Delaware
(State
or Other Jurisdiction
of
Incorporation or Organization)
|
6770
(Primary
Standard Industrial Classification Code Number
|
20-0996152
(I.R.S.
Employer
Identification
Number)
|
Humphrey
P. Polanen
3000
Sand Hill Road
Building
1, Suite 240
Menlo
Park, California 94025
(650)
926-7023
(Name,
address, including zip code, and telephone number,
including
area code, of Agent for service)
With
Copies To:
|
Gregory
J. Schmitt, Esq.
Jenkens
& Gilchrist, P.C.
1445
Ross Avenue
Suite
3700
Dallas,
Texas 75202
(214)
855-4500
|
Robert
G. Copeland, Esq.
P.
Blake Allen, Esq.
Duane
Morris LLP
101
West Broadway
Suite
900
San
Diego, California 92101
(619)
744-2200
|
Title
of Each Class of
Securities
to be Registered
|
Amount
to
be
Registered(1)
|
Proposed
Maximum Offering Price(2)
|
Proposed
Maximum Aggregate Offering Price(2)
|
Amount
of Registration Fee(3)(4)(5)
|
|||||||||
Common
Stock, par value $0.01 per
share
|
9,972,757
|
$
|
5.20
|
$
|
51,858,336.40
|
$
|
5,548.85
|
||||||
Options
and Warrants(3)
|
1,097,643
|
$
|
5.20
|
$
|
5,707,743.60
|
$
|
610.73
|
||||||
Common
Stock, par value $0.01per
share(4)
|
1,097,643
|
$
|
5.20
|
$
|
5,707,743.60
|
$
|
610.73
|
(1) |
Represents
a bona fide estimate of the maximum number of shares of Sand Hill
common
stock, par value $0.01 per share, that may be issued in connection
with
the merger described herein. The number of shares of Sand Hill common
stock registered hereunder includes an estimated number of shares
issuable
as a result of potential purchase price
adjustments.
|
(2) |
Estimated
solely for the purposes of calculating the registration fee in accordance
with Rule 457(c) under the Securities Act of 1933, as amended,
calculated based on the average of the bid and ask price for the
shares of
Sand Hill common stock on the NASD Over-the-Counter Bulletin Board
on
December 12, 2005, which was
$5.20.
|
(3) |
Represents
options and warrants for 1,097,643 shares of common stock to be issued
as
replacement options and warrants to current holders of St. Bernard
options
and warrants.
|
(4) |
Represents
1,097,643 shares of common stock which may be issued to St. Bernard
option
and warrant holders if all presently outstanding St. Bernard options
and
warrants are exercised prior to closing of the
merger.
|
(5) |
$6,159.58
previously paid.
|
Sand
Hill IT Security
Acquisition
Corp.
|
St.
Bernard
Software,
Inc.
|
Sincerely,
/s/
Humphrey P. Polanen
Chairman
of the Board and
Chief
Executive Officer
Sand
Hill IT Security Acquisition Corp.
|
Sincerely,
/s/
John E. Jones
Chief
Executive Officer
St.
Bernard Software, Inc.
|
QUESTIONS
AND ANSWERS ABOUT THE MERGER
|
1
|
SUMMARY
|
12
|
The
Companies
|
12
|
Sand
Hill’s Business Rationale for Merging with St. Bernard
|
13
|
St.
Bernard’s Business Rationale for Merging with Sand Hill
|
14
|
Security
Market Characteristics and Industry Background
|
14
|
The
Merger
|
15
|
Amended
and Restated Certificate of Incorporation
|
16
|
St.
Bernard Software, Inc. 1992 Stock Option Plan; St. Bernard Software,
Inc.
2000 Stock Option Plan; St. Bernard Software, Inc. 2005 Stock Option
Plan
|
16
|
Adjournment
Proposal
|
17
|
Sand
Hill’s Board of Directors’ Recommendations
|
17
|
Special
Meetings of Stockholders
|
17
|
Voting
Power; Record Date
|
17
|
Vote
Required to Adopt the Merger Proposal
|
18
|
Vote
Required to Adopt the Amended and Restated Certificate of
Incorporation
|
18
|
Vote
Required to Adopt the Stock Option Plans Proposal
|
18
|
Vote
Required to Adopt the Adjournment Proposal
|
18
|
Conditions
to Adoptions
|
18
|
Conversion
Rights
|
18
|
Appraisal
or Dissenters Rights
|
19
|
Voting
|
19
|
Stock
Ownership
|
20
|
Interests
of Sand Hill Directors and Officers in the Merger
|
20
|
Interests
of Officers and Directors of St. Bernard in the Merger
|
21
|
Conditions
to the Completion of the Merger
|
22
|
No
Solicitation
|
23
|
Termination
|
23
|
Termination
Fee; Expenses
|
25
|
Quotation
or Listing
|
25
|
Amendment
and Restatement of Sand Hill Certificate of Incorporation
|
25
|
Officers
and Directors After the Merger
|
25
|
Indemnification
and Stock Escrow Agreement
|
25
|
Material
United States Federal Income Tax Consequences of the
Merger
|
26
|
Accounting
Treatment
|
26
|
Regulatory
Matters
|
26
|
|
|
SELECTED
HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION
|
27
|
|
|
SELECTED
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
|
29
|
|
|
COMPARATIVE
PER SHARE INFORMATION
|
31
|
|
|
PER
SHARE MARKET PRICE INFORMATION
|
32
|
|
|
RISK
FACTORS
|
33
|
|
|
FORWARD-LOOKING
STATEMENTS
|
42
|
THE
SAND Hill SPECIAL MEETING
|
43
|
Sand
Hill Special Meeting
|
43
|
Date,
Time and Place
|
43
|
Purpose
of the Sand Hill Special Meeting
|
43
|
Recommendation
of the Sand Hill Board of Directors
|
43
|
Record
Date; Who is Entitled to Vote
|
43
|
Quorum
|
44
|
Voting
Your Shares
|
44
|
Who
Can Answer Your Questions About Voting Your Shares
|
44
|
No
Additional Matters May Be Presented at the Sand Hill Special
Meeting
|
44
|
Revoking
Your Proxy
|
45
|
Vote
Required
|
45
|
Conversion
Rights
|
45
|
Solicitation
Costs
|
46
|
Stock
Ownership
|
46
|
|
|
THE
ST. BERNARD SPECIAL MEETING
|
47
|
St.
