriate
solution to their problem.
Personalization. The Foundry enables the support organization to create
personalized support content. Using the Foundry's capabilities, a company can:
. create support solutions that automatically identify and address the
unique support requirements of each user. These solutions are
automatically updated to reflect any changes in the user's support
requirements.
. deliver automated support solutions to a single user or set of users
based on the unique characteristics of their systems, the history of
their support needs, and other criteria.
Technology
We believe that our core technologies provide the foundation for a scalable
support infrastructure. The intelligent nature of our core technologies enables
our products to automatically adapt to varying environments and to reduce the
manual labor associated with the support process.
DNA Probe--Personalized Support
The DNA Probe provides detailed data about each user, their system, and the
software on their system. The patented DNA Probe technology automatically
identifies the characteristics of each user's software applications and
operating system components and tracks them over time. This personalized data
can then be used to quickly sift through large amounts of information, compare
historical data and highlight potential fundamental causes of problems. For
example, the DNA Probe technology automatically identifies all of the network
settings for each individual user, including the network address, machine name,
Internet configuration and the specific drivers for their network card. In
contrast to other support process methodologies, which involve authoring
generic solutions and attempting to apply those to numerous unique users,
support organizations can use the DNA Probe's ability to learn about each
dynamic environment to efficiently provide users with personalized support
solutions.
ContextResponse--Context-Sensitive Support
ContextResponse analyzes the data gathered by the DNA Probe, identifies and
diagnoses the most relevant information, and then delivers a solution for a
user's problem or question. It is the ability to gather, analyze and transmit
context-sensitive information which efficiently automates the support process.
ContextResponse personalizes and automates the support process by:
. automatically gathering information that otherwise would require a time-
consuming and frequently complex interaction between the user and the
support analyst. For example, rather than asking a user to identify their
specific operating system parameters and software versions,
ContextResponse automatically gathers this information and electronically
relays the information to the support analyst.
. analyzing information to identify potential problems. ContextResponse is
designed to identify the fundamental cause of a problem by analyzing the
results of diagnostic programs and/or comparing the user's current system
configuration to a previous working configuration, a reference
configuration or another user's configuration.
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SupportActions--Point and Click Development and Delivery
Many custom support solutions can be packaged as SupportActions, which
enable the automation of common support activities such as answering
"break/fix" problems or "how-to" questions. Support analysts use the Foundry to
create custom SupportActions via a simple point-and-click interface. Support
organizations can integrate existing programs, commands and content into
SupportActions to turn static information into automated knowledge. For
example, the support organization could integrate frequently asked questions or
a diagnostic program into a SupportAction so that the user can automatically
perform the steps described by the answers to the frequently asked questions or
the diagnostics program. SupportActions can accomodate many scripting languages
and a wide range of content.
Change Management Infrastructure
Our change management infrastructure provides a common mechanism for the
distribution and application of changes to one or more machines. This
infrastructure is used across all products to ensure that changes made to a
user's machine are consistent, reversible and recorded. Repair to a user's
machine, comparison of one machine to another, installation, modification and
distribution can all be achieved using our common change management
infrastructure. Support solutions are easier to develop with this
infrastructure because steps that are done manually and are potentially error-
prone are replaced by automatic and consistent mechanisms. This can facilitate
rapid development and reduce the cost of on-going maintenance.
Nexus--Enhanced Communication Infrastructure
Our products communicate directly with each other using secure protocols,
but firewalls and other network components often restrict direct communication
across the Internet. In the event that a firewall or other device prevents
direct communication between remote parties, our products are designed to
communicate indirectly using our Nexus technology as an intermediary. Our Nexus
technology allows communication to take place between parties in circumstances
where direct communication is unreliable or impossible.
Software Vaults--Efficient Storage Management
Once a user's problem is diagnosed, the solution is delivered to the user
from the Software Vault. Support solutions generally require access to a large
amount of support content, in the form of files, programs and other
information, which must be available locally and/or across a network. Our
patent-pending Software Vault provides storage, retrieval and management of
this support content. All files and programs associated with supported
applications, operating system components and all SupportActions are stored in
the Software Vault.
The Software Vault provides a redundant, distributed mechanism for this
support content. For example, if a particular file on a user's system has been
corrupted and needs to be replaced, one or more Software Vaults will be
accessed in a logical sequence until the needed file has been found. Software
Vaults reside on servers to support thousands of users, and portions of
Software Vaults can also be placed locally on a user's system to provide
support for critical applications and operating system components when the user
is completely disconnected from the network.
The Software Vault's file storage mechanism is highly efficient. By storing
each unique file only once, the Software Vault minimizes disk space,
communications and bandwidth requirements. For example, if a number of users
have multiple applications that all use a particular version of a file or
program, only one copy of that file is kept in the Software Vault.
Services and Support
Our services organization provides a range of support offerings from
architectural design to on-going customer support and is critical to our focus
on customer satisfaction. Our services group configures solutions for our
customers that are deployed across all or parts of their organization. Our
services and support capabilities are divided into three areas:
. Implementation--Provides architectural design, transformation, product
integration and deployment services to our customers. Each implementation
is customized according to the customer's organizational and technical
requirements.
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. Education--Trains our customers and those parties with whom we have
alliances in the design, implementation and use of our products.
. Technical Support--Responds to design, feature, implementation and
deployment questions.
Under a maintenance contract, our customers receive generally available new
releases, corrections, enhancements, updates and other changes to the products
they have licensed.
As of January 31, 2000, we had 12 employees engaged in services and support
activities.
Customers
We market and sell our eSupport solutions to corporate information
technology departments, support outsourcers, Internet service providers,
application service providers and other businesses that leverage the Internet.
The following is a representative list of companies who have purchased our
products and services organized by our customer focus categories:
[Download Table]
Corporate ISP/ASP Support Outsourcers
--------- ------------- ----------------------------
Bear Stearns everdream Compaq Professional Services
Broadcom Excite@Home CompuCom
Cadence Design Systems Globo Cabo Computer Sciences Corp.
Chase H&Q Jamcracker Cotelligent
Equifax micronpc.com Service 911.com
JCPenney Xerox Connect
Madge Networks
McKesson HBOC
Case Studies
The following case studies illustrate how our customers integrate our
solution:
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[Download Table]
Customer Description
Bear, Stearns & Co. Bear, Stearns & Co. Inc. is a leading investment
Inc. banking and securities trading and brokerage firm
serving organizations and individuals worldwide. Bear
Stearns was seeking a solution to manage the more than
11,000 troubleshooting calls per month received by its
support organization from internal and external
traders. Bear Stearns selected us because of our
ability to solve complex problems related to the
diverse environments of its systems. By using our
software, Bear Stearns support analysts can remotely
support these users, streamline the support process and
solve their most common problems in a more effective
and timely manner. Bear Stearns support analysts now
have more time to focus on additional support issues.
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Excite@Home Excite@Home is a global media company that provides
high-speed Internet access to over 1,000,000 consumer
and small business users. Excite@Home needed a solution
to better manage calls related to connectivity
difficulties, their most common support call,
representing 35% of all calls received. They chose the
Support.com Healing Agent, which is installed as a
standard part of Excite@Home's service. The Healing
Agent supports PC, network and Internet configurations,
provides continuous support for network components and
client software, and can automatically solve user's
connection problems. With the Support.com solution, the
number of calls to the call center have decreased and
the time it takes to solve problems when calls do come
in has decreased. We are also working with other
organizations to create an Excite@Home Support Portal
that will enable its users to access our eSupport
solutions, as well as the virus protection, aggregated
support content and e-commerce offerings of other
vendors.
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[Download Table]
Customer Description
JCPenney JCPenney, the worldwide leader in the retail industry,
was seeking a solution to enhance its support process
while providing a better service level to its
employees. JCPenney uses our software to provide a full
range of eSupport solutions focused on automating the
support process and improving the user community
experience with the help desk.
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Compaq Professional Compaq Professional Services, a division of Compaq
Services Computer Corporation, operates one of the world's
largest and leading multi-lingual help desks, providing
service to more than one million corporate computer
users. Compaq was looking for a solution to resolve
user problems as quickly as possible and decrease
overall support costs. The eSupport solution for Compaq
is a part of the Compaq Professional Services global
help desk and provides comprehensive self-healing,
self-service and assisted service over the Internet.
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everdream everdream is an application service provider that
delivers hardware, software, networking infrastructure
and support to small business customers, thereby
offering its customers a single point of support. With
the integration of our self-healing, self-service and
assisted service technology on the everdream platform,
everdream is able to increase the number of technical
problems solved for its customers and decrease the time
it takes to solve them. As a result, everdream's
customers can experience increased productivity and
cost savings.
Strategic Alliances
An important element of our sales and marketing strategy is to leverage and
expand our strategic alliances with key industry leaders to increase market
awareness, acceptance and distribution of our products and services. We have
established formal and informal distribution and solutions alliances with
industry leaders to help us to deliver comprehensive solutions and allow us to
focus on our core area of expertise: developing eSupport software. We employ
this network of alliances to expand our sales, service and marketing
capabilities and to extend the technical and functional application of our
eSupport solutions.
Distribution Alliances
We have established distribution alliances with specialized technology and
services firms that deliver our solutions to specific market segments. These
distribution relationships allow us to benefit from the marketing and lead
generation capabilities of these firms and are intended to increase geographic
sales coverage and to address small- to-medium-sized businesses and large
corporate customers. In turn, the companies with which we have distribution
alliances can enhance their product and service offerings and increase customer
satisfaction with our products while effectively managing costs associated with
providing support to their customers.
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The following table illustrates our formal distribution alliances:
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[Download Table]
Target Category Company
Support Outsourcers deliver outsourced Compaq Professional Services
technical support and help desk capabilities CompuCom
to large corporations. Computer Sciences Corp.
Cotelligent
Service 911.com
Sykes Enterprises
Xerox Connect
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Internet Service Providers offer their Excite@Home
customers Internet access.
Globo Cabo
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PC Vendors provide support to their customers Omni Tech
in connection with their hardware product
offerings. Premio Computer
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Application Service Providers offer hardware, everdream
software, networking infrastructure with
Internet accessible applications and support Jamcracker
to small- and medium-sized companies. micronpc.com
-----------------------------------------------------------------------------
Support Integrators provide strategic Support Technologies
consulting and implementation services to
organizations building their support
infrastructure.
Solutions Alliances
We have established solutions alliances with leading providers of
complementary support technologies such as call center/help desk management
companies, knowledge management companies and systems management firms. Our
relationships with these technology providers help us deliver comprehensive
solutions to our customers and provide us the ability to rapidly adapt our
solutions to our customers' needs. We also seek to generate referral sales from
these alliances. By establishing alliances with Support.com, these technology
providers can provide a more comprehensive support solution to their customers
while informing and educating their customers about new support products and
technologies.
The following table illustrates our formal and informal solutions alliances:
--------------------------------------------------------------------------------
[Download Table]
Target Category Company
Call Center/Help Desk Management solution providers HP OpenView
offer software that allows organizations to respond to Peregrine Systems
service call requests and monitor support activity. Remedy
-------------------------------------------------------------------------------
Knowledge Management companies provide solutions that Inference
collect, organize and share an enterprise's support
data. ServiceWare
-------------------------------------------------------------------------------
Email Management solutions providers enable help Kana Communications
desk/customer service departments to route, track and
respond to high volumes of customer email.
-------------------------------------------------------------------------------
Systems Management solutions providers enable global Computer Associates
organizations to control their IT resources, increase
application availability and improve customer service. Tivoli
-------------------------------------------------------------------------------
Password Reset companies provide solutions to automate Courion
the reset and synchronization of user passwords.
-------------------------------------------------------------------------------
Content Providers deliver support-related content. MyHelpdesk.com
Shaman Corporation
ZDNet
-------------------------------------------------------------------------------
Hardware Diagnostics solutions providers offer utilities PC-Doctor
to accurately determine the cause of hardware problems.
42
Research and Development
The emerging market for eSupport solutions is characterized by rapid
technological change, new product introductions and enhancements, evolving
customer requirements and rapidly changing industry standards. We devote a
substantial portion of our resources to developing new and enhanced versions of
our eSupport infrastructure software, conducting product testing and quality
assurance testing and improving our core technologies, ultimately strengthening
our technological expertise in the market for eSupport.
As of January 31, 2000, we had 30 employees in research and development
activities. Our research and development expenditures were approximately $1.1
million in 1998 and $2.4 million in 1999. We expect to continue to devote
significant resources to research and development for the next several years.
Sales and Marketing
Sales
Our sales efforts target corporate information technology departments,
support outsourcers, Internet service providers, application service providers
and other businesses that leverage the Internet, through a combination of
direct and indirect sales channels. Direct channels are characterized by direct
relationships with customers, while indirect channels utilize existing
customers and strategic alliances to generate new business. Our corporate
customers consist of clients which leverage their intranet and/or extranet for
their eBusiness initiatives. We address these corporate entities through direct
channels to targeted industries, including financial services,
telecommunications, retail and manufacturing, and indirect channels to
outsourcers, live support providers and system integrators. Our Internet market
customers consist of Internet service provider and application service provider
clients, which we address through direct sales channels. We have established
specialized task forces to oversee each of our targeted customer segments. A
telephone and Web sales team will be responsible for lead generation, customer
follow-up, add-on business and new sales via the Web to existing customers and
new market segments.
We maintain direct and indirect sales personnel in North America covering
the United States, Canada and Latin America, in the United Kingdom covering
Europe, the Middle East and Africa, and in Singapore covering the Asia Pacific
region. The direct and indirect sales force is organized into account teams
that include sales executives and system engineers. The direct sales force is
divided regionally and provides business and technical continuity to our
customers. Our indirect sales force is responsible for globally enabling large
service providers to sell and deploy our eSupport products to new customers.
The indirect team is focused on enabling these channels through training,
certification and sales and marketing assistance.
Our sales strategy utilizes partner relationships and consultative selling
techniques and incorporates a comprehensive communication infrastructure for
both our direct and indirect sales forces. We plan to continue to invest and
increase the size and geographical locations of both our direct and indirect
sales model on a global basis.
Marketing
Our marketing efforts include needs assessment and market analysis, brand
awareness, category education and lead generation, and educating organizations
in our target markets, including corporate information technology departments,
support outsourcers, Internet service providers, application service providers
and other businesses that leverage the Internet.
43
Needs assessment and market analysis include such activities as:
. conducting market research;
. establishing and maintaining close relationships with leading industry
analysts;
. developing close relationships with professional associations for help
desk and support professionals; and
. capturing, organizing and prioritizing customer and industry feedback to
provide product direction to our research and development organization.
Brand awareness, category education and lead generation include such
activities as:
. performing educational seminars;
. developing and implementing direct mail and advertising campaigns;
. performing marketing programs including Web seminars and Web direct mail;
. managing and maintaining public relations campaigns
. participating in industry-related events, conferences and tradeshows; and
. developing and maintaining our Web site.
Our Solutions Alliances Program is comprised of a select group of technology
vendors in which together we focus on a range of joint marketing strategies and
programs to extend the reach of our presence in the marketplace. We intend to
continue to pursue these partnerships in the future.
As of January 31, 2000, approximately 45 of our employees were engaged in
sales and marketing activities.
Competition
The market for our products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities of industry participants. Although we do not currently compete
against any one entity with respect to all aspects of our eSupport solution, we
do compete with various vendors in regards to specific elements of our eSupport
solution. These elements include automated development of support solutions,
automated delivery of support solutions, and an Internet support
infrastructure. For example, we currently compete with companies that provide
automated development of support solutions, such as Serena Software, Inc. We
also compete with companies that provide automated delivery of support
solutions, such as Motive Communications, Inc.
In the future, we may encounter competition from other software companies to
the extent that we enter each other's market. These companies may include:
customer communications software companies, such as Kana Communications, Inc.
and eGain Communications, Inc.; question/answer companies, such as Ask Jeeves;
customer relationship management, or CRM, solutions companies, such as Siebel
Systems, Inc., Oracle Corporation and Silknet Software, Inc.; consolidated
service desk (CSD) solution vendors, such as Clarify Inc., Peregrine Systems,
Inc. and Remedy Corporation; and operating systems providers, such as Microsoft
Corporation.
Our potential competitors may have longer operating histories, significantly
greater financial, technical, and other resources, or greater name recognition
than we do. Our competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements. Competition could
seriously harm our ability to sell additional software, maintenance renewals
and services on terms favorable to us. Competitive pressures could reduce our
market share or require us to reduce the price of products and services, any of
which could harm our business, financial condition and operating results.
44
We believe that the principal competitive factors in our market include:
. establishing a significant base of reference customers;
. demonstrating ongoing value and return-on-investment;
. product functionality, quality and performance;
. introducing new products to the market in a timely manner;
. customer service and support; and
. pricing.
Although we believe our solutions compete favorably with respect to each of
these factors, the market for our products is new and rapidly evolving. We may
not be able to maintain our competitive position against current and potential
competitors, especially those with greater resources.
Intellectual Property
The status of United States patent protection in the software industry is
not well defined and will evolve as the U.S. Patent and Trademark Office grants
additional patents. We have one patent in the general area of automated
discovery of dynamic configurations. We currently have four patent applications
pending in the United States, and we may seek additional patents in the future.
We do not know if our patent applications or any future patent application will
result in a patent being issued with the scope of the claims we seek, if at
all, or whether any patents we have or may receive will be challenged or
invalidated. It is difficult to monitor unauthorized use of technology,
particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States, and our competitors may
independently develop technology similar to ours. We will continue to assess
appropriate occasions for seeking patent and other intellectual property
protections for those aspects of our technologies that we believe constitute
innovations providing significant competitive advantages. The pending and any
future applications may or may not result in the issuance of valid patents.
Our success depends in part upon our rights in proprietary software
technology, some of which is patented. We rely on a combination of copyright,
trade secret, trademark and contractual protection to establish and protect our
proprietary rights that are not protected by patent, and we enter into
confidentiality agreements with those of our employees and consultants involved
in product development. We routinely require our employees, customers and
potential business partners to enter into confidentiality and nondisclosure
agreements before we will disclose any sensitive aspects of our products,
technologies or business plans. In addition, we require employees to agree to
surrender to us any proprietary information, inventions or other intellectual
property they generate or come to possess while employed by us. Despite our
efforts to protect our proprietary rights through confidentiality and license
agreements, unauthorized parties may attempt to copy or otherwise obtain and
use our products or technology. These precautions may not prevent
misappropriation or infringement of our intellectual property.
Third parties may infringe or misappropriate our copyrights, trademarks and
similar proprietary rights. In addition, other parties may assert infringement
claims against us. Although we have not received notice of any alleged
infringement, our products may infringe issued patents that may relate to our
products. In addition, because patent applications in the United States are not
publicly disclosed until the patent is issued, applications may have been filed
which relate to our software products. We may be subject to legal proceedings
and claims from time to time in the ordinary course of our business, including
claims of alleged infringement of the trademarks and other intellectual
property rights of third parties. Intellectual property litigation is expensive
and time-consuming and could divert management's attention away from running
our business. This litigation could also require us to develop non-infringing
technologies or enter into royalty or license agreements. These royalty or
license agreements, if required, may not be available on acceptable terms, if
at all, in the event of a successful claim of infringement. Our failure or
inability to develop non-infringing technologies or license the proprietary
rights on a timely basis would harm our business.
45
Employees
As of January 31, 2000, we had 102 full-time employees, including 30 in
research and development, 12 in services, 45 in sales and marketing and 15 in
general and administrative. None of our employees are covered by collective
bargaining agreements. We believe our relations with our employees are good.
Legal Proceedings
We are not a party to any material legal proceeding. We may be subject to
various claims and legal actions arising in the ordinary course of business.
Facilities
Our corporate headquarters are located in Redwood City, California, where we
lease approximately 23,200 square feet under a lease that expires in August
2001. As of December 31, 1999, we also leased office space in 6 other cities
for our sales and support personnel. The terms of these leases expire beginning
in April 2000 and ending in July 2001, and automatically renew unless earlier
terminated. We are currently subleasing our previous office space in Palo Alto,
California, and anticipate continuing to do so until that lease expires in July
2001.
We expect to require additional space to meet our needs in the next 12
months. We are currently pursuing our options with respect to obtaining
additional facilities. Adequate space may not be available on commercially
reasonable terms.
46
MANAGEMENT
Directors and Executive Officers
Our directors, executive officers and key employees and their ages as of
December 31, 1999 are as follows:
[Enlarge/Download Table]
Name Age Position
---- --- --------
Radha R. Basu.................. 49 Chief Executive Officer, President and Director
Mark J. Pincus................. 34 Chairman of the Board
Brian M. Beattie............... 46 Chief Financial Officer, Senior VP of Finance and
Administration
Jim R. Hilbert................. 39 Senior Vice President of Sales and Business
Development
Scott W. Dale.................. 30 Chief Technical Officer
Cadir B. Lee................... 28 Chief Software Officer
Lucille K. Hoger............... 46 Vice President of Operations
Michael P. O'Rourke............ 40 Vice President of Engineering
Anthony C. Rodoni.............. 35 Vice President of Marketing
Matthew T. Cowan............... 28 Director
William L. Dunn(2)............. 63 Director
Bruce Golden(1)................ 40 Director
Edward S. Russell(2)........... 39 Director
Roger J. Sippl(1).............. 44 Director
--------
(1) Member of compensation committee.
(2) Member of audit committee.
Radha R. Basu. Ms. Basu has served as President, Chief Executive Officer and
as a director of Support.com since July 1999. Ms. Basu worked at Hewlett-
Packard Company, a computing and imaging solutions provider company, from
November 1978 to January 1999, and held various general management positions,
most recently the general manager of the Electronic Business Software
Organization. Ms. Basu also serves as chairman of the board of directors of
Seec, Inc., an eBusiness solutions company. Ms. Basu holds a B.S. in
Engineering from the University of Madras, a Masters degree in Electrical
Engineering and Computer Science from the University of Southern California and
is a graduate of the Stanford University Executive Management Program.
Mark J. Pincus. Mr. Pincus co-founded, and has served as the Chairman of
Support.com since its inception in December 1997. Mr. Pincus served as the
Chief Executive Officer and President of Support.com since its inception until
July 1999. Mr. Pincus is also a part-time employee of Support.com. From 1995 to
1997, Mr. Pincus was a co-founder and Chief Executive Officer of FreeLoader,
Inc., a Web-based push technology service. From 1994 to 1995, he served as Vice
President with Columbia Capital, a venture capital firm. From 1993 to 1994, he
served as Manager at Tele-Communications, Inc. now AT&T Cable. Mr. Pincus holds
a B.S. in Economics from Wharton, University of Pennsylvania and an MBA from
Harvard Business School.
Brian M. Beattie. Mr. Beattie has served as Executive Vice President of
Finance and Administration and Chief Financial Officer of Support.com since
October 1999. From May 1998 to May 1999, he served as Vice President of
Finance, Mergers and Acquisitions of Nortel Networks Corporation, a voice and
data networking company. From July 1996 to April 1998, Mr. Beattie served as
Group Vice President of Meridian Solutions of Nortel Networks Corporation. From
February 1993 to June 1996, Mr. Beattie served as Vice President Finance,
Enterprise Networks, for Nortel Networks Corporation. Mr. Beattie holds a
Bachelor of Commerce and an MBA from Concordia University in Montreal.
47
Jim R. Hilbert. Mr. Hilbert has served as Senior Vice President of Sales and
Business Development of Support.com since December 1999. From December 1998 to
December 1999, he served as Vice President and General Manager of Tivoli
Systems, Inc., a provider of systems management software and subsidiary of
International Business Machines Corporation. From March 1997 to December 1998,
he served as Vice President of Sales of Tivoli Systems, Inc. From 1987 to 1997,
he served in several senior management positions in sales and marketing for
Amdahl Corporation, a computer company. Mr. Hilbert holds a B.S. in Computer
Science from the University of Texas.
Scott W. Dale. Mr. Dale co-founded Support.com and has served as the Chief
Technical Officer of Support.com since its inception in December 1997. From
January 1997 to December 1997, Mr. Dale served as a software consultant for M&I
Data Services, a financial transaction software company. From July 1992 to
January 1997, Mr. Dale served as a software consultant to Hewlett-Packard
Company, a computing and imaging solutions provider company. Mr. Dale holds a
B.S. in Computer Science from Stanford University.
Cadir B. Lee. Mr. Lee co-founded Support.com and has served as the Chief
Software Officer of Support.com since its inception in December 1997. From 1995
to 1997, Mr. Lee served as a software consultant to Hewlett-Packard Company, a
computing and imaging solutions provider company. Mr. Lee holds a B.S. in
Biological Sciences and a B.A. in Music from Stanford University.
Lucille K. Hoger. Ms. Hoger has served as the Vice President of Operations
of Support.com since February 2000. From 1996 to 2000, Ms. Hoger served as the
Chief Operating Officer at ConnectInc.com, an e-commerce software company. From
1992 to 1995, she served as a principal for Gemini Consulting, an affiliate of
Cap Gemini, a consulting company. Ms. Hoger holds a B.A. in Accounting from
Southwest Texas State University.
Michael P. O'Rourke. Mr. O'Rourke has served as the Vice President of
Engineering of Support.com since December 1999. From July 1999 to December 1999
he served as Vice President of Operations of Support.com. Prior to joining
Support.com, Mr. O'Rourke served in several executive positions at Tivoli
Systems, a provider of systems management software and subsidiary of
International Business Machines Corporation. Mr. O'Rourke served as Vice
President of the Packaged Solutions Business Unit at Tivoli Systems from
December 1998 to June 1999, as Vice President of the Enterprise Business Unit
from February 1998 to December 1998, as Vice President of Marketing and Partner
Programs from June 1996 to February 1998, as Director of Partner Programs from
July 1995 to June 1996 and as Director of Application Development from April
1993 to July 1995. Mr. O'Rourke holds a B.S. in Computer Science from the
University of Vermont.
Anthony C. Rodoni. Mr. Rodoni has served as Vice President of Marketing of
Support.com since June 1998. From March 1988 to June 1998, Mr. Rodoni served in
a variety of management positions, most recently as General Manager of the Data
Warehouse Business Unit, at Informix Software, Inc., a database software
company. Mr. Rodoni holds a B.S. in Computer Science from the University of
California at Santa Barbara and an MBA from Santa Clara University.
Matthew T. Cowan. Mr. Cowan has served as a director of Support.com since
June 1999. From September 1998 to the present, Mr. Cowan has served as General
Partner of Bowman Capital Management, a premier institutional investor
specializing in both public and private technology growth companies. From July
1994 to September 1998, Mr. Cowan served as Director, Corporate Business
Development of Intel Corporation. Mr. Cowan holds a B.A. degree in Political
Science from Tufts University.
William L. Dunn. Mr. Dunn has served as a director of Support.com since
April 1998. From 1961 to 1989, Mr. Dunn served as an Executive Vice-President
of Dow-Jones & Company, a publishing company. Mr. Dunn holds a B.A. in
Economics from Drake University.
Bruce Golden. Mr. Golden has served as a director of Support.com since June
1998. Since September 1997, Mr. Golden has served initially as entrepreneur-in-
residence and then as a Partner at Accel Partners, a
48
venture capital firm. From 1993 to August 1996, Mr. Golden served as a Vice
President of Marketing at Illustra Information Technology, which was acquired
by Informix Corporation in 1996, at which time Mr. Golden was employed by
Informix Corporation, a database company. Mr. Golden holds a B.A. in Political
Science from Columbia University.
Edward S. Russell. Mr. Russell has served as a director of Support.com since
June 1998. Since October 1996, Mr. Russell served as a General Partner at
Softbank Technology Ventures, Inc. From 1988 to October 1996, Mr. Russell
served as the Executive Director at SBC Warburg. Mr. Russell is a director of
Buy.com, a multi-category Internet superstore. Mr. Russell received his B.S. in
Computer Science from Carnegie Mellon University and an Executive MBA from
London School of Business.
Roger J. Sippl. Mr. Sippl has served as a director of Support.com since
January 1999. Since August 1995, Mr. Sippl has served as the managing partner
of Sippl Macdonald Ventures, a venture capital firm. From 1980 to 1989, Mr.
Sippl was the founder and served as Chief Executive Officer and Chairman of the
Board of Informix Corporation a database company. From 1989 to 1993, Mr. Sippl
served as Chairman of the Board of Informix Corporation. From December 1990 to
1996, he co-founded and served as a director of The Vantive Corporation, a
customer relationship management solutions company. From 1996 to 1998, he
served as Chairman of the Board of The Vantive Corporation. From February 1993
until March 1998, Mr. Sippl was the founder and served as the Chief Executive
Officer and Chairman of the Board of Visigenic Software, Inc., a software tools
provider company. From March 1998 to July 1998, he served as Chief Technology
Officer of Borland International, Inc. Mr. Sippl holds a B.S. in Computer
Science from the University of California at Berkeley.
There are no family relationships among any of our directors or executive
officers.
Board Committees
Our board of directors has a compensation committee and an audit committee.
Our compensation committee is responsible for, among other things,
determining salaries, incentives and other forms of compensation for directors,
officers and other employees of Support.com and administering various incentive
compensation and benefit plans. Prior to December 1999, we did not have a
compensation committee. Our board of directors established executive
compensation levels for 1999. Bruce Golden and Roger J. Sippl are the current
members of the compensation committee. Radha R. Basu, our Chief Executive
Officer, will participate in all discussions and decisions regarding salaries
and incentive compensation for all employees and consultants of Support.com,
except that she will be excluded from decisions regarding her own salary and
incentive compensation.
Our audit committee reviews our annual audit and meets with our independent
auditors to review our internal controls and financial management practices.
Edward S. Russell and William L. Dunn are the current members of the audit
committee.
Director Compensation
Except for the grant of stock options and the grant of common stock pursuant
to restricted stock purchase agreements, we do not currently compensate our
directors for their services as directors. Our directors are eligible to
participate in our 2000 Omibus Equity Incentive Plan and our directors who are
employees of Support.com are eligible to participate in our 2000 Employee Stock
Purchase Plan. We also reimburse each member of our board of directors for out-
of-pocket expenses incurred in connection with attending board meeting.
In addition, we granted Bruce Golden, a director of Support.com, an option
to purchase 50,000 shares of our common stock under our 1998 Stock Plan at a
purchase price of $0.10 per share. We granted William Dunn, a director of
Support.com, the right to purchase 80,000 shares of our common stock pursuant
to a
49
restricted stock purchase agreement at a purchase price of $0.10 per share. On
February 18, 1999, Mr. Dunn purchased these shares of our common stock, subject
to our right of repurchase which lapses over time. We granted Roger J. Sippl, a
director of Support.com, the right to purchase 100,000 shares of our common
stock pursuant to a restricted stock purchase agreement, at a purchase price of
$0.10 per share. On January 14, 1999, Mr. Sippl purchased these shares of our
common stock, subject to our right of repurchase which lapses over time.
Executive Compensation
The following table provides summary information concerning compensation
earned by or paid to our chief executive officer, our former chief executive
officer and to our three other most highly compensated executive officers whose
total annual salary and bonus exceeded $100,000, for services rendered in all
capacities to Support.com during 1999. These individuals are referred to as the
"named executive officers." Other than the salary and bonus described below,
Support.com did not pay any executive officer named in the Summary Compensation
Table any fringe benefits, perquisites or other compensation in excess of 10%
of that executive officer's salary and bonus during 1999.
Summary Compensation Table
[Download Table]
Long-Term
Compensation
Awards
------------
Annual
Compensation(1) Security
---------------- Underlying
Name and Principal Position Salary Bonus Options (#)
--------------------------- -------- ------- ------------
Radha R. Basu(1).................................. $ 94,744 $45,834 1,680,189
President and Chief Executive Officer
Mark J. Pincus(2)................................. 146,692 -- 500,000
Chairman of the Board
Scott W. Dale..................................... 120,833 -- 250,000
Chief Technical Officer
Cadir B. Lee...................................... 120,833 -- 250,000
Chief Software Officer
Anthony C. Rodoni................................. 135,000 30,000 25,000
Vice President of Marketing
--------
(1) Ms. Basu became our Chief Executive Officer as of July 15, 1999. Ms. Basu's
salary on an annualized basis is $200,000.
(2) Mr. Pincus served as our Chief Executive Officer until July 15, 1999.