Bernard Special Meeting
|
47
|
Date,
Time and Place
|
47
|
Purpose
of the St. Bernard Special Meeting
|
47
|
Recommendation
of the St. Bernard Board of Directors
|
47
|
Record
Date; Who is Entitled to Vote
|
47
|
Quorum
|
47
|
Voting
Your Shares
|
48
|
Who
Can Answer Your Questions About Voting Your Shares
|
48
|
No
Additional Matters May Be Presented at the St. Bernard Special
Meeting
|
48
|
Revoking
Your Proxy
|
48
|
Vote
Required
|
48
|
Solicitation
Costs
|
49
|
Stock
Ownership
|
49
|
|
|
THE
MERGER PROPOSAL
|
50
|
General
Description of the Merger
|
50
|
Background
of the Merger
|
50
|
Sand
Hill Reasons for the Merger
|
52
|
St.
Bernard’s Reasons for the Merger
|
57
|
Interests
of Sand Hill Directors and Officers in the Merger
|
57
|
Interests
of St. Bernard Directors and Officers in the Merger
|
57
|
Appraisal
or Dissenters Rights
|
58
|
Material
United States Federal Income Tax Consequences of the
Merger
|
58
|
Anticipated
Accounting Treatment
|
61
|
Regulatory
Matters
|
61
|
Consequences
if Merger Proposal is Not Approved
|
61
|
Vote
Required to Adopt the Merger Proposal
|
61
|
Recommendation
of the Sand Hill Board of Directors
|
62
|
Recommendation
of the St. Bernard Board of Directors
|
62
|
|
|
THE
MERGER AGREEMENT
|
63
|
Structure
of the Merger
|
63
|
Closing
and Effective Time of the Merger
|
63
|
Amendment
and Restatement of Sand Hill Certificate of Incorporation
|
63
|
Name;
Headquarters; Stock Symbol; Listing
|
63
|
Merger
Consideration
|
63
|
Exchange
of Certificates
|
64
|
Representations
and Warranties
|
64
|
Materiality
and Material Adverse Effect
|
66
|
Interim
Operations of Sand Hill and St. Bernard
|
66
|
No
Solicitation by St. Bernard
|
68
|
No
Solicitation by Sand Hill
|
69
|
Sand
Hill Stockholders’ Meeting
|
70
|
St.
Bernard Stockholders’ Meeting
|
70
|
Access
to Information; Confidentiality
|
70
|
Reasonable
Efforts; Notification
|
71
|
Fees
and Expenses
|
72
|
Public
Announcements
|
72
|
Quotation
or Listing
|
72
|
Tax
Treatment
|
72
|
Pre-Closing
Confirmation
|
72
|
Conditions
to the Completion of the Merger
|
72
|
Termination
|
74
|
Effect
of Termination
|
76
|
Termination
Fee and Expenses
|
76
|
Assignment
|
77
|
Amendment
|
77
|
Extension;
Waiver
|
77
|
|
|
Indemnification
|
77
|
Exclusive
Remedy
|
77
|
Survival
Period
|
78
|
Stockholders
Representative
|
78
|
|
|
Stock
Escrow Agreement
|
78
|
|
|
THE
AMENDMENT PROPOSAL
|
79
|
General
Description of the Amendment and Restatement of the Certificate of
Incorporation of Sand Hill
|
79
|
Sand
Hill’s Reasons for the Amendment and Restatement of the Certificate of
Incorporation and Recommendation of Sand Hill’s Board of
Directors
|
79
|
Consequences
if Amendment Proposal is Not Approved
|
79
|
Vote
Required to Adopt the Amendment Proposal
|
79
|
Sand
Hill’s Board of Directors’ Recommendation
|
80
|
|
|
THE
STOCK OPTION PLANS PROPOSAL
|
81
|
St.
Bernard 1992 Stock Option Plan
|
81
|
St.
Bernard 2000 Stock Option Plan
|
83
|
St.
Bernard 2005 Stock Option Plan
|
84
|
|
|
INFORMATION
ABOUT ST. BERNARD
|
88
|
Overview
|
88
|
Products
|
89
|
Marketing,
Sales and Distribution
|
91
|
Subscription
and Deferred Revenue
|
91
|
Maintenance
and Technical Support
|
92
|
Seasonality
|
92
|
Customers
|
92
|
Competition
|
92
|
Research
and Development
|
93
|
Intellectual
Property Rights
|
94
|
Employees
|
95
|
Other
Information
|
95
|
Properties
|
95
|
Legal
Proceedings
|
95
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF ST. BERNARD
|
96
|
Overview
|
96
|
Critical
Accounting Policies and Estimates
|
97
|
Recent
Accounting Pronouncements
|
108
|
Liquidity
and Capital Resources
|
109
|
Contractual
Commitments
|
110
|
Losses
from Operations - Liquidity
|
110
|
Off-Balance
Sheet Arrangements
|
110
|
|
|
INFORMATION
ABOUT Sand Hill
|
111
|
Business
of Sand Hill
|
111
|
Legal
Proceedings
|
113
|
Plan
of Operations
|
113
|
Off-Balance
Sheet Arrangements
|
114
|
|
|
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
115
|
|
|
NOTES
TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
|
120
|
|
|
DIRECTORS
AND MANAGEMENT OF THE COMBINED COMPANY FOLLOWING THE
MERGER
|
122
|
Independence
of Directors
|
123
|
Board
of Directors Committees
|
124
|
Director
and Officer Compensation
|
124
|
St.