Option Grants in Last Fiscal Year
The percentage of total options granted is based on an aggregate of
6,326,139 options granted in 1999. The exercise price on the date of grant was
equal to the fair market value on the date of grant as determined by the board
of directors. Options have a maximum term of 10 years subject to earlier
termination for specified events related to cessation of employment. The 5% and
10%, assumed rates of appreciation are mandated by the rules of the Securities
and Exchange Commission and do not represent Support.com's estimate or
projection of the future stock price.
50
The values reflected in the table may never be achieved. The dollar values
have been calculated by determining the difference between the fair market
value of the securities underlying the options at December 31, 1999 and the
exercise prices of the options. Solely for purposes of determining the value of
the options at December 31, 1999, we have assumed that the fair market value of
shares of common stock issuable upon exercise of options was $ per share,
the assumed initial public offering price, since the common stock was not
traded in an established market prior to the offering.
These stock options were granted under the 1998 Stock Plan and are
immediately exercisable. We have a right to repurchase at cost any shares which
have been exercised but remain unvested at the time of the officer's cessation
of employment. Ms. Basu's options vest at a rate of 25% upon the first
anniversary of her vesting start date and 1/48 per month thereafter. In the
event we merge or consolidate with another entity or sell all or substantially
all of our assets and Ms. Basu is terminated without cause or if she terminates
her employment under certain circumstances following such event, all of her
remaining unvested shares will vest.
Of Mr. Pincus' 500,000 options, 250,000 options vest at a rate of 25% upon
the first anniversary of his vesting start date and 1/48 per month thereafter,
and 250,000 options vest at a rate of 1/12 per month over one year. In the
event we merge or consolidate with another entity or sell all or substantially
all of our assets and Mr. Pincus is terminated without cause or if he
terminates his employment under certain circumstances following such event, all
of his remaining unvested shares will vest.
Mr. Dale's and Mr. Lee's options vest at a rate of 25% upon the first
anniversary of each of their vesting start dates and 1/48 per month thereafter.
Mr. Rodoni's options were fully vested on the date of grant.
Option Grants in Last Fiscal Year
[Download Table]
Potential
Realizable
Value at
Assumed Annual
Rates of
Stock Price
Percentage of Exercise Appreciation
Total Options or Base for Option Term
Options Granted in Price Expiration ---------------
Name Granted 1999 ($/Share) Date 5% 10%
---- --------- ------------- --------- ---------- ------- -------
Radha R. Basu..... 1,680,189 26.55% $0.40 7/15/09 $ $
Mark J. Pincus.... 500,000 7.90 0.99 7/22/09
Scott W. Dale..... 250,000 3.95 0.90 7/22/09
Cadir B. Lee...... 250,000 3.95 0.90 7/22/09
Anthony C.
Rodoni........... 7,500 0.12 0.10 2/11/09
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table assumes a per-share fair market value equal to
$ , the mid-point of the initial public offering price of $ .
[Enlarge/Download Table]
Number of Unexercised Value of Unexercised
Shares Options at Fiscal In-the-Money Options at
Acquired on Value Year-End Fiscal Year-End(3)
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
Radha R. Basu........... -- $ 1,680,189/-- $ /
Mark J. Pincus.......... 500,000 --/-- /
Scott W. Dale........... -- 250,000/--
Cadir B. Lee............ -- 250,000/--
Anthony C. Rodoni....... 286,944 170,556/--
Compensation Committee Interlocks and Insider Participation
The members of our compensation committee are currently Bruce Golden and
Roger J. Sippl. No interlocking relationship exists, or has existed in the
past, between the board of directors or compensation committee and the board of
directors or compensation committee of any other company.
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1998 Stock Option Plan
The board of directors in October 1998 adopted our 1998 Stock Option Plan.
Our 1998 Stock Option Plan provides for the grant of incentive stock options as
defined in Section 422 of the Internal Revenue Code to employees and the grant
of nonstatutory stock options to employees, non-employee directors and
consultants. A total of 8,124,434 shares of common stock have been reserved for
issuance under our 1998 Stock Option Plan as of December 31, 1999. In February
2000 we increased the number of shares of common stock reserved for issuance
under our 1998 Stock Option Plan by an aggregate of 1,300,000 shares.
Our compensation committee and our non-insider option committee administer
our 1998 Stock Option Plan. Our compensation committee consists of at least two
directors who are "non-employee directors," as defined in Rule 16b-3. The board
of directors may amend our 1998 Stock Option Plan as desired without further
action by Support.com's stockholders except as required by applicable law. Our
1998 Stock Option Plan will continue in effect until terminated by the board or
for a term of 10 years from its amendment and restatement date, whichever is
earlier.
The consideration for each award under our 1998 Stock Option Plan will be
established by the compensation committee, but in no event will the option
price for incentive stock options be less than 100% of the fair market value of
the stock on the date of grant. Awards will have such terms and be exercisable
in such manner and at such times as the compensation committee may determine.
However, each incentive stock option must expire within a period of not more
than 10 years from the date of grant.
Generally, options granted under the 1998 Stock Option Plan vest over four
years and are nontransferable other than by will or the laws of descent and
distribution. In the event of specified changes in control of Support.com, the
acquiring or successor corporation may assume or substitute for options
outstanding under the 1998 Stock Option Plan, or these options will terminate.
Some options granted to our executive officers provide for partial acceleration
upon a change in control of Support.com. As of December 31, 1999,
. 4,171,994 shares of common stock have been issued upon the exercise of
options; and
. 7,545 shares were available for future awards.
2000 Omnibus Equity Incentive Plan
The 2000 Omnibus Equity Incentive Plan was adopted by our board of directors
on February 15, 2000 and will be submitted for approval by our stockholders
prior to the completion of this offering. The 2000 Omnibus Equity Incentive
Plan will be administered by our compensation committee. The 2000 Omnibus
Equity Incentive Plan provides for the direct award or sale of shares of common
stock and for the grant of options to purchase shares of common stock. The 2000
Omnibus Equity Incentive Plan provides for the grant of incentive stock options
as defined in Section 422 of the Internal Revenue Code and the grant of
nonstatutory stock options and stock purchase rights to employees, non-employee
directors, advisors and consultants.
4,000,000 shares of common stock have been authorized for issuance under the
2000 Omnibus Equity Incentive Plan. However, in no event may one participant in
the 2000 Omnibus Equity Incentive Plan receive option grants or direct stock
issuances for more than 1,000,000 shares in the aggregate per fiscal year. The
number of shares reserved for issuance under the 2000 Omnibus Equity Incentive
Plan will be increased on the first day of each of our fiscal years from 2000
through 2009 by the lesser of:
. 2,000,000;
. 5% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or
. the number of shares determined by the board of directors.
52
The 2000 Omnibus Equity Incentive Plan will have the following program
features:
. Qualified employees will be eligible for the grant of incentive stock
options to purchase shares of common stock;
. Qualified non-employee directors will be eligible to receive automatic
option grants, to be made at periodic intervals, to purchase shares of
common stock at an exercise price equal to 100% of the fair market value
of those shares on the date of grant;
. The compensation committee will determine the exercise price of options
or the purchase price of stock purchase rights, but in no event will the
option price for incentive stock options be less than 100% of the fair
market value of the stock on the date of grant;
. The exercise price or purchase price may, at the discretion of the
compensation committee, be paid in, among other things, cash, cash
equivalents, full-recourse promissory notes, past services or future
services.
The 2000 Omnibus Equity Incentive Plan will include change in control
provisions that may result in the accelerated vesting of outstanding option
grants and stock issuances. The committee may grant options or stock purchase
rights in which all or some of the shares shall become vested in the event of a
change in control of the company. Change in control is defined under the 2000
Omnibus Equity Incentive Plan as:
. a change in the composition of the board of directors, as a result of
which fewer than one-half of the incumbent directors are directors who
either:
. had been directors of the company 24 months prior to the change; or
. were elected, or nominated for election, to the board with the
affirmative votes of at least a majority of the directors who had been
directors 24 months prior to the change and who were still in office at
the time of the election or nomination; or
. an acquisition or aggregation of securities by a person, as defined in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended, as a result of which the person becomes the beneficial owner of
twenty percent or more of the voting power of Support.com's outstanding
securities.
The board of directors will be able to amend or modify the 2000 Omnibus
Equity Incentive Plan at any time, subject to any required stockholder
approval. The 2000 Omnibus Equity Incentive Plan will terminate no later than
.
2000 Employee Stock Purchase Plan
The board of directors adopted our 2000 Employee Stock Purchase Plan on
February 15, 2000, to be effective upon completion of this offering. We will be
submitting it for approval by our stockholders prior to the completion of this
offering. A total of 2,000,000 shares of common stock have been reserved for
issuance under our employee stock purchase plan. The number of shares reserved
for issuance under the 2000 Employee Stock Purchase Plan will be increased on
the first day of each of our fiscal years from 2000 through 2009 by the lesser
of:
. 2,000,000;
. 3% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or
. the number of shares determined by the board of directors.
Our 2000 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, is administered by the board of
directors or by a committee appointed by the board. Employees (including
officers and employee directors of Support.com but excluding 5% or greater
stockholders) are eligible to participate if they are customarily employed for
more than 20 hours per week and for at least five months in any calendar year.
Our 2000 Employee Stock Purchase Plan permits eligible employees to purchase
common stock through payroll deductions, which may not exceed 15% of an
employee's total compensation. The maximum number of shares a participant may
purchase during a single offering period is 1,000 shares.
53
The 2000 Employee Stock Purchase Plan will be implemented by a series of
overlapping offering periods of 24 months' duration, with new offering periods,
other than the first offering period, commencing on January and July of each
year. The board of directors will establish participation periods for our 2000
Employee Stock Purchase Plan, none of which will exceed six months. During each
participation period, payroll deductions will accumulate, without interest. On
the purchase dates set by the board of directors for each participation period,
accumulated payroll deductions will be used to purchase common stock. The
initial offering period is expected to commence on the date of this offering
and end on December 31, 2001. The initial purchase period is expected to begin
on the date of this offering and end on June 30, 2000.
The purchase price will be equal to 85% of the fair market value per share
of common stock on either the first day of the participation period or on the
purchase date, whichever is less. Employees may withdraw their accumulated
payroll deductions at any time. Participation in our 2000 Employee Stock
Purchase Plan ends automatically on termination of employment with Support.com.
Immediately prior to the effective time of a corporate reorganization, the
participation period then in progress shall terminate and stock will be
purchased with the accumulated payroll deductions, unless the 2000 Employee
Stock Purchase Plan is assumed by the surviving corporation or its parent
corporation pursuant to the plan of merger or consolidation.
401(k) Plan
We have established a tax-qualified employee savings and retirement plan for
which Support.com's employees will generally be eligible. Pursuant to the
401(k) Plan, employees may elect to reduce their current compensation and have
the amount of such reduction contributed to the 401(k) Plan. To date,
Support.com has made no matching contributions. The 401(k) Plan is intended to
qualify under Section 401 of the Internal Revenue Code of 1986, as amended, so
that contributions to the 401(k) Plan, and income earned on plan contributions,
are not taxable to employees until withdrawn from the 401(k) Plan, and so that
contributions by Support.com, if any, will be deductible by Support.com when
made.
Employment Agreements and Change in Control Arrangements
We have offer letters with our Chief Executive Officer, our Chief Financial
Officer, our Senior Vice President of Sales and Business Development, our Vice
President of Engineering, our Vice President of Marketing and our Vice
President of Operations.
Ms. Basu's offer letter, dated July 15, 1999, provides for an initial annual
salary of $200,000 commencing on July 15, 1999 and eligibility for benefits and
an incentive bonus of up to $100,000. The offer letter also provides for her
election to our Board of Directors. Ms. Basu received an option to purchase
1,680,189 shares of our common stock at an exercise price of $0.40 per share
under our 1998 Stock Option Plan, of which options to purchase 420,047 shares
vest on July 15, 2000 and the remainder will vest ratably over a 36-month
period thereafter. The offer letter allows Ms. Basu to exercise her options
pursuant to a full-recourse promissory note. If we terminate her employment
without cause or if she terminates her employment under certain circumstances,
we must pay her salary and other benefits for twelve months following
termination, unless Ms. Basu is employed full-time by another employer, as well
as pay a pro-rata share of her bonus if certain criteria are met prior to
termination. In the event we merge or consolidate with another entity or sell
all or substantially all of our assets and Ms. Basu is terminated without cause
or if she terminates her employment under certain circumstances following such
event, all of her remaining unvested shares will vest and she will receive her
salary for 12 months in a lump sum and benefits for 12 months following
termination and a pro-rata share of her bonus if certain criteria are met prior
to termination. Ms. Basu's employment is at will and may be terminated at any
time, with or without formal cause.
Mr. Beattie's offer letter, dated September 27, 1999, provides for an
initial annual salary of $180,000 commencing on October 1, 1999 and a $15,000
bonus paid immediately upon signing of the letter. Mr. Beattie is also eligible
for benefits and an annual bonus of up to $72,000. Mr. Beattie received an
option to purchase 560,000 shares of our common stock at an exercise price of
$0.90 per share under our 1998 Stock Option Plan, of which options to purchase
140,000 shares vest on October 1, 2000 and the remainder will vest ratably over
a
54
36-month period thereafter. If we terminate his employment without cause or if
he terminates his employment under certain circumstances, we must pay his
salary and other benefits for six months following termination, unless Mr.
Beattie is employed full-time by another employer, as well as pay a pro-rata
share of his bonus if certain criteria are met prior to termination. In the
event we merge or consolidate with another entity or sell all or substantially
all of our assets and Mr. Beattie is terminated without cause or if he
terminates his employment under certain circumstances following such event, his
shares will vest as to 50% of any unvested shares and he will receive his
salary for six months in a lump sum and benefits for six months following
termination and a pro-rata share of his bonus if certain criteria are met prior
to termination. Mr. Beattie's employment is at will and may be terminated at
any time, with or without formal cause.
Mr. Hilbert's offer letter, dated December 7, 1999, provides for an initial
annual salary of $150,000 commencing on December 9, 1999 and eligibility for
benefits and an incentive bonus. Mr. Hilbert received an option to purchase
500,000 shares of our common stock at an exercise price of $0.90 per share
under our 1998 Stock Option Plan, of which options to purchase 125,000 shares
vest on December 9, 2000 and the remainder will vest ratably over a 36-month
period thereafter. If we terminate his employment without cause or if he
terminates his employment under certain circumstances, we must pay his salary
and other benefits for six months following termination, unless Mr. Hilbert is
employed full-time by another employer. In the event we merge or consolidate
with another entity or sell all or substantially all of our assets and Mr.
Hilbert is terminated without cause or if he terminates his employment under
certain circumstances following such event, his shares will vest as to 50% of
any unvested shares and he will receive his salary for six months in a lump sum
and benefits for six months following termination and a pro-rata share of his
bonus if certain criteria are met prior to termination. Mr. Hilbert's
employment is at will and may be terminated at any time, with or without formal
cause.
Mr. O'Rourke's offer letter, dated May 26, 1999, provides for an annual
salary of $160,000 commencing on July 15, 1999, eligibility for benefits and an
annual incentive bonus for shares of common stock up to 25,000 shares per year
for two years related to certain criteria and a $30,000 bonus paid immediately
upon signing of the letter. Mr. O'Rourke received an option to purchase 350,000
shares of our common stock at an exercise price of $0.40 per share under our
1998 Stock Option Plan, of which options to purchase 87,500 shares vest on July
6, 2000 and the remainder will vest ratably over a 36-month period thereafter.
Mr. O'Rourke's employment is at will and may be terminated at any time, with or
without formal cause.
Mr. Rodoni's offer letter, dated June 24, 1998, provides for an annual
salary of $135,000 and eligibility for benefits and an incentive bonus of up to
$30,000 and options to purchase 25,000 shares of common stock in 1999 and
$15,000 in 1998 and shares of common stock tied to certain criteria. In lieu of
his cash bonus in 1998, Mr. Rodoni received a grant of 7,500 shares of our
common stock. Mr. Rodoni received an option to purchase 425,000 shares of our
common stock at an exercise price of $0.10 per share under our 1998 Stock
Option Plan, of which options to purchase 148,750 shares vest on June 25, 1999
and the remainder will vest ratably over a 36-month period thereafter. In the
event we merge or consolidate with another entity or sell all or substantially
all of our assets, his shares will vest as to 50% of any unvested shares. Mr.
Rodoni's employment is at will and may be terminated at any time, with or
without formal cause.
Ms. Hoger's offer letter, dated January 18, 2000, provides for an annual
salary of $160,000 commencing on February 1, 2000 and eligibility for benefits
and an incentive bonus of up to $20,000. In connection with this offer letter,
Ms. Hoger received an option to purchase 300,000 shares of our common stock at
an exercise price of $2.00 per share under our 1998 Stock Option Plan, of which
options to purchase 75,000 shares vest on January 20, 2001 and the remainder
vest ratably over a 36-month period thereafter. On January 20, 2001, Ms. Hoger
is eligible to receive an additional option to purchase 50,000 shares of our
common stock. If we terminate her employment without cause or if she terminates
her employment under certain circumstances, we must pay her salary and other
benefits for six months, unless Ms. Hoger is employed full-time by another
employer. In the event we merge or consolidate with another entity or sell all
or substantially all of our assets and Ms. Hoger is terminated without cause or
if she terminates her employment under certain circumstances
55
following such event, her shares will vest as to 50% of any unvested shares
and she will receive her salary and benefits for six months following
termination. Ms. Hoger's employment is at will and may be terminated at any
time, with or without cause.
We have formal employment agreements with our Chief Technical Officer and
our Chief Software Officer.
Scott Dale, our Chief Technical Officer, entered into an employment
agreement with us in August 1999. This agreement establishes Mr. Dale's annual
salary of $150,000 and eligibility for benefits and bonuses tied to criteria
established by our Board of Directors. The initial term of the agreement is
one year and is automatically renewed for three successive additional one-year
terms unless terminated on or before 30 days prior to the last day of the
prior term. If we terminate his employment for cause, we must pay his salary
and other benefits through the date of his termination. If his employment is
terminated for disability, we must pay his salary and other benefits for a
three-month period following the date of termination. In connection with this
agreement, Mr. Dale received options to purchase 250,000 shares of our common
stock at an exercise price of $0.90 per share under our 1998 Option Plan, of
which options to purchase 62,500 shares vest on July 22, 2000 and the
remainder will vest ratably over a 36-month period thereafter. Mr. Dale's
agreement also contains a non-competition provision.
Cadir Lee, our Chief Software Officer, entered into an employment agreement
with us in August 1999. This agreement establishes Mr. Lee's annual salary of
$150,000 and eligibility for benefits and bonuses tied to criteria established
by our Board of Directors. The initial term of the agreement is one year and
is automatically renewed for three successive additional one-year terms unless
terminated on or before 30 days prior to the last day of the prior term. If we
terminate his employment for cause, we must pay his salary and other benefits
through the date of his termination. If his employment is terminated for
disability, we must pay his salary and other benefits for a three-month period
following the date of termination. In connection with this agreement, Mr. Lee
received options to purchase 250,000 shares of our common stock at an exercise
price of $0.90 per share under our 1998 Option Plan, of which options to
purchase 62,500 shares vest on July 22, 2000 and the remainder will vest
ratably over a 36-month period thereafter. Mr. Lee's agreement also contains a
non-competition provision.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemption; or
. any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. Our bylaws
also permit us to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
such capacity, regardless of whether the bylaws would permit indemnification.
We are entering into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our certificate of
incorporation and bylaws. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
56
CERTAIN TRANSACTIONS
Since our inception, there has not been any transaction or series of
transactions to which we were or are a party in which the amount involved
exceeded or exceeds $60,000 and in which any director, executive officer,
holder of more than 5% of any class of our voting securities or any member of
the immediate family of any of the foregoing persons had or will have a direct
or indirect material interest, other than the transactions described below.
Transactions with Management and Others
Between December 8, 1997 and June 22, 1998 we issued and sold 6,428,880
shares of common stock to our founders for an aggregate consideration of $646.
Between December 8, 1997 and June 14, 1999, we issued and sold 15,556,326
shares of our preferred stock for an aggregate consideration of $20,475,388.80.
Between December 8, 1997 and March 19, 1998 we issued and sold 3,571,600 shares
of Series A preferred stock at a price of $0.07 per share. We issued and sold
7,346,108 shares of Series B preferred stock at a price of $0.68747 per share
on June 22, 1998. We issued and sold 4,638,618 shares of Series C preferred
stock at a price of $3.27148 per share on June 14, 1999. Upon completion of
this offering, each share of Series A, Series B and Series C preferred stock
will convert into one share of common stock.
The following table summarizes purchases, valued in excess of $60,000, of
shares of our capital stock by our directors, executive officers and our 5%
stockholders:
[Download Table]
Shares
-----------------------------
Series A Series B Series C
--------- --------- ---------
Directors and Executive Officers:
Mark J. Pincus.................................. 1,535,788 -- --
Roger J. Sippl (1).............................. -- -- 305,672
5% Stockholders Affiliated with Directors:
Entities affiliated with Accel VI L.P. (2)...... -- 3,618,503 775,394
Entities affiliated with Softbank Technology
Ventures IV (3)................................ -- 3,254,834 697,465
Entities affiliated with Spinnaker Founders
Fund, L.P. (4)................................. -- -- 1,528,359
--------
(1) Roger J. Sippl, one of our directors, is a managing partner of venture
funds associated with Sippl MacDonald Ventures, a venture fund associated
with Sippl MacDonald Ventures II, L.P. and its related entities.
(2) Bruce Golden, one of our directors, is a partner of venture funds
associated with Accel Partners, a venture fund associated with Accel VI
L.P. and its related entities.
(3) Edward S. Russell, one of our directors, is a general partner of venture
funds associated with Softbank Technology Ventures, Inc. and its related
entities.
(4) Matthew T. Cowan, one of our directors, is a general partner of Bowman
Capital Management, a venture fund associated with Spinnaker Founders
Fund, L.P. and its related entities.
These affiliates purchased the securities described above at the same price
and on the same terms and conditions as the unaffiliated investors in the
private financings. Mark J. Pincus was affiliated with Support.com at the time
he purchased the above securities. Accel VI L.P, Softbank Technology Ventures
IV and their affiliated entities became affiliates of Support.com in connection
with the Series B preferred stock financing. Spinnaker Founders Fund, L.P. and
its affiliated entities became affiliates of Support.com in connection with the
Series C preferred stock financing.
Indebtedness of Management
It is our current policy that all transactions between us and our officers,
directors, 5% stockholders and their affiliates will be entered into only if
these transactions are approved by a majority of the disinterested
57
directors, are on terms no less favorable to us than could be obtained from
unaffiliated parties and are reasonably expected to benefit us.
Options granted to our directors, executive officers and key employees are
immediately exercisable as to both vested and unvested shares, with unvested
shares being subject to a right of repurchase in our favor in the event of
termination of employment prior to vesting of all shares. The following
individuals have elected to pay the exercise price for certain of their
outstanding options pursuant to full recourse promissory notes secured by the
common stock underlying the options. The notes bear interest at 5.86% per year
and payment on the notes is set forth below. As of December 31, 1999, the
original and outstanding aggregate principal amounts of the promissory notes
executed by each executive officer in favor of Support.com are set forth below:
[Download Table]
Aggregate
Original
and
Outstanding
Executive Officer Note Amount
----------------- -----------
Mark J. Pincus/Chairman of the Board......................... $ 99,999.90(1)
Mark J. Pincus/Chairman of the Board......................... $147,500.10(2)
Mark J. Pincus/Chairman of the Board......................... $247,500.00(2)
Brian M. Beattie/Chief Financial Officer..................... $504,000.00(3)
Jim R. Hilbert/Senior Vice President......................... $449,950.00(3)
--------
(1) 50% of such principal and interest shall be due and payable on the earlier
of the occurrence of an initial public offering of our common stock or two
years from the date of this note, with the remaining 50% due upon the
earlier of the occurrence of an initial public offering of our common
stock or four years from the date of this note.
(2) 50% of such principal and interest shall be due and payable on the earlier
of the occurrence of the date nine months following the effective date of
an initial public offering of our common stock or two years from the date
of this note, with the remaining 50% due upon the earlier of the
occurrence of the date nine months following the effective date of an
initial public offering of our common stock or four years from the date of
this note.
(3) 50% of such principal and interest shall be due and payable on the earlier
of one year from the effective date of an initial public offering of our
common stock or two years from the date of this note, with the remaining
50% due upon the earlier of the occurrence of one year from the effective
date of an initial public offering of our common stock or four years from
the date of this note.
All future transactions, including loans, between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested directors.
For information concerning indemnification of directors and officers, see
"Management--Limitation of Liability and Indemnification Matters."
58
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
common stock as of December 31, 1999, by:
. each person or entity known to us to own beneficially more than 5% of our
common stock;
. each of the named executive officers;
. each of our directors; and
. all executive officers and directors as a group.
The following table assumes no exercise of the underwriters' over-allotment
option. Applicable percentage ownership is based on 26,567,672 shares of common
stock outstanding as of December 31, 1999 and shares outstanding
immediately after completion of this offering.
Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. In computing the number
of shares beneficially owned by a person and the percentage ownership of that
person, shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of December 31, 1999 are
deemed outstanding. These shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of any other person. Except as
indicated in the footnotes to this table and pursuant to applicable community
property laws, each stockholder named in the table has sole voting and
investment power with respect to the shares set forth opposite that
stockholder's name.
Unless otherwise indicated, the address for the following stockholders is
c/o Support.com Corp., 575 Broadway, Redwood City, California 94063.
[Download Table]
Percentage of
Common Stock
Total Shares -----------------
Beneficially Before After
Name and Address of Beneficial Owner Owned Offering Offering
------------------------------------ ------------ -------- --------
5% Stockholders:
Entities affiliated with Accel VI L.P. (1)..... 4,393,896
Entities affiliated with Softbank Technology
Ventures IV (2)............................... 3,952,299
Entities affiliated with Spinnaker Founders
Fund, L.P. (3)................................ 1,528,359
Executive Officers and Directors:
Radha R. Basu (4).............................. 1,680,189
Mark J. Pincus ................................ 5,250,228
Scott W. Dale (5).............................. 2,375,114
Cadir B. Lee (6)............................... 2,375,114
Anthony C. Rodoni (7).......................... 457,500
Matthew T. Cowan (3)........................... 1,528,359
William L. Dunn (8)............................ 80,000
Bruce Golden (1)(9)............................ 4,443,897
Edward S. Russell (2).......................... 3,952,299
Roger J. Sippl (10)............................ 405,672
All directors and executive officers as a group
(14 persons)(11).............................. 24,358,372
--------
* Less than 1%.
(1) Principal address for each entity affiliated with Accel VI L.P. is c/o
Accel Partners, 428 University Avenue, Palo Alto, California 94301.
Includes 3,576,631 shares held by Accel VI L.P. Accel VI Associates L.L.C.
is the General Partner of Accel VI L.P. and has the sole voting and
investment power. Arthur C. Patterson, ACP Family Partnership L.P., James
R. Swartz, James W. Breyer, The Breyer 1995 Trust dated 10/4/95, Swartz
Family Partnership L.P., J. Peter Wagner, and G. Carter Sednaoui are the
Managing Members of Accel VI Associates L.L.C. and share such powers.
Includes 456,965 shares held
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by Accel Internet Fund II L.P. Accel Internet Fund II Associates L.L.C., or
AIF2A, is the General Partner of Accel Internet Fund II L.P. and has the
sole voting and investment power. Arthur C. Patterson, ACP Family
Partnership L.P., James R. Swartz, James W. Breyer, Swartz Family
Partnership L.P., J. Peter Wagner, and G. Carter Sednaoui are the Managing
Members of AIF2A and share such powers. Includes 57,121 shares held by
Accel Keiretsu VI L.P. Accel Keiretsu VI Associates L.L.C. is the General
Partner of Accel Keiretsu VI L.P. and has the sole voting and investment
power. Arthur C. Patterson, James R. Swartz, James W. Breyer, J. Peter
Wagner, and G. Carter Sednaoui are the Managing Members of Accel Keiretsu
VI Associates L.L.C. and share such powers. Includes 303,179 shares held by
Accel Investors '98 L.P. Arthur C. Patterson, James R. Swartz, James W.
Breyer, J. Peter Wagner, and G. Carter Sednaoui are the General Partners of
Accel Investors '98 L.P. and therefore share the voting and investment
powers. Bruce Golden, a partner at Accel Partners and one of our directors,
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in entities affiliated with Accel Partners.
(2) Principal address for each entity affiliated with Softbank Technology
Ventures IV is 333 W. San Carlos St., Suite 1225, San Jose, California
95110. Number of shares includes 3,874,090 shares held by Softbank
Technology Ventures IV, L.P. and 78,209 shares held by Softbank
Technology Advisors Fund, L.P. Edward S. Russell, a general partner at
Softbank Technology Ventures, Inc. and one of our directors, disclaims
beneficial ownership of these shares except to the extent of his
pecuniary interest in entities affiliated with Softbank Technology
Ventures, Inc.
(3) Principal address for each entity affiliated with Spinnaker Founders Fund,
L.P. is c/o Bowman Capital Management, 1875 South Grand Street, Suite 600,
San Mateo, California 94402. Number of shares includes 470,315 shares held
by Spinnaker Founders Fund, L.P., 366,806 shares held by Spinnaker
Technology Fund, L.P., 366,806 shares held by Spinnaker Technology
Offshore Fund, Ltd., 263,297 shares held by Spinnaker Offshore Founders
Fund, Ltd. and 61,135 shares held by Spinnaker Clipper Fund, L.P. Mr.
Cowan is a General Partner of Bowman Capital Management and one of our
directors, disclaims beneficial ownership of all these shares except to
the extent of his pecuniary interest in entities affiliated with Spinnaker
Founders Fund, L.P.
(4) Includes 1,680,189 shares of common stock issuable upon immediately
exercisable options and subject to our right of repurchase.
(5) Includes 250,000 shares of common stock issuable under immediately
exercisable options and subject to our right of repurchase.
(6) Includes 250,000 shares of common stock issuable under immediately
exercisable options and subject to our right of repurchase.
(7) Includes 56,319 shares of common stock subject to our right of
repurchase, 166,806 shares of common stock issuable under immediately
exercisable options and subject to our right of repurchase and 25,000
shares of common stock immediately exercisable options.
(8) Includes 80,000 shares of common stock subject to our right of
repurchase.
(9) Includes 50,000 shares of common stock subject to our right of
repurchase.
(10) Includes 200,000 shares of common stock held by Sippl MacDonald Ventures
II, L.P., 105,672 shares of common stock held by Sippl Investments LLC
and 100,000 shares of common stock held by Mr. Sippl, subject to our
right of repurchase. Mr. Sippl, a managing partner of Sippl MacDonald
Ventures and one of our directors, disclaims beneficial ownership of the
shares held by Sippl MacDonald Ventures II, L.P. and Sippl Investments
LLC, except to the extent of his pecuniary interest in those entities.
(11) Includes 305,444 shares of common stock subject to our right of
repurchase and 2,350,745 shares of common stock issuable under
immediately exercisable options and subject to our right of repurchase.
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DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering and after giving effect to the conversion
of all outstanding preferred stock into common stock and the amendment of our
certificate of incorporation, our authorized capital stock will consist of
150,000,000 shares of common stock, $.0001 par value and 5,000,000 shares of
preferred stock, $.001 par value.
Common Stock
As of December 31, 1999, there were 10,874,374 shares of common stock
outstanding held by approximately 98 stockholders of record.
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of common stock are entitled to the
following:
Dividends. Holders of common stock are entitled to receive dividends out of
assets legally available for the payment of dividends at the times and in the
amounts as the board of directors from time to time may determine.
Voting. Holders of common stock are entitled to one vote for each share held
on all matters submitted to a vote of stockholders, including the election of
directors, and will not have cumulative voting rights unless Support.com is
subject to Section 2115 of the California Corporations Code.
Cumulative voting for the election of directors is not authorized by our
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election.
Preemptive rights, conversion and redemption. The common stock is not
entitled to preemptive rights and is not subject to conversion or redemption.
Liquidation, dissolution and winding-up. Upon liquidation, dissolution or
winding-up of Support.com, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities and the
liquidation of any preferred stock.
Each outstanding share of common stock is, and all shares of common stock to
be outstanding upon completion of this offering will be, upon payment
therefore, duly and validly issued, fully paid and nonassessable.