Bernard Executive Officers
|
124
|
Sand
Hill Executive Officers
|
127
|
|
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
128
|
Sand
Hill
|
128
|
St.
Bernard
|
128
|
|
|
BENEFICIAL
OWNERSHIP OF SECURITIES
|
130
|
Security
Ownership of Certain Beneficial Owners and Officers and Directors
of Sand
Hill
|
130
|
|
|
PRICE
RANGE OF SECURITIES AND DIVIDENDS
|
133
|
Sand
Hill
|
133
|
Combined
Company
|
133
|
|
|
DESCRIPTION
OF SAND HILL’S SECURITIES FOLLOWING THE MERGER
|
134
|
General
|
134
|
Common
Stock
|
134
|
Preferred
Stock
|
134
|
Unissued
Shares of Capital Stock
|
134
|
Classified
Board of Directors, Vacancies and Removal of Directors
|
135
|
Business
Combination Under Delaware Law
|
135
|
Limitation
of Liability of Directors
|
135
|
Warrants
and Options
|
136
|
Quotation
or Listing
|
137
|
Transfer
Agent and Registrar
|
137
|
|
|
COMPARISON
OF RIGHTS OF SAND HILL AND ST. BERNARD STOCKHOLDERS
|
137
|
|
|
STOCKHOLDER
PROPOSALS
|
141
|
|
|
LEGAL
MATTERS
|
141
|
EXPERTS
|
141
|
|
|
CHANGE
IN ACCOUNTANTS
|
141
|
|
|
WHERE
YOU CAN FIND MORE INFORMATION
|
142
|
|
|
INDEX
TO FINANCIAL STATEMENTS
|
159
|
Q.
|
Who
is Sand Hill IT Security?
|
A.
|
Sand
Hill is a “Targeted Acquisition Corporation”, or TAC, based in Menlo Park,
California, organized to effect a merger, capital stock exchange
or other
similar business combination with an operating business in the IT
security
industry. Sand Hill’s goal is to enhance the value of Sand Hill by helping
this targeted business achieve its business objectives by providing
industry expertise, expansion capital for organic growth and the
ability
to issue shares in a public company as consideration for making additional
targeted acquisitions.
|
|
|
|
|
Q.
|
Who
is St. Bernard Software?
|
A.
|
St. Bernard
is a recognized independent supplier of IT security software products
and
services, with a special emphasis on Secure Content Management, or
SCM,
including messaging security, with $28.7 million in gross billings
for
2005. St. Bernard’s products protect businesses, government organizations
and educational institutions from cyber attack, improve worker
productivity, reduce legal liability and assist in meeting regulatory
requirements for data/privacy protection. St. Bernard’s network-attached
security products are delivered as appliances that connect into the
data
path between the Internet gateway and a company’s local area network. St.
Bernard’s system security products consist of software that is installed
on workstations and servers. St. Bernard has approximately 8,000
customers
supporting over 3.5 million device licenses, primarily comprised
of small
to medium sized businesses, educational institutions and governmental
organizations. The products offered by St. Bernard include Open File
Manager, a data protection product; UpdateEXPERT, a patch and settings
management product; iPrism, SCM, Internet access management product;
and
ePrism, SCM, messaging security e-mail filtering product. According
to
International Data Corporation, or IDC, in September 2005, St. Bernard’s
iPrism product line was the leading Internet filtering appliance,
enabling
customers to manage and control employee access to millions of web
sites
that are updated continuously as part of St. Bernard’s fee-based Software
as a Service”, or a “SaaS”, business model subscription service. Other St.
Bernard products also have a subscription component that increases
deferred revenue thereby increasing revenue predictability.
St. Bernard’s revenue model includes revenue from appliance sales,
software license sales and multi-year subscription for software/database
updates. St. Bernard had revenues of $21.2 million in 2004 and revenues
of
$24.0 million in 2005. St. Bernard is a corporation that was founded
in
1984 as Emerald Systems, Inc. In 1995, the corporation sold substantially
all of its operating assets, changed its name to St. Bernard Software,
Inc., and began its current operations to take advantage of its existing
personnel and infrastructure. The St. Bernard operations rapidly
moved
into the data protection and IT security market. St. Bernard
Software is a private company with headquarters in San Diego, California.
IDC is a global provider of market intelligence and advisory services
for
the information technology and telecommunications industries. In
September
of 2005, IDC released a report titled, “Worldwide Secure Content
Management 2005-2009 Forecast Update” from which the information that
references IDC in this document has been gathered. St. Bernard subscribes
to IDC information technology reports. There is no other relationship
between IDC, St. Bernard or Sand
Hill.
|
|
|
|
|
Q.
|
Why
is Sand Hill proposing the merger with St.
Bernard?
|
A.
|
The
Sand Hill board of directors believes that the proposed merger between
Sand Hill and St. Bernard is in the best interests of St. Bernard
and its
stockholders for the following primary reasons:
|
|
|
|
|
|
|
|
· St.
Bernard is positioned in a portion of the IT security market known
as
Secure Content Management, or SCM, that has experienced rapid growth
and
the appliance portion of SCM, according to IDC, is expected to continue
to
grow at 47% per year for the next five years;
· St.