Preferred Stock
The board of directors is authorized, without action by the stockholders, to
designate and issue up to 5,000,000 shares of preferred stock in one or more
series. The board of directors can fix the rights, preferences and privileges
of the shares of each series and any qualifications, limitations or
restrictions on these shares.
The board of directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock.
The issuance of preferred stock, while providing flexibility in connection
with possible acquisitions and other corporate purposes could have the effect
of delaying, deferring or preventing a change in control of Support.com. We
have no current plans to issue any shares of preferred stock.
Warrants
We issued warrants to purchase 98,511 shares of Series C preferred stock at
an exercise price of $1.979 per share and 38,461 shares of our Series C
preferred stock at an exercise price of $6.50 per share. These warrants expire
upon completion of this offering. We also issued warrants to purchase 27,511
shares of Series C preferred stock at an exercise price of $3.27 per share and
119,167 shares of Series C preferred stock at an exercise price of $18.00 per
share, which do not expire upon completion of this offering.
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Registration Rights
Upon completion of this offering, the holders of 15,594,787 shares of common
stock issuable upon conversion of the Series A, B and C preferred stock and
upon the exercise of warrants have the right to cause us to register these
shares under the Securities Act as follows:
. Demand Registration Rights. At the earlier of June 14, 2002 or six months
after this offering, one or more holders of 30% of the common stock
issued upon conversion of Series A, B or C preferred stock may request
that we register their shares.
. Piggyback Registration Rights. The holders of registrable securities may
request to have their shares registered anytime we file a registration
statement to register any of our securities for our own account or for
the account of others subject to a pro rata cutback to a minimum of 20%
of any offering other than our initial public offering.
. S-3 Registration Rights. The holders of at least 5% of registrable
securities have the right to request registrations on Form S-3 if we are
eligible to use Form S-3 and have not already effected such an S-3
registration within the past six (6) months and if the aggregate proceeds
are at least $1,000,000.
Registration of shares of common stock pursuant to the exercise of demand
registration rights, piggyback registration rights or S-3 registration rights
under the Securities Act would result in these shares becoming freely tradable
without restriction under the Securities Act immediately upon the effectiveness
of such registration. See "Shares Eligible for Future Sale" and "Certain
Transactions." Support.com will pay all registration expenses, other
underwriting discounts and commissions in connection with any registration. The
registration rights terminate five years following completion of this offering,
or, with respect to each holder of registrable securities, when the holder can
sell all of the holder's shares in any 90-day period under Rule 144 under the
Securities Act.
Section 2115
We are currently subject to Section 2115 of the California General
Corporation Law. Section 2115 provides that, regardless of a company's legal
domicile, some provisions of California corporate law will apply to that
company if more than 50% of its outstanding voting securities are held of
record by persons having addresses in California and the majority of the
company's operations occur in California. For example, while we are subject to
Section 2115, stockholders may cumulate votes in electing directors. This means
that each stockholder may vote the number of votes equal to the number of
candidates multiplied by the number of votes to which the stockholder's shares
are normally entitled in favor of one candidate. This potentially allows
minority stockholders to elect some members of the board of directors. When we
are no longer subject to Section 2115, cumulative voting will not be allowed
and a holder of 50% or more of our voting stock will be able to control the
election of all directors. In addition to this difference, Section 2115 has the
following effects:
. enables removal of directors with or without cause with majority
stockholder approval;
. places limitations on the distribution of dividends;
. extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of shares;
and
. provides for information rights and required filings in the event we
effect a sale of assets or complete a merger.
We anticipate that our common stock will be qualified for trading as a
national market security on the Nasdaq National Market and that we will have at
least 800 stockholders of record by the record date for our
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2000 annual meeting of stockholders. If these two conditions occur, then we
will no longer be subject to Section 2115 as of the record date for our 2000
annual meeting of stockholders.
Delaware Anti-Takeover Law and Certain Charter Provisions
Delaware Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to some exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless:
. prior to this date, 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 (x) by persons who are
directors and also officers and (y) 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
. on or subsequent to such date, 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 66-2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
In general, Section 203 defines an interested stockholder as any entity or
person who, together with affiliates and associates owns, or within three
years, did own beneficially 15% or more of the outstanding voting stock of the
corporation. Section 203 defines business combination to include:
. any merger or consolidation involving the corporation and the interested
stockholder; and
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder.
. subject to certain 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
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
Certificate of Incorporation and Bylaws
Undesignated Preferred Stock. Under our certificate of incorporation, the
board of directors has the power to authorize the issuance of up to 5,000,000
shares of preferred stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
further vote or action by the stockholders. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, may:
. delay, defer or prevent a change in control of Support.com;
. discourage bids for the common stock at a premium over the market price
of our common stock;
. adversely affect the voting and other rights of the holders of our common
stock; and
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. discourage acquisition proposals or tender offers for our shares and, as
a consequence, inhibit fluctuations in the market price of our shares
that could result from actual or rumored takeover attempts.
Advance Notice Provisions. Our bylaws establish advance notice procedures
for stockholder proposals and nominations of candidates for election as
directors other than nominations made by or at the direction of the board of
directors or a committee of the board.
Special Meeting Requirements. Our bylaws provide that special meetings of
stockholders be called by the chairman of the board, the chief executive
officer or the board of directors.
Cumulative Voting. Both our certificate of incorporation and our bylaws do
not provide for cumulative voting in the election of directors.
The provisions described above may only be amended by approval of the
holders of at least 66 2/3% of the outstanding common stock and may have the
effect of deterring a hostile takeover or delaying a change in control or
management of Support.com.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Securities
Transfer & Trust.
Nasdaq National Market Listing
We have applied to have our common stock quoted on the Nasdaq National
Market under the symbol "SPRT."
64
RESCISSION OFFER
Shares issued, and option grants made under, our 1998 Stock Option Plan were
not exempt from registration or qualification under California state securities
laws. These stock issuances and option grants violated the registration
requirements of California state securities laws because registration or
qualification was not obtained. We intend to make a rescission offer to the
holders of these shares and options which will be held open for 30 days after
the effective date of this offering. Offerees will be able to accept our
rescission offer prior to its expiration date by returning to us shares to be
repurchased and an election notice that we will deliver to the offerees
together with the prospectus that becomes effective. If accepted, our
rescission offer could require us to make aggregate payments to the holders of
these shares and options of up to approximately $ plus statutory interest.
This rescission offer will cover an aggregate of shares issuable
pursuant to options granted under the 1998 Stock Option Plan, of which
shares were issued upon option exercises. These securities were granted or sold
in violation of the registration requirements of the California state
securities laws. Although we were able to rely upon Rule 701 exemption under
the federal securities law, we were unable to rely on the exemption provided by
Section 25102(f) of the California Corporation Code because these options were
granted, and these shares were issued, to more than 35 persons during a 12-
month period, or on the exemption provided by Section 25102(o) of the
California Corporation Code because the required filing under that section was
not made. We will offer to rescind such prior sales at the price per share paid
therefor, or $0.10 per share, under the 1998 Stock Option Plan, plus interest
thereon at a statutory rate as the case may be from the date of purchase by the
purchaser to the expiration of the rescission offer. In addition, we will offer
to rescind such prior option grants at a price of $ per share.
As of the date hereof, we are not aware of any claims for rescission of any
claims for rescission against us.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our common stock,
and we cannot predict the effect, if any, that market sales of shares or the
availability of shares for sale will have on the market price prevailing from
time to time. As described below, only a limited number of shares will be
available for sale shortly after this offering due to contractual and legal
restrictions on resale.
Nevertheless, sales of substantial amounts of our common stock in the public
market after the restrictions lapse could cause the market price of our common
stock to decline.
When this offering is completed, we will have a total of shares
of common stock outstanding, assuming no exercise of outstanding options. The
shares offered by this prospectus will be freely tradable
unless they are purchased by our "affiliates," as defined in Rule 144 under the
Securities Act of 1933. The remaining 26,567,672 shares are "restricted," which
means they were originally sold in offerings that were not subject to a
registration statement filed with the Securities and Exchange Commission. These
restricted shares may be resold only through registration under the Securities
Act of 1933 or under an available exemption from registration, such as provided
through Rule 144.
Lock-up Agreements
The holders of shares of common stock have agreed to a 180-day
"lock-up" with respect to these shares. This generally means that they cannot
sell these shares during the 180 days following the date of this prospectus.
After the 180-day lock-up period, these shares may be sold in accordance with
Rule 144. Credit Suisse First Boston may release some or all of these shares
prior to the expiration of the lock-up period.
Rule 144
In general, under Rule 144, a person or persons whose shares are aggregated,
who has beneficially owned restricted securities for at least one year,
including the holding period of any holder who is not an affiliate, is entitled
to sell within any three-month period a number of our shares of common stock
that does not exceed the greater of:
. 1% of the then outstanding shares of our common stock, which will equal
approximately shares upon completion of this offering; or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the date on
which notice of sale is filed with the Securities and Exchange
Commission.
Sales under Rule 144 are subject to restrictions relating to manner of sale,
notice and the availability of current public information about us. Under Rule
144 and subject to volume limitations, of the restricted shares will
be eligible for sale beginning 180 days after the date of the final prospectus
and the remaining restricted shares will become salable at various times
thereafter.
Rule 144(k)
A person who is not deemed an affiliate of ours at any time during the 90
days preceding a sale and who has beneficially owned shares for at least two
years, including the holding period of any prior owner who is not an affiliate,
would be entitled to sell shares following this offering under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information or notice requirements of Rule 144.
Rule 701 and Options
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with some restrictions, including the holding period requirement, of
Rule 144. Any employee, officer or director or
66
consultant who purchased his or her shares pursuant to a written compensatory
plan or contract may be entitled to rely on the resale provisions of Rule 701.
Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144
without complying with the holding period requirements of Rule 144. Rule 701
further provides that non-affiliates may sell such shares in reliance on Rule
144 without having to comply with the holding period, public information,
volume limitation or notice provisions of Rule 144. All holders of Rule 701
shares are required to wait 90 days after the date of this prospectus before
selling such shares. However, all shares issued by us pursuant to Rule 701 are
subject to lock-up provisions and will only become eligible for sale upon the
expiration of 180 days after the date of this prospectus.
Registration
Following this offering, we intend to file a registration statement under
the Securities Act covering shares of common stock subject to outstanding
options or issued or issuable under our 1998 Stock Plan, our 2000 Stock
Incentive Plan and our 2000 Employee Stock Purchase Plan. Based on the number
of shares subject to outstanding options at December 31, 1999, and currently
reserved for issuance under these plans, this registration statement would
cover approximately 15,424,434 shares.
This registration statement will automatically become effective upon filing.
Accordingly, shares registered under this registration statement will, subject
to Rule 144 volume limitations applicable to our affiliates, be available for
sale in the open market immediately after the expiration of the 180-day lock-up
agreements. In addition, holders of 15,594,787 shares of common stock will be
entitled to registration rights. See "Description of Capital Stock--
Registration Rights."
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Chase Securities
Inc., Bear, Stearns & Co. Inc. and SoundView Technology Group, Inc., are acting
as representatives, the following respective numbers of shares of common stock:
[Download Table]
Number of
Underwriter Shares
----------- ---------
Credit Suisse First Boston Corporation.............................
Chase Securities Inc...............................................
Bear, Stearns & Co. Inc............................................
SoundView Technology Group, Inc....................................
---
Total..........................................................
===
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
[Enlarge/Download Table]
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
Underwriting Discounts
and Commissions paid by
us..................... $ $ $ $
Expenses payable by us.. $ $ $ $
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed not to offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Securities and Exchange
Commission a registration statement under the Securities Act relating to, any
shares of our common stock or securities convertible into or exchangeable or
exercisable for any of our common stock, or publicly disclose the intention to
make any such offer, sale, pledge, disposition or filing, without the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus, except issuances pursuant to the
exercise of employee stock options outstanding on the date hereof.
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Our officers and directors and all of our stockholders have agreed that they
will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, enter into a transaction which would have the same effect, or enter into
any swap, hedge or other arrangement that transfers, in whole or in part, any
of the economic consequences of ownership of our common stock, whether any such
aforementioned transaction is to be settled by delivery of our common stock or
such other securities, in cash or otherwise, or publicly disclose the intention
to make any such offer, sale, pledge or disposition, without the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days
after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for
sale to the general public in the offering will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same terms as
the other shares.
We have agreed to indemnify the underwriters against certain liabilities
under the Securities Act, or to contribute to payments which the underwriters
may be required to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "SPRT."
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors to be considered in
determining the public offering price include the following:
. the information included in this prospectus and otherwise available to
the representatives;
. market conditions for initial public offerings;
. the history and the prospects for the industry in which we will compete;
. the ability of our management;
. our prospects for our future earnings;
. the present state of our development and our current financial condition;
. the general condition of the securities markets at the time of this
offering; and
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
Entities associated with Chase Securities Inc. beneficially own 61,135
shares of the Series C preferred stock of Support.com. Additionally, Access
Technology Partners, L.P., a fund of outside investors that is managed by an
entity affiliated with Chase Securities Inc. owns 244,538 shares of the Series
C Preferred Stock of Support.com. Chase Securities Inc. is also our customer.
In 1999, we had total revenue of $3.3 million. Bear, Stearns & Co. Inc.
accounted for 53% of our total revenue in 1999.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
69
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format will be made available on the Web sites
maintained by one or more of the underwriters participating in this offering.
The underwriters may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Distribution will be allocated
by the representatives of the underwriters to underwriters that may make
Internet distributions on the same basis as other allocations. Other than the
prospectus in electronic format, the information on the websites maintained by
the underwriters is not part of the prospectus or the registration statement of
which this prospectus forms a part, has not been approved and/or endorsed by
Support.com or any underwriter in its capacity as underwriter and should not be
relied upon by investors.
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NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of the common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or such persons outside of Canada.
Notice to British Columbia Residents
A purchaser of the common stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any common stock acquired by such purchaser pursuant to this offering. Such
report must be in the form attached to British Columbia Securities Commission
Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one
such report must be filed in respect of common stock acquired on the same date
and under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of the common stock should consult their own legal and
tax advisors with respect to the tax consequences of an investment in the
common stock in their particular circumstances and with respect to the
eligibility of the common stock for investment by the purchaser under relevant
Canadian legislation.
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LEGAL MATTERS
Selected legal matters with respect to the validity of the common stock
offered by this prospectus are being passed upon for Support.com by Pillsbury
Madison & Sutro LLP, Palo Alto, California. Certain partners of Pillsbury
Madison & Sutro LLP beneficially own an aggregate of 7,642 shares of
Support.com common stock. Legal matters in connection with this offering will
be passed upon for the underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
EXPERTS
Ernst & Young, LLP, independent auditors, have audited our financial
statements at December 31, 1998 and 1999 and for the period from inception
(December 3, 1997) to December 31, 1998 and the year ended December 31, 1999,
as set forth in their report. We have included our financial statements in the
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock offered hereby. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement or the
exhibits and schedules which are part of the registration statement. For
further information with respect to Support.com and the common stock offered by
this prospectus, we refer you to the registration statement and the exhibits
and schedules filed as part of the registration statement. You may read and
copy any document we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public from the SEC's Web site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities and Exchange Act, as
amended, and, in accordance therewith, will file periodic reports, proxy
statements and other information with the SEC. These periodic reports, proxy
statements and other information will be available for inspection and copying
at the SEC's public reference rooms and the Web site of the SEC referred to
above.
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SUPPORT.COM, INC.
INDEX TO FINANCIAL STATEMENTS
[Download Table]
Page
----
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders'
Equity (Deficit)........................................................ F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
F-1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Support.com, Inc.
We have audited the accompanying balance sheets of Support.com, Inc. as of
December 31, 1998 and 1999, and the related statements of operations,
redeemable convertible preferred stock and stockholders' equity (deficit), and
cash flows for the period from inception (December 3, 1997) to December 31,
1998 and for the year ended December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Support.com, Inc. at
December 31, 1998 and 1999, and the results of its operations and its cash
flows for the period from inception (December 3, 1997) to December 31, 1998 and
for the year ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Palo Alto, California
February 15, 2000
F-2
SUPPORT.COM, INC.
BALANCE SHEETS
(in thousands except share and per share data)
[Download Table]
Pro Forma
Stockholders'
December 31, Equity at
----------------- December 31,
1998 1999 1999
------- -------- -------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents................... $ 2,807 $ 4,023
Short-term investments...................... -- 8,466
Accounts receivable, less allowance of $10
and $40, respectively...................... 65 3,450
Prepaids and other current assets........... 516 451
------- --------
Total current assets...................... 3,388 16,390
Property and equipment, net................... 256 881
Other assets.................................. 28 254
------- --------
$ 3,672 $ 17,525
======= ========
Liabilities and stockholders' equity (deficit)
Current liabilities:
Notes payable, current portion.............. $ 50 $ 921
Capital lease obligations, current portion.. -- 274
Accounts payable............................ 98 1,227
Accrued compensation........................ 60 1,168
Other accrued liabilities................... 159 494
Deferred revenue............................ 42 2,968
------- --------
Total current liabilities................. 409 7,052
Notes payable, net of current portion......... 449 1,478
Capital lease obligations, net of current
portion...................................... -- 799
Commitments
Redeemable convertible preferred stock;
7,346,108 and 12,156,108 shares authorized at
December 31, 1998 and 1999, $0.0001 par
value, issuable in series:
Series B redeemable convertible preferred
stock; 7,346,108 shares designated, issued
and outstanding at December 31, 1998 and
1999, and none pro forma (liquidation
preference at December 31, 1999 of
$5,668).................................... 5,237 5,641
Series C redeemable convertible preferred
stock; 4,810,000 shares designated;
4,638,618 shares issued and outstanding at
December 31, 1999, and none pro forma
(liquidation preference at December 31,
1999 of $15,844)........................... -- 15,808
Stockholders' equity (deficit):
Series A convertible preferred stock; par
value $0.0001, 3,571,600 shares authorized,
3,571,600 shares issued and outstanding at
December 31, 1998 and 1999, and none pro
forma (liquidation preference at December
31, 1999 of $250).......................... 1 1 $ --
Common stock; par value $0.0001, 31,060,000
shares authorized, 6,468,880 and 10,874,374
shares issued and outstanding at December
31, 1998 and 1999, respectively;
150,000,000 authorized, 26,430,700 shares
issued and outstanding pro forma........... 1 1 3
Additional paid-in capital.................. 478 19,491 40,939
Receivable from stockholders................ -- (1,450) (1,450)
Deferred compensation....................... (153) (14,252) (14,252)
Accumulated deficit......................... (2,750) (17,044) (17,044)
------- -------- --------
Total stockholders' equity (deficit)...... (2,423) (13,253) $ 8,196
------- -------- ========
Total liabilities and stockholders' equity
(deficit)................................ $ 3,672 $ 17,525
======= ========
See accompanying notes.
F-3
SUPPORT.COM, INC.
STATEMENTS OF OPERATIONS
(in thousands except per share data)
[Download Table]
Period from inception
(December 3, 1997) to Year ended
December 31, 1998 December 31, 1999
--------------------- -----------------
Revenue:
License fees........................ $ 18 $ 2,746
Services............................ -- 569
------- --------
Net revenues...................... 18 3,315
------- --------
Costs and expenses:
Cost of license fees................ -- 4
Cost of services.................... -- 965
Research and development............ 1,132 2,401
Sales and marketing................. 1,197 8,974
General and administrative.......... 477 1,881
Amortization of deferred
compensation....................... 16 3,554
------- --------
Total costs and expenses.......... 2,822 17,779
------- --------
Loss from operations.................. (2,804) (14,464)
Interest income....................... 105 501
Interest expense...................... (51) (331)
------- --------
Net loss.............................. (2,750) (14,294)
Accretion on redeemable convertible
preferred stock...................... (214) (1,072)
------- --------
Net loss attributable to common
stockholders......................... $(2,964) $(15,366)
======= ========
Basic and diluted net loss per share.. $ (0.57) $ (2.31)
======= ========
Shares used in computing basic and
diluted net loss per share........... 5,227 6,643
======= ========
Pro forma basic and diluted net loss
per share (unaudited)................ $ (0.71)
========
Shares used in computing pro forma
basic and diluted net loss per share
(unaudited).......................... 20,137
========
See accompanying notes.
F-4
SUPPORT.COM, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
(in thousands except share and per share data)
[Enlarge/Download Table]
Redeemable
Convertible Convertible Notes
Preferred Stock Preferred Stock Common Stock Additional Receivable
------------------ ---------------- ----------------- Paid-In From
Shares Amount Shares Amount Shares Amount Capital Stockholders
---------- ------- --------- ------ ---------- ------ ---------- ------------
Issuance of
common stock to
founders at
$0.0001,
$0.0077, and
$0.0155 per
share for cash.. -- $ -- -- $ -- 6,428,880 $ 1 $ -- $ --
Issuance of
Series A
convertible
preferred stock
at $0.07 per
share for cash,
net of issuance
costs of $6..... -- -- 3,571,600 1 -- -- 244 --
Issuance of
Series B
redeemable
convertible
preferred stock
at $0.68747 per
share for cash
and receivable,
net of issuance
costs of $27.... 7,346,108 5,023 -- -- -- -- -- --
Issuance of
common stock
upon exercise of
stock options... -- -- -- -- 40,000 -- 4 --
Issuance of
warrants and
stock options to
non-employees... -- -- -- -- -- -- 275 --
Accretion on
redeemable
convertible
preferred
stock........... -- 214 -- -- -- -- (214) --
Deferred
compensation
related to grant
of stock
options......... -- -- -- -- -- -- 169 --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- --
---------- ------- --------- ---- ---------- ---- ------- -------
Balances at
December 31,
1998............ 7,346,108 5,237 3,571,600 1 6,468,880 1 478 --
Issuance of
Series C
redeemable
convertible
preferred stock
at $3.271 per
share for cash,
net of issuance
costs of $36.... 4,638,618 15,140 -- -- -- -- -- --
Issuance of
common stock
upon exercise of
options to
employees and to
consultants for
cash and
promissory
notes........... -- -- -- -- 4,131,994 -- 1,914 (1,450)
Issuance of
common stock and
restricted stock
to non-
employees....... -- -- -- -- 273,500 -- 169 --
Issuance of
warrants and
stock options to
non-employees... -- -- -- -- -- -- 349 --
Accretion on
redeemable
convertible
preferred
stock........... -- 1,072 -- -- -- -- (1,072) --
Deferred
compensation
related to grant
of stock
options......... -- -- -- -- -- -- 17,653 --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- --
---------- ------- --------- ---- ---------- ---- ------- -------
Balances at
December 31,
1999............ 11,984,726 $21,449 3,571,600 $ 1 10,874,374 $ 1 $19,491 $(1,450)
--------------------------------------------------
========== ======= ========= ==== ========== ==== ======= =======
Total
Deferred Stockholders'
Stock Accumulated Equity
Compensation Deficit (Deficit)
------------ ----------- -------------
Issuance of
common stock to
founders at
$0.0001,
$0.0077, and
$0.0155 per
share for cash.. $ -- $ -- $ 1
Issuance of
Series A
convertible
preferred stock
at $0.07 per
share for cash,
net of issuance
costs of $6..... -- -- 245
Issuance of
Series B
redeemable
convertible
preferred stock
at $0.68747 per
share for cash
and receivable,
net of issuance
costs of $27.... -- -- --
Issuance of
common stock
upon exercise of
stock options... -- -- 4
Issuance of
warrants and
stock options to
non-employees... -- -- 275
Accretion on
redeemable
convertible
preferred
stock........... -- -- (214)
Deferred
compensation
related to grant
of stock
options......... (169) -- --
Amortization of
deferred
compensation.... 16 -- 16
Net loss........ -- (2,750) (2,750)
------------ ----------- -------------
Balances at
December 31,
1998............ (153) (2,750) (2,423)
Issuance of
Series C
redeemable
convertible
preferred stock
at $3.271 per
share for cash,
net of issuance
costs of $36.... -- -- --
Issuance of
common stock
upon exercise of
options to
employees and to
consultants for
cash and
promissory
notes........... -- -- 464
Issuance of
common stock and
restricted stock
to non-
employees....... -- -- 169
Issuance of
warrants and
stock options to
non-employees... -- -- 349
Accretion on
redeemable
convertible
preferred
stock........... -- -- (1,072)
Deferred
compensation
related to grant
of stock
options......... (17,653) -- --
Amortization of
deferred
compensation.... 3,554 -- 3,554
Net loss........ -- (14,294) (14,294)
------------ ----------- -------------
Balances at
December 31,
1999............ $(14,252) $(17, 044) $(13,253)
--------------------------------------------------
============ =========== =============
See accompanying notes.
F-5
SUPPORT.COM, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
[Download Table]
Period from inception
(December 3, 1997) to Year ended
December 31, 1998 December 31, 1999
--------------------- -----------------
Operating activities
Net loss............................. $(2,750) $(14,294)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization...... 23 294
Amortization of deferred
compensation...................... 16 3,554
Other.............................. 39 425
Changes in assets and liabilities:
Accounts receivable, net......... (65) (3,385)
Prepaids and other current
assets.......................... (29) (129)
Accounts payable................. 98 1,129
Accrued compensation............. 60 1,108
Other accrued liabilities........ 159 335
Deferred revenue................. 42 2,926
------- --------
Net cash used in operating
activities.......................... (2,407) (8,037)
------- --------
Investing activities
Purchases of property and equipment.. (279) (89)
Proceeds from sale of equipment...... -- 99
Other assets......................... (28) (226)
Purchases of short-term investments.. -- (12,266)
Sales of short-term investments...... -- 3,800
------- --------
Net cash used in investing
activities.......................... (307) (8,682)
------- --------
Financing activities
Proceeds from notes payable.......... 500 2,000
Proceeds from sale-leaseback......... -- 183
Proceeds from issuance of preferred
stock, net.......................... 5,017 15,390
Proceeds from issuances of common
stock............................... 5 501
Repayment of notes payable........... (1) (100)
Principal payments under capital
lease obligations................... -- (39)
------- --------
Net cash provided by financing
activities.......................... 5,521 17,935
------- --------
Net increase in cash and cash
equivalents........................... 2,807 1,216
Cash and cash equivalents at beginning
of period............................. -- 2,807
------- --------
Cash and cash equivalents at end of
period................................ $ 2,807 $ 4,023
======= ========
Supplemental disclosure of noncash
financing activities
Note received from stockholder in
exchange for preferred stock........ $ 250 $ --
======= ========
Note received from stockholders in
exchange for common stock........... $ -- $ 1,450
======= ========
Equipment acquired under capital
lease obligation.................... $ -- $ 1,112
======= ========
Supplemental schedule of cash flow
information
Interest paid........................ $ 39 $ 249
======= ========
See accompanying notes.
F-6
SUPPORT.COM, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Nature of Operations
Support.com, Inc. ("Support.com" or the "Company"), formerly known as Tioga
Systems, Inc. and Replicase, Inc., was incorporated in the state of Delaware on
December 3, 1997. Support.com is a provider of eBusiness infrastructure
software that optimizes, automates and personalizes user support over the
Internet. The Company's suite of eSupport software products and services is
designed to accelerate eBusiness growth by enabling the elimination of user
support bottlenecks that would otherwise constrain expanding Internet
initiatives. The Company sells its products primarily in the United States and,
to a lesser extent in Europe, through its direct sales force.
The Company commenced operations in December 1997. Operations through
December 31, 1997 consisted of initial development activities. As such
activities were not significant, the results have been included in operations
for the period ended December 31, 1998.
The Company has incurred operating losses to date and had an accumulated
deficit of $17,044,000 at December 31, 1999. The Company's activities have been
primarily financed through private placements of equity securities and capital
lease financings. Support.com may need to raise additional capital through the
issuance of debt or equity securities and capital lease financings. Such
financing may not be available on terms satisfactory to the Company, if at all.
If adequate funds are not available, the Company may be required to reduce its
level of spending.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Actual results could differ materially from these
estimates.
Concentration of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash investments and trade receivables.
Support.com invests cash which is not required for immediate operating needs
principally in money market funds and commercial paper, which incur minimal
risk. Support.com's customers are currently concentrated in the United States.
The Company performs ongoing evaluations of its customers' financial condition
and generally does not require collateral. The Company maintains reserves for
credit losses, and such losses have been within management's expectations.
For the year ended December 31, 1999, one customer accounted for 53% of
revenue.
Fair Value of Financial Instruments
The fair value of notes payable is estimated by discounting the future cash
flows using the current interest rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
The carrying value of the notes payable approximated its fair value. The fair
value of short-term and long-term capital lease obligations is estimated based
on current interest rates available to Support.com for debt instruments with
similar terms, degrees of risk and remaining maturities. The carrying values of
these obligations approximate their respective fair values.
F-7
SUPPORT.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Cash, Cash Equivalents and Short-Term Investments
Support.com considers all highly liquid, low-risk debt instruments with an
original maturity at the date of purchase of three months or less to be cash
equivalents. Through December 31, 1998, Support.com maintained cash and cash
equivalents in money market accounts with major financial institutions for
which the carrying amount approximated its fair value. Upon the completion of
the Series C Financing (see Note 4), Support.com invested some of its proceeds
in short-term investments with original maturities of greater than three
months. At December 31, 1999, cash equivalents and short-term investments
consist primarily of commercial paper, other debt instruments and money market
funds. Support.com's cash equivalents and short-term investments are classified
as available-for-sale in accordance with the provisions of the FASB's Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities."
Currently, Support.com classifies its securities as available-for-sale,
which are reported at amortized cost which approximated fair value at December
31, 1998 and 1999. Material unrealized gains and losses, if any, are reported
in stockholders' equity (deficit) and included in other comprehensive loss. The
amortized cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity, both of which are included in interest
income. Realized gains and losses are recorded using the specific
identification method. For the period from December 3, 1997 (inception) to
December 31, 1998 and for the year ended December 31, 1999, gross unrealized
gains and losses on available-for-sale securities were immaterial.
The following is a summary of available-for-sale securities at cost, which
approximates fair value (in thousands):
[Download Table]
December 31, December 31,
1998 1999
------------ ------------
Cash and cash equivalents
Cash............................................. $ 699 $ 296
Money market funds............................... 2,108 2,729
Municipal bonds.................................. -- 998
------ ------
$2,807 $4,023
====== ======
Short-term investments
Municipal bonds.................................. $ -- $6,466
Auction backed securities........................ -- 2,000
------ ------
$ -- $8,466
====== ======
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
which is provided using the straight-line method over the estimated useful
lives of the assets, generally three years.
Revenue Recognition
License revenue is comprised of fees for perpetual and subscription licenses
of the Company's software by corporate customers and resellers. Revenue from
perpetual license fees is recognized when persuasive evidence of an agreement
exists, delivery of the product has occurred, no obligations remain, the fee is
fixed or determinable and collectibility is probable. If the fee due from the
customer is not fixed or determinable, revenue is recognized as payments become
due from the customers. If collectibility is not considered probable,
F-8
SUPPORT.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
revenue is recognized when the fee is collected. Revenue related to
arrangements with resellers is recognized when the product is delivered to the
end user. Revenue from subscription licenses is recognized ratably over the
term of the subscription beginning upon the delivery of the licensed product.
Services revenue is primarily comprised of revenue from consulting fees,
maintenance arrangements and training. Arrangements that include software
services are evaluated to determine whether those services are essential to the
functionality of other elements of the arrangement. When software services are
considered essential, revenue under the arrangement is recognized as the
services are delivered in accordance with SOP 81-1, "Accounting for Performance
of Construction Type and Certain Production Type Contracts." When software
services are not considered essential, the revenue allocable to the software
services based on vendor-specific objective evidence is recognized as the
services are performed.
Maintenance agreements provide for technical support and include the right
to unspecified upgrades on an if-and-when-available basis. Maintenance revenue
is deferred and recognized on a straight-line basis as services revenue over
the life of the related agreement, which is typically one year.
Customer advances and billed amounts due from customers in excess of revenue
recognized are recorded as deferred revenue.