Bernard reached $28.7 million in gross billings in 2005 and has
experienced solid growth in the past five years;
· Sand
Hill believes that St. Bernard has an attractive SaaS, or Software as
a Service, business model, with a subscription revenue component
that
increases revenue renewals, and, therefore, predictability. In 2005
subscription revenue accounted for approximately 59% of St. Bernard’s
business;
· St.
Bernard has approximately 8,000 active customers, with very high
retention
rates, on the order of 80% to 95%, resulting in strong subscription
renewals (i.e., repeat business) each year;
· St.
Bernard, according to IDC in September 2005, had the number one market
position in web-filtering appliances;
· St.
Bernard targets small to medium size businesses, or the SME market,
with
50 to 1000 employees. The SME market for IT security products is
experiencing growth. AMI Partners projects greater than 15% of all
SME’s
will purchase IT security products in 2006 (Sources: AMI Partners,
2005-2006
U.S. Medium Business Overview and Comprehensive Market Opportunity
Assessment (September
2005) and 2005-2006
U.S. Small Business Overview and Comprehensive Market Opportunity
Assessment; available
at ask_ami@ami--partners.com);
and
· Sand
Hill believes that St. Bernard has a strong management team.
|
|
|
|
|
|
|
|
Given
the above, Sand Hill believes that a business combination with
St. Bernard
will provide Sand Hill stockholders with an opportunity to participate
in
a combined company in the IT security market with significant growth
potential. See
page 52.
|
|
|
|
|
Q.
|
Why
is St. Bernard proposing the merger with Sand
Hill?
|
A.
|
The
St. Bernard board of directors believes that the proposed merger
between
Sand Hill and St. Bernard is in the best interests of St. Bernard
and its
stockholders for the following primary reasons:
|
|
|
|
· As
of April 29, 2006, Sand Hill will have $22,008,000 in escrow,
representing the net proceeds from its initial public offering.
If the
merger is consummated, at least 80% of the funds in the Sand Hill
escrow
account, less expenses of the merger, will be available for operations
of
the combined company. St. Bernard believes that because the combined
company will have substantially greater capitalization than St.
Bernard
alone, the combined company will be in a better position than St.
Bernard
alone, to compete in the SCM marketplace.
· St.
Bernard believes that the skills and expertise of the officers
and
directors of Sand Hill, their collective access to acquisition
opportunities and ideas, their contacts, and, in particular, Mr.
Polanen’s
and Mr. Broomfield’s expertise in the IT security market, will provide the
combined company with increased opportunities for future acquisitions
and
growth.
|
|
|
|
|
Q.
|
What
is being voted on at the Sand Hill special
meeting?
|
A.
|
There
are four proposals that stockholders of Sand Hill are being asked
to vote
on at the Sand Hill special meeting. The first proposal is to adopt
the
merger agreement and the transactions contemplated by the merger
agreement. This proposal is referred to as the merger proposal.
The second
proposal is to adopt the amended and restated certificate of incorporation
of Sand Hill to change the name of Sand Hill to St. Bernard
Software, Inc. and to remove certain provisions related to a business
combination that were put in place as a result of Sand Hill being
a
Targeted Acquisition Corporation. This proposal is referred to
as the
amendment proposal. The third proposal is to adopt the St. Bernard
Software, Inc. 1992 Stock Option Plan, the St. Bernard Software,
Inc. 2000
Stock Option Plan and the St. Bernard Software, Inc. 2005 Stock
Option
Plan for non-employee directors, officers and other key employees.
This
proposal is referred to as the stock option plans proposal. The
fourth
proposal allows the adjournment of the Sand Hill special meeting
to a
later date if necessary to permit further solicitation of proxies
in the
event that there are not sufficient votes at the time of the Sand
Hill
special meeting to approve the merger proposal, the amendment proposal
or
the stock option plans proposal. This proposal is referred to as
the
adjournment proposal.
|
|
|
|
|
Q.
|
What
is being voted on at the St. Bernard special
meeting?
|
A.
|
There
are two proposals that stockholders of St. Bernard are being asked
to vote
on at the St. Bernard meeting. The first proposal is to adopt the
merger
agreement and the transactions contemplated by the merger agreement.
We
refer to this proposal as the merger proposal. The second proposal
allows
the adjournment of the St. Bernard special meeting to a later date
if
necessary to permit further solicitation of proxies in the event
that
there are not sufficient votes at the time of the St. Bernard special
meeting to approve the merger proposal. We refer to this proposal
as the
adjournment proposal.
|
Q.
|
Does
the Sand Hill board of directors recommend voting in favor of the
merger
proposal, the amendment proposal, the stock option plans proposal
and the
adjournment proposal?
|
A.
|
Yes.
After careful consideration, Sand Hill’s board of directors has determined
unanimously that the merger proposal, the amendment proposal, the
stock
option plans proposal and the adjournment proposal are fair to,
and in the
best interests of, Sand Hill and its stockholders. The board of
directors
of Sand Hill did not obtain a fairness opinion in connection with
making
these determinations. Sand Hill’s board recommends that Sand Hill
stockholders vote or instruct your vote to be cast “FOR”
the adoption of the merger agreement, the amendment proposal, the
stock
option plans proposal and the adjournment proposal. Please see
“The
Merger Proposal - Sand Hill Reasons for the Merger”
on page 52.
|
|
|
|
|
Q.
|
Does
the St. Bernard board of directors recommend voting in favor of
the merger
proposal and the adjournment proposal?
|
A.
|
Yes.
After careful consideration, St. Bernard’s board of directors has
determined unanimously that the merger proposal and the adjournment
proposal are fair to, and in the best interests of, St. Bernard
and its
stockholders. St. Bernard’s board recommends that St. Bernard stockholders
vote or instruct your vote to be cast “FOR”
the adoption of the merger agreement and the adjournment proposal.
Please
see “The
Merger Proposal - St. Bernard Reasons for the Merger”
on page 57.
|
|
|
|
|
Q.
|
What
vote is required in order to adopt the merger proposal at the Sand
Hill
special meeting?
|
A.
|
The
adoption of the merger agreement and the transactions contemplated
by the
merger agreement by the Sand Hill stockholders will require the
affirmative vote of a majority of the outstanding shares of Sand
Hill’s
common stock on the Sand Hill record date. Sand Hill’s initial
stockholders, who purchased their shares of common stock prior
to its
initial public offering and presently own an aggregate of approximately
19.6% of the outstanding shares of Sand Hill common stock, have
agreed to
vote their shares of Sand Hill common stock purchased prior to
the initial
public offering on the merger proposal in the same manner as how
the
majority of the shares of common stock held by all other Sand Hill
stockholders are voted on the merger proposal. However, if the
holders of
20% or more of the shares of common stock issued in Sand Hill’s initial
public offering vote against the merger and demand that Sand Hill
convert
their shares into a pro rata portion of the trust account, then,
pursuant
to the terms of Sand Hill’s certificate of incorporation, the merger will
not be consummated. No vote of the holders of any warrants issued
by Sand
Hill is necessary to adopt the merger proposal, and Sand Hill is
not
asking the warrant holders to vote on the merger proposal.
|
Q.
|
What
vote is required in order to adopt the amendment proposal at the
Sand Hill
special meeting?
|
A.
|
The
adoption of the amendment proposal by the Sand Hill stockholders
will
require the affirmative vote of a majority of the outstanding shares
of
Sand Hill’s common stock on the Sand Hill record date.
|
|
|
|
|
Q.
|
What
vote is required in order to adopt the stock option plans proposal
at the
Sand Hill special meeting?
|
A.
|
The
adoption of the stock option plans proposal by the Sand Hill stockholders
will require the affirmative vote of a majority of the shares of
Sand
Hill’s common stock present in person or represented by proxy at the Sand
Hill special meeting.
|
|
|
|
|
Q.
|
What
vote is required in order to adopt the adjournment proposal at the
Sand
Hill special meeting?
|
A.
|
The
adoption of the adjournment proposal by the Sand Hill stockholders
will
require the affirmative vote of the majority of the shares of Sand
Hill’s
common stock present in person or represented by proxy at the Sand
Hill
special meeting.
|
|
|
|
|
Q.
|
Are
the proposals of the Sand Hill special meeting conditioned on each
other?
|
A.
|
The
adoption of the merger proposal is conditioned on the adoption of
the
amendment proposal and the adoption of the amendment proposal is
conditioned on the adoption of the merger proposal. The adoption
of
neither the merger proposal nor the amendment proposal is conditioned
on
the adoption of the stock option plans proposal or the adjournment
proposal. The adoption of the stock option plans proposal, however,
is
conditioned upon the adoption of the merger proposal and the amendment
proposal.
|
|
|
|
|
Q.
|
What
vote is required in order to adopt the merger proposal at the St.
Bernard
special meeting?
|
A.
|
The
adoption of the merger proposal by the St. Bernard stockholders will
require the affirmative vote of a majority of the outstanding shares
of
St. Bernard’s common stock on the St. Bernard record date. No vote of the
holders of any warrants or options issued by St. Bernard is necessary
to
adopt the merger proposal, and St. Bernard is not asking the warrant
holders or option holders to vote on the merger
proposal.
|
|
|
|
|
Q.
|
What
vote is required in order to adopt the adjournment proposal at the
St.
Bernard special meeting?
|
A.
|
The
adoption of the adjournment proposal by the St. Bernard stockholders
will
require the affirmative vote of the majority of the shares of St.
Bernard’s common stock present in person or represented by proxy at the
St. Bernard special meeting. The adoption of the adjournment proposal
is
not conditioned on the adoption of the merger proposal.
|
|
|
|
|
Q.
|
What
will Sand Hill security holders receive in the
merger?
|
A.
|
Sand
Hill security holders will continue to hold the Sand Hill securities
they
currently own, and will not receive any of the shares of common stock,
replacement options or replacement warrants issued in connection
with the
merger. The stockholders of St. Bernard will receive all of the shares
of
common stock, replacement options and replacement warrants being
issued by
Sand Hill in the merger.
|
|
Q.
|
What
will St. Bernard stockholders, option holders and warrant holders
receive in the merger?
|
A.
|
It
is expected that holders of St. Bernard common stock will hold
approximately 65.7% of the outstanding shares of Sand Hill common
stock
immediately following the closing of the merger, based on the number
of
shares of Sand Hill and St. Bernard common stock outstanding as of
October 26, 2005. In the merger, Sand Hill will issue a combination
of shares of common stock, replacement options and replacement warrants
to
holders of St. Bernard common stock, options and warrants. The total
amount of shares of Sand Hill common stock to be issued or that will
underlie replacement options and replacement warrants is 10,880,000,
subject to certain potential adjustments. Holders of St. Bernard
common
stock, options and warrants are entitled to receive their pro rata
portion
of this 10,880,000 figure. This results in an exchange ratio of 0.421419
shares of Sand Hill common stock, replacement options or replacement
warrants for each share of St. Bernard common stock or options or
warrants
to purchase St. Bernard common stock outstanding. Based upon the
number of
shares of St. Bernard common stock outstanding and the number of
shares
issuable for St. Bernard common stock pursuant to outstanding options
and
warrants as of March 31, 2006, Sand Hill will issue approximately
9,782,357 shares of common stock at the close of the merger. The
holders
of options and warrants to purchase shares of the common stock of
St. Bernard will receive, in exchange for those options and warrants,
replacement options and replacement warrants to purchase approximately
1,097,643 shares of Sand Hill common stock. To the extent that outstanding
St. Bernard options or warrants are exercised prior to the closing
of the
merger, the number of shares of Sand Hill common stock that would
be
issued at the closing of the merger would increase and the number
of the
shares of Sand Hill common stock that would be subject to replacement
options or replacement warrants to be issued at the closing of the
merger
would decrease by a like amount. For a complete description of the
post-closing fully diluted capitalization of Sand Hill please see
“Beneficial Ownership of Securities.”