Support.com adopted Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2"), and Statement of Position 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2, Software Revenue Recognition" ("SOP
98-4"), as of January 1, 1998. SOP 97-2 and SOP 98-4 provide guidance for
recognizing revenue on software transactions and supersede SOP 91-1, "Software
Revenue Recognition." Full implementation guidelines for these standards have
not yet been issued. Once available, the current revenue accounting practices
may need to change and such changes could affect Support.com's future revenues
and results of operations. In December 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-9, "Modification
of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions" ("SOP 98-9"). SOP 98-9 amends SOP 98-4 to extend the deferral of
the application of certain passages of SOP 97-2 provided by SOP 98-4 through
fiscal years beginning on or before March 15, 1999. All other provisions of SOP
98-9 are effective for transactions entered into in fiscal years beginning
after March 15, 1999. Support.com does not expect the final adoption of SOP 98-
9 to have a material impact on its future revenues or results of operations.
Research and Development
Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed,"
requires the capitalization of certain software development costs subsequent to
the establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon the
completion of a working model. Costs incurred by the Company between the
completion of the working model and the point at which the product is ready for
general release have been insignificant. Accordingly, the Company has charged
all such costs to research and development expense in the accompanying
statement of operations. The Company did not incur any cost related to software
developed or obtained for internal use as defined SOP 98-1.
Advertising Costs
Advertising costs are recorded as sales and marketing expense in the period
in which they are incurred. Advertising expense for the period from inception
(December 3, 1997) to December 31, 1998 and the year ended December 31, 1999
were approximately $0 and $70,675, respectively.
F-9
SUPPORT.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"), and has adopted the disclosure only
alternative of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("FAS 123").
Any deferred stock compensation calculated according to APB 25 is amortized
over the vesting period of the individual options, generally four years, using
the graded vesting method. The graded vesting method provides for vesting of
portions of the overall awards at interim dates and results in greater vesting
in earlier years than straight-line.
All stock-based awards to non-employees are accounted for at their fair
value, as calculated using the Black-Scholes model, in accordance with FAS No.
123 and Emerging Issues Task Force Consensus No. 96-18. The options are subject
to periodic re-valuation over their vesting terms.
Net Loss Per Share
Basic and diluted net loss per share are presented in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS
128"), for all periods presented. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin No. 98, ordinary shares and convertible
preferred shares issued or granted for nominal consideration prior to the
anticipated effective date of Support.com's initial public offering must be
included in the calculation of basic and diluted net loss per share as if they
had been outstanding for all periods presented. To date, Support.com has not
had any issuances or grants for nominal consideration.
Basic and diluted net loss per share has been computed using the weighted-
average number of shares of common stock outstanding during the period. Had
Support.com been in a net income position, diluted earnings per share would
have included the shares used in the computation of basic net loss per share as
well as the impact of common shares outstanding subject to repurchase and
outstanding options and warrants to purchase an additional 2,306,761 and
7,586,002 shares, prior to the application of the treasury stock method, for
the period from inception (December 3, 1997) to December 31, 1998 and the year
ended December 31, 1999, respectively. Such shares have been excluded because
they are antidilutive for all periods presented. Shares of convertible
preferred stock have been excluded from the computation.
Comprehensive Loss
Support.com adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130"), at December 31, 1998. Under FAS
130, Support.com is required to display comprehensive income and its components
as part of the financial statements. Other comprehensive income includes
certain changes in equity that are excluded from net loss. The Company has no
material components of other comprehensive loss and, as a result, the
comprehensive loss is the same as the net loss for all periods presented.
Segment Information
Support.com operates in one segment. For the year ended December 31, 1999,
revenue from customers located outside the United States was approximately
$46,000 and was derived from customers in Canada and the United Kingdom.
F-10
SUPPORT.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share is computed using the weighted-average number
of shares of common stock outstanding, including the pro forma effects of the
automatic conversion of Support.com's convertible preferred stock into shares
of common stock, effective upon the closing of Support.com's initial public
offering as if such conversion occurred at the date of original issuance. Pro
forma stockholders' equity at December 31, 1999, as adjusted for the conversion
of the convertible preferred stock, is disclosed on the balance sheet.
A reconciliation of shares used in the calculation of basic and diluted and
pro forma net loss per share follows (In thousands except per share data):
[Download Table]
Period from inception
(December 3, 1997) to Year ended
December 31, 1998 December 31, 1999
--------------------- -----------------
Net loss attributable to common
stockholders....................... $(2,964) $(15,366)
======= ========
Basic and diluted:
Weighted-average shares of common
stock outstanding................ 6,432 7,166
Less weighted-average shares
subject to repurchase............ (1,205) (523)
------- --------
Shares used in computing basic and
diluted net loss per share....... 5,227 6,643
======= ========
Basic and diluted net loss per
share.............................. $ (0.57) $ (2.31)
======= ========
Pro forma:
Net loss.......................... $(14,294)
========
Shares used above................. 6,643
Unaudited pro forma adjustment to
reflect weighted effect of
assumed conversion of convertible
preferred stock.................. 13,494
--------
Shares used in computing unaudited
pro forma basic and diluted net
loss per share................... 20,137
========
Unaudited pro forma basic and
diluted net loss per share......... $ (0.71)
========
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standard No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which will be effective for the year ending December 31, 2001. This
statement establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. Support.com believes the adoption of SFAS 133 will
not have a material effect on the financial statements, since it currently does
not invest in derivative instruments and engage in hedging activities.
F-11
SUPPORT.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
2. Property and Equipment
Property and equipment are stated at cost and consist of the following (In
thousands):
[Download Table]
December
31,
------------
1998 1999
---- ------
Computer and software equipment................................ $168 $1,193
Furniture and equipment........................................ 106 5
Leasehold improvements......................................... 5 --
---- ------
279 1,198
Accumulated depreciation and amortization...................... (23) (317)
---- ------
$256 $ 881
==== ======
As of December 31, 1999, property and equipment included amounts acquired
under capital leases of approximately $1,112,000, with related accumulated
amortization of approximately $267,000. This includes property and equipment
with a net book value of approximately $122,000 at December 31, 1999 that was
acquired in 1998 and financed in 1999 through a sale-leaseback transaction.
3. Capital Leases, Borrowings and Commitments
In October 1998, the Company entered into a Loan and Security Agreement, a
Subordinated Loan and Security Agreement and a Lease Agreement with a financial
institution. In connection with each of these agreements, the Company issued
warrants to the financial institution (see Note 4). Additionally, the Company
cannot declare or pay any cash dividends or make a distribution on any class of
stock without the consent of the lender.
The Loan and Security Agreement allows the Company to borrow up to
$1,500,000 in minimum installments of $500,000 evidenced by secured promissory
notes. Each promissory note bears interest at the rate of 9% per annum, is
payable in 36 monthly installments, and is secured by substantially all of the
Company's assets. At December 31, 1999, the Company had borrowed $1,500,000
under this agreement. Remaining principal payments under these notes for the
years ending December 31, 2000, 2001 and 2002 are approximately $639,000,
$699,000 and $61,000, respectively.
The Subordinated Loan and Security Agreement allows the Company to borrow up
to $1,000,000 in two installments of $500,000 evidenced by subordinated secured
promissory notes. Each promissory note bears interest at the rate of 12.5% per
annum, is payable in 9 monthly installments of interest only followed by
33 monthly installments of principal and interest. Each note is secured by
substantially all of the Company's assets. At December 31, 1999, the Company
had borrowed $1,000,000 under this agreement. Principal payments due for the
years ended December 31, 2000, 2001 and 2002 are approximately $282,000,
$362,000 and $356,000, respectively.
The Lease Agreement allows the Company to borrow up to $2,500,000. The
Company can borrow under this agreement until 2001 and advances may only be
used to finance purchases of equipment, software and tenant improvements,
subject to certain limitations. Advances are secured by the assets acquired.
Each equipment advance is payable in 48 monthly installments of principal and
interest, computed at the monthly rate of 2.9% of the principal balance. At
December 31, 1999, the Company had borrowed approximately $1,112,000 under this
agreement.
F-12
SUPPORT.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
The Company leases its facilities under noncancelable operating lease
agreements which expire at various dates from 2000 to 2001. Rent expense was
approximately $783,000 for the year ended December 31, 1999 and approximately
$184,000 for the period from inception (December 3, 1997) to December 31, 1998.
The Company has subleased one of its facilities to a third party. Sublease
rental income was approximately $162,000 for the year ended December 31, 1999
and approximately $45,000 for the period from inception (December 3, 1997) to
December 31, 1998. Payments due under the sublease rental agreement are
approximately $309,000 in 2000 and $178,000 in 2001. The sublease rental
agreement expires in July 2001.
As of December 31, 1999, minimum payments under noncancelable lease
agreements were as follows (in thousands):
[Download Table]
Years ending Capital Operating
December 31, Leases Leases
------------ ------- ---------
2000.................................................... $ 336 $1,349
2001.................................................... 344 850
2002.................................................... 344 --
2003.................................................... 187 --
------ ------
Total minimum lease and principal payments............ 1,211 $2,199
======
Amount representing interest............................. (138)
------
Present value of future payments......................... 1,073
Current portion of capital lease obligations............. 274
------
Noncurrent portion....................................... $ 799
======
4. Redeemable Convertible Preferred Stock and Stockholders' Equity
Preferred Stock
Each share of preferred stock is, at the option of the holder, convertible
into one share of common stock, subject to certain adjustments for dilution, if
any, resulting from future stock issuances. The outstanding shares of preferred
stock automatically convert into common stock immediately prior to the closing
of an underwritten public offering of common stock under the Securities Act of
1933 in which the Company receives at least $15,000,000 in gross proceeds and
the market valuation for the Company is at least $125,000,000. Each class of
preferred stock automatically converts into common stock at the election of
holders of at least a majority of the outstanding shares.
As of December 31, 1999, convertible preferred stock consisted of the
following:
[Download Table]
Non-
cumulative Liquidation
Shares Shares Dividend Preference
Authorized Outstanding Per Share Per Share
---------- ----------- ---------- -----------
Series A....................... 3,571,600 3,571,600 $ -- $0.070
Series B....................... 7,346,108 7,346,108 $0.550 $0.687
Series C....................... 4,810,000 4,638,618 $0.262 $3.271
---------- ----------
15,727,708 15,556,326
========== ==========
The holders of Series B and C preferred stock are entitled to receive
dividends payable in preference and priority to any payment of any dividend on
Series A preferred stock and common stock. No dividends have been declared as
of December 31, 1999.
F-13
SUPPORT.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
The liquidation preference of the convertible preferred stock is subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination, or other similar recapitalization affecting such share and, in
addition, an amount equal to all declared but unpaid dividends on the shares of
preferred stock. The liquidation preference of the Series B and C preferred
stock is increased at the rate, without compounding, of 8% per year, such rate
to be prorated over the length of any partial year. Any remaining assets would
then be distributed on a pro rata basis among the holders of common stock.
The majority of the holders of Series B redeemable convertible preferred
stock can require the Company to redeem one-third, two-thirds, and all of the
outstanding Series B redeemable convertible preferred stock, together with a 8%
annual rate of return, at any time after June 19, 2003, June 19, 2004 and June
19, 2005, respectively. The carrying amount of Series B redeemable convertible
preferred stock is being increased by periodic accretions so that its carrying
amount will equal the redemption amount at the redemption date.
The majority of the holders of Series C redeemable convertible preferred
stock can require the Company to redeem one-third, two-thirds, and all of the
outstanding Series C redeemable convertible preferred stock, together with a 8%
annual rate of return, at any time after June 14, 2004, June 14, 2005 and June
14, 2006, respectively. The carrying amount of Series C redeemable convertible
preferred stock is being increased by periodic accretions so that its carrying
amount will equal the redemption amount at the redemption date.
The preferred stockholders have voting rights equal to the common shares
issuable upon conversion of their preferred shares.
At December 31, 1998, the Company had a receivable from a stockholder for
$250,229 in connection with the purchase of Series B preferred stock. The
receivable was included in prepaids and other currents assets. The Company
collected the receivable during 1999.
Common Stock
The Company has reserved shares of common stock for issuance at December 31,
1999 as follows:
[Download Table]
Stock Option Plan................................................. 3,952,440
Warrants.......................................................... 164,483
Conversion of preferred stock..................................... 15,556,326
----------
19,673,249
==========
Certain option holders have exercised options to purchase shares of common
stock in exchange for four-year, full recourse promissory notes. The notes bear
interest at 5.9% and expire on various dates through 2003. The Company has the
right to repurchase all unvested shares purchased by the notes at the original
exercise price in the event of employee termination. The number of shares
subject to this repurchase right decreases as the shares vest under the
original option terms, generally over four years. As of December 31, 1999,
there were 1,560,000 shares subject to repurchase. These options were exercised
at prices ranging from $0.90 to $0.99, with a weighted-average exercise price
of $0.93 per share.
Subsequent to year end, an option holder exercised 1,680,189 options to
purchase shares of common stock in exchange for a four-year, full recourse
promissory note. The note has terms which are identical to the notes exercised
prior to year end. These options were exercised at at a price per share of
$0.40.
F-14
SUPPORT.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Stock Warrants
In October 1998 and July 1999, the Company issued warrants to a financial
institution in conjunction with the Loan and Security Agreement, Subordinated
Loan and Security Agreement and the master lease agreement (see Note 3). The
warrant issued in October 1998 allows the financial institution to purchase
98,511 shares of the Company's Series C preferred stock at an exercise price of
$1.98 per share. The warrant issued in July 1999 allows the financial
institution to purchase 27,511 shares of the Company's Series C preferred stock
at an exercise price of $3.27 per share. The warrants became exercisable in
June 1999 and July 1999, respectively. The warrants granted in July 1999 shall
be exercisable for a period of seven years or three years from the effective
date of the Company's initial public offering, whichever is longer. The
warrants granted in October 1998 will expire 7 years from issuance or at the
time of the Company's initial public offering. The warrants were valued using
the Black-Scholes model. The total value of approximately $308,000 is being
amortized to interest expense over the term of the financing agreements.
In August 1999, the Company issued warrants to a lessor in conjunction with
a sublease agreement. The warrant allows the lessor to purchase 38,461 shares
of the Company's Series C preferred stock at an exercise price of $6.50 per
share. The warrant is immediately exercisable and expires in November 2001 or
at the time of the Company's initial public offering. The warrants were valued
using the Black-Scholes model. The total value of approximately $35,000 is
being amortized to interest expense over the term of the lease agreements.
1998 Stock Option Plan
During fiscal 1998, the Company adopted the 1998 Stock Option Plan (the
"Plan"). Under the Plan, up to 8,124,434 shares of the Company's common stock
may be granted as options or sold to eligible participants. Under the Plan,
options to purchase common stock may be granted at no less than 85% of the fair
value on the date of the grant (110% of fair value in certain instances), as
determined by the board of directors. Options under the plan are immediately
exercisable; however, shares issued are subject to the Company's right to
repurchase such shares at the original issuance price, which lapses in a series
of installments measured from the vesting commencement date of the option.
Options generally vest and the repurchase rights lapse over a 48-month period
from the date of grant and have a maximum term of 10 years.
Pro forma information regarding net loss is required by FAS 123 and has been
determined as if the Company had accounted for its employee stock options under
the fair value method of FAS 123. The fair value of these options was estimated
at the date of grant using the minimum value method with the following
weighted-average assumptions: risk-free interest rates of 6.5%; a dividend
yield of 0%; and a weighted-average expected life of the option of 4.5 years
for the years ended December 31, 1998 and 1999.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options using a
graded vesting method. The effects of applying FAS 123 for pro forma
disclosures are not likely to be representative of the effects on reported net
loss for future years.
Support.com's pro forma information follows (in thousands, except per share
amounts):
[Download Table]
Period from inception
(December 3, 1997) to Year ended
December 31, 1998 December 31, 1999
--------------------- -----------------
Net loss:
As reported...................... $(2,964) $(15,366)
Pro forma........................ (2,969) (15,468)
Basic and diluted net loss per
share:
As reported...................... $ (0.57) $ (2.31)
Pro forma........................ (0.57) (2.33)
F-15
SUPPORT.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Information with respect to stock option activity is summarized as follows:
[Download Table]
Options Outstanding Weighted
Options ----------------------- Average
Available Number of Price Per Exercise
for Grant Shares Share Price
---------- ---------- ----------- --------
Shares authorized.............. 2,929,434 -- -- --
Options granted................ (2,343,250) 2,343,250 $ 0.10 $0.10
Options exercised.............. -- (40,000) $ 0.10 $0.10
Options canceled............... 95,000 (95,000) $ 0.10 $0.10
---------- ---------- -----------
Balance at December 31, 1998... 681,184 2,208,250 $ 0.10 $0.10
Shares authorized.............. 5,195,000 -- -- --
Options granted................ (6,326,139) 6,326,139 $0.10-$0.99 $0.57
Options exercised.............. -- (4,131,994) $0.10-$0.99 $0.46
Options canceled............... 457,500 (457,500) $0.10-$0.90 $0.23
---------- ---------- -----------
Balance at December 31, 1999... 7,545 3,944,895 $0.10-$0.90 $0.47
========== ========== ===========
At December 31, 1998 and 1999, zero and 3,299,905 shares which had been
issued upon exercise of options were subject to repurchase. At December 31,
1998 and 1999, options to acquire 5,500 and 444,899 shares were vested but not
exercised.