|
|
|
|
|
Q.
|
What
is the structure of the merger?
|
A.
|
Under
the merger agreement, St. Bernard and Sand Hill Merger Corp., a
wholly-owned subsidiary of Sand Hill, will merge, with St. Bernard
surviving as a wholly-owned subsidiary of Sand Hill (referred to
as the
merger). The merger will be accounted for as an equity recapitalization
of
St. Bernard for financial reporting purposes.
|
|
|
|
|
Q.
|
How
much of the combined company will existing Sand Hill stockholders
own?
|
A.
|
After
completion of the merger, if no holders of Sand Hill common stock
demand
that Sand Hill convert their shares into a pro rata portion of
the trust
account holding a substantial portion of the net proceeds of Sand
Hill’s
initial public offering, then Sand Hill’s stockholders will own
approximately 34.3% of the combined company’s issued and outstanding
shares of common stock. If one or more of Sand Hill’s stockholders vote
against the merger proposal and demand that Sand Hill convert their
shares
into a pro rata portion of the trust account, then Sand Hill’s
stockholders will own less than approximately 34.3% of the combined
company’s issued and outstanding shares of common stock after completion
of the merger. In either case, the balance of the issued and outstanding
shares of Sand Hill’s common stock will be owned by the stockholders of
St. Bernard.
|
|
|
|
|
Q.
|
Why
is Sand Hill proposing the stock option plans?
|
A.
|
Sand
Hill is proposing the stock option plans because it has agreed
to assume
the outstanding options of St. Bernard at the closing of the merger
and
the plans need to remain outstanding under which such options were
issued
as those plans govern the terms of the options. The adoption of
the 2005
Stock Option Plan will also enable the combined company to offer
non-employee directors, officers, other key employees and consultants
equity-based incentives, thereby helping to attract, retain and
reward
these participants and create value for the combined company’s
stockholders.
|
|
|
|
|
Q.
|
What
will the name of the combined company be after the
merger?
|
A.
|
Sand
Hill will change its name following completion of the merger to
St.
Bernard Software, Inc.
|
|
|
|
|
Q.
|
How
much cash does Sand Hill hold in escrow?
|
A.
|
As
of April 29, 2006, Sand Hill will have $22,008,000 in escrow, which
would
equate to $5.35 per share of outstanding Sand Hill common stock
to
participate in the funds held in escrow.
|
|
|
|
|
Q.
|
Do
stockholders of Sand Hill have conversion rights?
|
A.
|
If
you hold shares of common stock issued in Sand Hill’s initial public
offering, then you have the right to vote against the merger proposal
and
demand that Sand Hill convert these shares into a pro rata portion
of the
trust account in which a substantial portion of the net proceeds
of Sand
Hill’s initial public offering are held. We sometimes refer to these
rights to vote against the merger and demand conversion of the
shares into
a pro rata portion of the trust account as conversion
rights.
|
|
|
|
|
Q.
|
If
stockholders of Sand Hill have conversion rights, how do they exercise
them?
|
A.
|
If
you wish to exercise your conversion rights, you must vote against
the
merger and at the same time demand that Sand Hill convert your
shares into
cash. If, notwithstanding your vote, the merger is completed, then
you
will be entitled to receive a pro rata portion of the trust account
in
which a substantial portion of the net proceeds of Sand Hill’s initial
public offering are held, including any interest earned thereon
through
the date of the Sand Hill special meeting. Based on the amount
of cash
that will be held in the trust account on April 29, 2006, you will
be
entitled to convert each share of Sand Hill common stock that you
hold
into approximately $5.35. If you exercise your conversion rights,
then you
will be exchanging your shares of Sand Hill common stock for cash
and will
no longer own these shares. You will only be entitled to receive
cash for
these shares if you continue to hold these shares through the effective
time of the merger and then tender your stock certificate to the
combined
company. If the merger is not completed, then your shares will
not be
converted to cash at this time, even if you so elected. See
page 45.
|
|
|
|
|
Q.
|
What
happens to the funds deposited in the trust account after consummation
of
the merger?
|
A.
|
Upon
consummation of the merger:
|
|
|
|
· the
Sand Hill stockholders electing to exercise their conversion rights
will
receive their pro rata portion of the funds deposited in the trust
account; and
|
|
|
|
|
|
|
|
· the
remaining funds will be released to the combined company, which
intends to
use its existing cash resources, along with funds released from
the Sand
Hill trust, to (1) enhance its SCM product offering, (2) further
develop
its products, (3) increase its international presence, and (4)
improve its
VAR and indirect sales channels, in addition to using its cash
resources
for working capital and for general corporate purposes.
|
|
|
|
|
Q.
|
What
are the expected United States federal income tax consequences
to the
merger?
|
A.
|
The
merger will qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code.
A
St. Bernard stockholder’s receipt of Sand Hill common stock in the merger
will be tax-free for United States federal income tax purposes.
The
receipt in the merger of warrants or options to purchase common
stock of
Sand Hill by a holder of St. Bernard warrants or options to purchase
St.
Bernard common stock will be tax-free for United States federal
income tax
purposes. However, a St. Bernard stockholder who exercises his
or her
appraisal rights and who receives cash in exchange for his or her
shares
of St. Bernard common stock generally will recognize gain or loss
measured
by the difference between the amount of cash received and the tax
basis of
such stockholder’s shares of St. Bernard common stock.
A
stockholder of Sand Hill who exercises conversion rights and effects
a
termination of the stockholder’s interest in Sand Hill will generally be
required to recognize capital gain or loss upon the exchange of
that
stockholder’s shares of common stock of Sand Hill for cash, if such shares
were held as a capital asset on the date of the merger. Such gain
or loss
will be measured by the difference between the amount of cash received
and
the tax basis of that stockholder’s shares of Sand Hill common stock. No
gain or loss will be recognized by non-converting stockholders
of Sand
Hill.
No
gain or loss will be recognized by Sand Hill or St. Bernard as
a result of
the merger. For a description of the material federal income tax
consequences of the merger, please see the information set forth
in
“Material
Federal Income Tax Consequences of the Merger”
on page 58.
|
Q.
|
Who
will manage the combined company?
|
A.
|
The
combined company will be managed by the current management of St.
Bernard.
John E. Jones, who is currently the President and Chief Executive
Officer
of St. Bernard, will become the President and Chief Executive Officer
of the combined company. Alfred Riedler, who is currently the Chief
Financial Officer of St. Bernard, will become the Chief Financial
Officer of the combined company. Bart van Hedel, who is currently
on the
board of directors of St. Bernard, will continue as a board member
of the
combined company. Humphrey P. Polanen, who is currently the Chairman
of the Board and Chief Executive Officer of Sand Hill, will continue
as
Chairman of the Board of the combined company. Scott R. Broomfield,
who is currently the Executive Vice President of Corporate Development
and
on the board of directors of Sand Hill, will continue as a board
member of
the combined company.
|
|
|
|
|
Q.
|
What
happens to Sand Hill if the merger is not
consummated?
|
A.
|
If
the merger is not consummated, Sand Hill will continue to search
for an
operating company to acquire. However, Sand Hill will be liquidated
if it
does not consummate a business combination by July 27, 2006. Upon
such a liquidation, the net proceeds of Sand Hill’s initial public
offering held in the trust account, plus any interest earned thereon,
will
be distributed pro rata to Sand Hill’s common stockholders, excluding Sand
Hill’s initial stockholders who purchased their shares of common stock
prior to its initial public offering.
|
|
|
|
|
Q.
|
What
happens to St. Bernard if the merger is not
consummated?
|
A.
|
If
the merger is not consummated, St. Bernard will continue to operate
as a
private company.
|
|
|
|
|
Q.
|
When
do you expect the merger to be completed?
|
A.
|
It
is currently anticipated that the merger will be completed promptly
following the special meetings of Sand Hill and St.
Bernard.
|
|
|
|
|
Q.
|
Do
I have appraisal rights?
|
A.
|
Sand
Hill’s stockholders do not have appraisal or dissenters rights in
connection with the merger.
Holders
of St. Bernard capital stock who hold their shares of St. Bernard
capital
stock of record and continue to own those shares through the effective
time of the merger and who properly demand appraisal of their shares
in
writing on or before ____________, 2006 in accordance with the
requirements of Section 262 of the General Corporation Law of the
State of
Delaware, or the DGCL, are entitled to appraisal rights as set
forth in
Section 262. A copy of Section 262 of the DGCL is attached to this
proxy
statement/prospectus as Annex
F.
Under
Section 262, St. Bernard stockholders who comply with the procedures
set
forth in Section 262 will be entitled to have their shares appraised
by
the Delaware Court of Chancery and to receive cash payment of the
fair
value of the shares, exclusive of any element of the value arising
from
the accomplishment or expectation of the merger, together with
a fair rate
of interest, if any, as determined by the court. St. Bernard will
send
notice pursuant to Section 262 of the DGCL to the St. Bernard stockholders
who are entitled to appraisal rights when St. Bernard mails this
prospectus to the St. Bernard stockholders. See “The
Merger Proposal - Appraisal or
Dissenters Rights”
on page 58.
|
Q.
|
If
I am not going to attend the Sand Hill special meeting in person,
should I
return my proxy card instead?
|
A.
|
Yes.
After carefully reading and considering the information contained
in this
document, please fill out and sign your proxy card. Then return the
enclosed proxy card in the return envelope as soon as possible, so
that
your shares may be represented at the Sand Hill special
meeting.
|
|
|
|
|
Q.
|
What
will happen if I abstain from voting or fail to vote at the Sand
Hill
special meeting?
|
A.
|
Sand
Hill will count a properly executed proxy marked ABSTAIN with respect
to a
particular proposal as present for purposes of determining whether
a
quorum is present. For purposes of approval, an abstention or failure
to
vote will have the same effect as a vote against the merger proposal,
the
amendment proposal, the stock options plan proposal and the adjournment
proposal. However, if you want to convert your shares into a pro
rata
portion of the trust account in which a substantial portion of the
net
proceeds of Sand Hill’s initial public offering are held, you must vote
against the merger and make an affirmative election to convert your
shares
of common stock on the proxy card. An abstention will have the same
effect
as a vote against the stock option plans proposal and the adjournment
proposal, but a failure to vote will have no effect on the stock
option
plans proposal and the adjournment proposal, assuming that a quorum
for
the special meeting is present. Shares that are not voted or are
broker
non-voted or where the stockholder abstains from voting shall not
be
eligible to be converted into cash upon completion of the
merger.
|
|
|
|
|
Q.
|
What
do I do if I want to change my vote prior to the Sand Hill special
meeting?
|
A.
|
Send
a later-dated, signed proxy card to Sand Hill prior to the date of
the
Sand Hill special meeting or attend the special meeting in person
and
vote. Your attendance alone will not revoke your proxy. You also
may
revoke your proxy by sending a notice of revocation to Sand Hill
at the
address of Sand Hill’s corporate headquarters, on or before ____________,
2006.
|
|
|
|
|
Q.
|
If
I am not going to attend the St. Bernard special meeting in person,
should
I return my proxy card instead?
|
A.
|
Yes.