Exercise prices for options outstanding as of December 31, 1999 and the
weighted-average remaining contractual life are as follows:
[Download Table]
Options Outstanding and Exercisable
-------------------------------------------------
Weighted-
Average
Remaining
Exercise Number of Contractual
Price Range Shares Life
----------- --------- -----------
(In years)
$0.10 764,556 7.79
$0.40 2,163,689 9.54
$0.90 1,016,650 9.68
--------- ----
3,944,895 9.22
========= ====
The weighted-average fair value of options granted during 1998 and 1999 was
$0.02 and $0.12, respectively.
Stock Compensation
During the period from December 31, 1997 (inception) to December 31, 1998
and for the year ended December 31, 1999, in connection with the grant of
certain share options to employees, Support.com recorded deferred stock
compensation of approximately $169,000 and $17.7 million, respectively,
representing the difference between the exercise price and the deemed fair
value of Support.com's common stock on the date such stock options were
granted. Such amounts are included as a reduction of stockholders' equity
(deficit) and are being amortized by charges to operations on a graded vesting
method. Support.com recorded amortization of deferred stock compensation
expense of approximately $16,000 in 1998 and $3.5 million in 1999. At
F-16
SUPPORT.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
December 31, 1999, Support.com had a total of approximately $14.3 million
remaining to be amortized over the corresponding vesting period of each
respective option, generally four years. The amortization expense relates to
options awarded to employees in all operating expense categories. This amount
has not been separately allocated to these categories.
5. Income Taxes
The difference between the amount of income tax benefit calculated and the
amount of income tax recorded using the U.S. federal statutory rate of 35% is
primarily due to net operating losses not being benefited. Accordingly, there
is no provision for income taxes for the period from December 17, 1997
(inception) to December 31, 1998 and for the year ended December 31, 1999.
Significant components of Support.com's deferred tax assets are as follows
(in thousands):
[Download Table]
December 31,
----------------
1998 1999
------- -------
Deferred tax assets:
Net operating loss carryforwards......................... $ 1,000 $ 4,100
Deferred compensation.................................... -- 1,400
Other.................................................... 100 900
------- -------
Total deferred tax assets.............................. 1,100 6,400
Valuation allowances....................................... (1,100) (6,400)
------- -------
Net deferred tax assets.................................... $ -- $ --
======= =======
The Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes," provides for the recognition
of deferred tax assets if realization of such assets is more likely than not.
Based upon the weight of available evidence, which includes Support.com's
historical operating performance and the reported cumulative net losses in all
periods, the Company has provided a full valuation allowance against its net
deferred tax assets.
The valuation allowance increased by approximately $1.1 million and $5.3
million during the period from December 17, 1997 (inception) to December 31,
1998 and for the year ended December 31, 1999, respectively.
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards each of approximately $10.1 million. The net operating loss
carryforwards will expire at various dates beginning in 2005 through 2019, if
not utilized.
Utilization of the net operating loss carryforwards may be subject to a
substantial annual limitation due to the "change in ownership" provisions of
the Internal Revenue Code and similar state provisions. The annual limitation
may result in the expiration of net operating loss carryforwards before
utilization.
F-17
SUPPORT.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
6. Subsequent Events (Unaudited)
Initial Public Offering
In February 2000, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with a proposed Initial Public
Offering ("IPO"). If the offering is consummated under the terms presently
anticipated, all of the currently outstanding convertible preferred stock will
convert to shares of common stock upon the closing of the IPO on a one-for-one
basis. The effect of this conversion has been reflected as unaudited pro forma
stockholders' equity in the accompanying balance sheet at December 31, 1999.
In February 2000, the Board of Directors also authorized 5,000,000 shares of
undesignated preferred stock, for which the Board of Directors is authorized to
fix the designation, powers, preferences and rights, and an increase in the
authorized number of shares of common stock to 150,000,000 shares.
2000 Employee Stock Purchase Plan
In February 2000, the Board of Directors approved the adoption of
Support.com's 2000 Employee Stock Purchase Plan (the "2000 Purchase Plan"). A
total of 2,000,000 shares of common stock have been reserved for issuance under
the 2000 Purchase Plan. On January 1 of each year, the number of shares
reserved automatically increases by the lesser of 2,000,000 shares, 3% of the
outstanding shares, or an amount determined by the Board of Directors. The 2000
Purchase Plan permits eligible employees to acquire shares of Support.com's
common stock through periodic payroll deductions of up to 15% of total
compensation. No more than 1,000 shares may be purchased on any purchase date
per employee. Each offering period will have a maximum duration of 24 months.
Purchases occur on the last day of each June and December of each offering
period. The price at which the common stock may be purchased is 85% of the
lesser of the fair market value of Support.com's common stock on each
employee's applicable enrollment date or on the last day of the respective
purchase period. The initial offering period commenced on the effectiveness of
the initial public offering and will end on the last business day of December
2001.
2000 Omnibus Equity Incentive Plan
In February 1999, the Board of Directors approved the adoption of
Support.com's 2000 Omnibus Equity Incentive Plan (the "2000 Incentive Plan"),
subject to stockholder approval. A total of 4,000,000 shares of common stock
have been reserved for issuance to eligible participants under the 2000
Incentive Plan. On January 1 of each year, the number of shares reserved
automatically increases by the lesser of 2,000,000 shares, 5% of outstanding
shares, or an amount determined by the Board of Directors. The types of awards
that may be made under the 2000 Incentive Plan include the grant of incentive
stock options, the grant of nonstatutory stock options and stock purchase
rights to employees, non-employee directors, advisors and consultants. Any
shares not yet issued under Support.com's 1998 Stock Option Plan as of the date
of Support.com's initial public offering will be available for grant under the
2000 Incentive Plan. The exercise price for incentive stock options may not be
less than 100% of the fair market value of Support.com's common stock on the
date of grant (85% for nonstatutory options).
Increase in Shares Available Under the 1998 Stock Option Plan
In February 2000, the Board of Directors authorized, and the stockholders
approved, an increase of 1,300,000 shares for issuance under Support.com's
stock option plan.
F-18
SUPPORT.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Option Activity
From January 1, 2000 to February 15, 2000, options to purchase 690,000
shares of common stock were granted to employees pursuant to the 1998 Stock
Option Plan with exercise prices of between $2.00 and $5.50 per share. The
Company estimates that additional deferred compensation of $3.7 million will be
recorded as a result of these option grants and will be amortized to expense in
accordance with the Company's policy. The Company also expects to incur non-
cash charges of at least $700,000 in the first quarter of 2000 associated with
other option arrangements.
Rescission Offer
Shares issued, and option grants made under, the Company's 1998 Stock Plan
were not exempt from registration or qualification under California state
securities laws, and these stock issuances and option grants violated the
registration requirements of California state securities laws because
registration or qualification was not obtained. The Company intends to make a
rescission offer to the holders of these shares and options which will be held
open for 30 days after the effective date of this offering. If accepted, the
rescission offer could require the Company to make payments including statutory
interest.
F-19
[Company Logo]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimated except the Securities and Exchange
Commission registration fee and the National Association of Securities
Dealers, Inc. filing fee.
[Download Table]
Payable by
Registrant
----------
SEC registration fee.............................................. $16,395
National Association of Securities Dealers, Inc. filing fee....... 6,710
Nasdaq National Market Listing Fee................................ 95,000
Accounting fees and expenses...................................... *
Legal fees and expenses........................................... *
Printing and engraving expenses................................... *
Blue Sky fees and expenses........................................ *
Registrar and Transfer Agent's fees............................... *
Miscellaneous fees and expenses................................... *
-------
Total........................................................... *
=======
--------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article XI.B. of the
Registrant's Amended and Restated Certificate of Incorporation (Exhibit 3.1
hereto) and Article XII of the Registrant's Amended and Restated Bylaws
(Exhibit 3.2 hereto) provide for indemnification of the Registrant's
directors, officers, employees and other agents to the extent and under the
circumstances permitted by the Delaware General Corporation Law. The
Registrant has also entered into agreements with its directors and officers
that will require the Registrant, among other things, to indemnify them
against certain liabilities that may arise by reason of their status or
service as directors or officers to the fullest extent not prohibited by law.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
Underwriters of the Registrant, its directors and officers, and by the
Registrant of the Underwriters, for certain liabilities, including liabilities
arising under the Act and affords certain rights of contribution with respect
thereto.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
ourselves, our underwriters and our directors and officers of the
underwriters, for certain liabilities, including liabilities arising under the
Act and affords certain rights of contribution with respect thereto.
Item 15. Recent Sales of Unregistered Securities
1. From December 1997 to December 31, 1999, the Registrant issued and
sold 10,874,374 shares of common stock to employees, directors and
consultants at prices ranging from $0.0001 to $0.90 per share.
2. From December 8, 1997 to March 19, 1998, the Registrant issued and
sold 3,571,600 shares of Series A preferred stock to a total of 4 investors
for an aggregate purchase price of $250,012.00.
3. On June 22, 1998, the Registrant issued and sold 7,346,108 shares of
Series B preferred stock to a total of 9 investors for an aggregate
purchase price of $5,050,228.87.
4. On June 14, 1999, the Registrant issued and sold 4,638,618 shares of
Series C preferred stock to a total of 35 investors for an aggregate
purchase price of $15,175,147.93.
II-1
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701
promulgated under Section 3(b) of the Securities Act, as transactions by an
issuer not involving a public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under Rule 701. The recipients of securities in each of these transactions
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof,
and appropriate legends were affixed to the share certificates and instruments
issued in such transactions. All recipients had adequate access, through their
relationship with the Registrant, to information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
See exhibits listed on the Exhibit Index following the signature page of
the Form S-1, which is incorporated herein by reference.
(b) Financial Statement Schedules
Schedules other than those referred to above have been omitted because they
are not applicable or not required or because the information is included
elsewhere in the Financial Statements or the notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, 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 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, as amended, 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.
(3) The Registrant will provide to the underwriters at the closing(s)
specified in the underwriting agreement certificates in such denominations
and registered in such names as required by the underwriters to permit
prompt delivery to each purchaser.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Redwood City, State of
California, on the 18th day of February, 2000.
Support.Com, Inc.
/s/ Radha Ramaswami Basu
By __________________________________
Radha Ramaswami Basu
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Radha Ramaswami Basu, Brian M. Beattie and Mark
A. Vranesh, and each of them, his or her true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him or
her and in his or her name, place and stead, in any and all capacities, to
sign any and all amendments, including post-effective amendments, to this
Registration Statement, and any registration statement relating to the
offering covered by this Registration Statement and filed pursuant to Rule
462(b) under the Securities Act of 1933 and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
each of said attorneys-in-fact and agents or their substitute or substitutes
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
[Download Table]
Name Title Date
---- ----- ----
/s/ Radha Ramaswami Basu President, Chief Executive February 18, 2000
____________________________________ Officer and Director
Radha Ramaswami Basu (Principal Executive
Officer)
/s/ Brian M. Beattie Senior Vice President of February 18, 2000
____________________________________ Finance and Administration,
Brian M. Beattie Chief Financial Officer
(Principal Financial Officer
and Principal Accounting
Officer)
/s/ Mark J. Pincus Director February 18, 2000
____________________________________
Mark J. Pincus
/s/ Matthew T. Cowan Director February 18, 2000
____________________________________
Matthew T. Cowan
II-3
[Download Table]
Name Title Date
---- ----- ----
/s/ William L. Dunn Director February 18, 2000
____________________________________
William L. Dunn
/s/ Bruce Golden Director February 18, 2000
____________________________________
Bruce Golden
/s/ Edward S. Russell Director February 18, 2000
____________________________________
Edward S. Russell
/s/ Roger J Sippl Director February 18, 2000
____________________________________
Roger J. Sippl
II-4
EXHIBIT INDEX
[Download Table]
Exhibit
Number Description of Document
------- -----------------------
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation, to be effective
upon consummation of this offering.
3.2 Amended and Restated Bylaws, to be effective upon consummation of this
offering.
3.3 Amended and Restated Certificate of Incorporation.
3.4 Certificate of Correction of the Amended and Restated Certificate of
Incorporation.
3.5 Bylaws.
4.1* Form of Common Stock Certificate.
4.2 Registration Rights Agreement, dated June 22, 1998, by and among the
registrant and the parties who are signatories thereto.
4.3 Amended and Restated Registration Rights Agreement, dated June 14,
1999, by and among the registrant and the parties who are signatories
thereto.
4.4 Warrant Agreement to Purchase Shares of Series C Convertible Preferred
Stock, dated July 12, 1999, by and between the registrant and
Comdisco, Inc.
4.5 Warrant Agreement to Purchase Shares of Series C Preferred Stock,
dated October 27, 1998, by and between the registrant and Comdisco,
Inc.
4.6 Warrant Agreement to Purchase Shares of Series C Preferred Stock,
dated October 27, 1998, by and between the registrant and Comdisco,
Inc.
4.7 Warrant Agreement to Purchase Shares of Series C Preferred Stock,
dated October 27, 1998, by and between the registrant and Comdisco,
Inc.
4.8 Letter Agreement, dated June 7, 1999, by and between the registrant
and Comdisco, Inc.
4.9 Warrant Agreement to Purchase Shares of Series C Preferred Stock by
and between the registrant and Excite, Inc.
4.10* Warrant Agreement to Purchase Shares of Series C Preferred Stock dated
February 17, 2000 by and between the registrant and General Electric
Company.
5.1* Opinion of Pillsbury Madison & Sutro LLP.
10.1 Registrant's 1998 Stock Option Plan.
10.2 Registrant's 2000 Omnibus Equity Incentive Plan.
10.3 Registrant's 2000 Employee Stock Purchase Plan.
10.4 Form of Directors and Officers' Indemnification Agreement.
10.5 Employment Agreement, dated June 24, 1998, by and between the
registrant and Anthony C. Rodoni.
10.6 Employment Agreement, dated May 26, 1999, by and between the
registrant and Michael O'Rourke.
10.7 Employment Agreement, dated July 15, 1999, by and between the
registrant and Radha R. Basu.
10.8 Employment Agreement, dated August 16, 1999, by and between the
registrant and Scott Dale.
10.9 Employment Agreement, dated August 16, 1999, by and between the
registrant and Cadir Lee.
10.10 Employment Agreement, dated September 27, 1999, by and between the
registrant and Brian M. Beattie.
10.11 Employment Agreement, dated December 7, 1999, by and between the
registrant and Jim Hilbert.
10.12 Employment Agreement, dated January 18, 2000, by and between the
registrant and Lucille Hoger.
10.13* Employment Agreement, dated February , 2000, by and between the
registrant and Mark Pincus.
10.14 Sublease Agreement, dated August 6, 1999, by and between the
registrant and Excite, Inc.
10.15+ Enterprise License Agreement, dated May 27, 1999, by and between the
registrant and Bear, Stearns & Co., Inc.
10.16+ Amendment No. 1 to Enterprise License Agreement, dated October 6,
1999, by and between the registrant and Bear, Stearns & Co., Inc.
10.17* Enterprise License Agreement dated February 17, 2000 by and between
the registrant and General Electric Company.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Pillsbury Madison & Sutro LLP (contained in their opinion
filed as Exhibit 5.1).
24.1 Power of Attorney. Reference is made to Page II-3.
27.1 Financial Data Schedule for Support.com, Inc. (in EDGAR format only).
-------
* To be filed by amendment.
+ Confidential Treatment Requested.
Dates Referenced Herein and Documents Incorporated by Reference
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