After carefully reading and considering the information contained
in this
document, please fill out and sign your proxy card. Then return the
enclosed proxy card in the return envelope as soon as possible, so
that
your shares may be represented at the St. Bernard special
meeting.
|
|
|
|
|
Q.
|
What
will happen if I abstain from voting or fail to vote at the St. Bernard
special meeting?
|
A.
|
St.
Bernard will count a properly executed proxy marked ABSTAIN with
respect
to the merger proposal as present for purposes of determining whether
a
quorum is present. For purposes of approval, an abstention or failure
to
vote will have the same effect as a vote against the merger
proposal.
|
Q.
|
What
do I do if I want to change my vote prior to the St. Bernard special
meeting?
|
A.
|
Send
a later-dated, signed proxy card to St. Bernard prior to the date
of the
St. Bernard special meeting or attend the St. Bernard special meeting
in
person and vote. Your attendance alone will not revoke your proxy.
You
also may revoke your proxy by sending a notice of revocation to St.
Bernard at the address of St. Bernard’s corporate headquarters, on or
before _________, 2006
|
|
|
|
|
Q.
|
If
my shares of Sand Hill stock are held in “street name” by my broker, will
my broker vote my shares for me?
|
A.
|
No.
Your broker can vote your shares only if you provide instructions
on how
to vote. You should instruct your broker to vote your shares, following
the directions provided by your broker.
|
|
|
|
|
Q.
|
Who
is soliciting my proxy?
|
A.
|
Proxies
are being solicited by the Sand Hill board of directors for the Sand
Hill
special meeting and by the St. Bernard board of directors for the
St.
Bernard special meeting.
|
|
|
|
|
Q.
|
Who
can help answer my questions?
|
A.
|
If
you are a Sand Hill stockholder and have questions about the merger,
you
may write or call Sand Hill IT Security Acquisition Corp., 3000 Sand
Hill
Road, Building 1, Suite 240, Menlo Park, California 94025, (650)
926-7022,
Attn: Humphrey P. Polanen.
If
you are a St. Bernard stockholder and have questions about the merger,
you
may write or call St. Bernard Software, Inc., 15015 Avenue of Science,
San
Diego, California 92128, (858) 676-2277, Attn: John E.
Jones.
|
• |
After
the completion of the merger, several of the present directors of
St.
Bernard, specifically, Messrs. John E. Jones, Bart van Hedel and
a third person yet to be named will remain as directors of the combined
company;
|
• |
After
the completion of the merger, the current officers of St. Bernard
will
remain as officers of the combined company;
and
|
• |
The
directors and executive officers of St. Bernard hold stock options
granted
to them under various St. Bernard Stock Option Plans. Under the terms
of
the merger agreement, at the effective time of the merger, each
outstanding option to purchase shares of St. Bernard common stock
that has
been granted under St. Bernard’s 1992, 2000 and 2005 Stock Option Plans,
whether vested or unvested, will be fully accelerated pursuant to
its
terms, and assumed by Sand Hill and become an option to acquire,
on the
same terms and conditions as were applicable under the applicable
stock
option plan immediately prior to the effective time of the merger,
an
option to purchase shares of Sand Hill common stock. The number of
shares
of Sand Hill common stock for which each option will be exercisable
will
be determined by multiplying the number of shares of St. Bernard
common
stock for which such option was exercisable by a conversion ratio
of
0.421419. The exercise price per share of Sand Hill common stock
at which
each such option will be exercisable will be determined by dividing
the
exercise price per share of St. Bernard common stock at which such
option
was exercisable by the conversion ratio of 0.421419.
|
STOCK
OPTIONS ISSUED TO OFFICERS AND DIRECTORS
OF
ST. BERNARD SOFTWARE(1)
|
||||||||||
Name
|
Number
of Options Held
|
Number
of Options Vested
|
Number
of Unvested Options Held
|
|||||||
Mr.
John E. Jones,
Chief Executive Officer, President and Director
|
170,000
|
165,833
|
4,167
|
|||||||
Mr.
Bart A.M. van Hedel, Director
|
95,000
|
86,111
|
8,889
|
|||||||
Mr.
Robert G. Copeland, Director
|
95,000
|
86,111
|
8,889
|
|||||||
Mr.
Mel Lavitt, Director
|
34,723
|
25,834
|
8,889
|
|||||||
Mr.
Al Riedler, Chief
Financial Officer
|
90,167
|
61,128
|
29,039
|
(Dollars
in thousands except share information)
|
|
|
|
|||||||
|
Twelve
Months Ended December 31,
|
Period
from April 15, 2004 (inception) to December 31,
|
Period
from April 15, 2004 (inception) to December 31,
|
|||||||
Consolidated
Statement of Operations Data:
|
2005
|
2005
|
2004
|
|||||||
Net
revenue
|
$
|
0
|
$
|
0
|
$
|
0
|
||||
Operating
income (loss)
|
$
|
(1,107
|
)
|
$
|
(1,299
|
)
|
$
|
(192
|
)
|
|
Interest
income
|
$
|
638
|
$
|
780
|
$
|
142
|
||||
Net
income (loss)
|
$
|
(469
|
)
|
$
|
(518
|
)
|
$
|
(50
|
)
|
|
Net
loss per share - basic and diluted
|
$
|
(0.09
|
)
|
$
|
(0.12
|
)
|
$
|
(0.01
|
)
|
|
Shares
used - basic and diluted
|
5,110,000
|
4,433,893
|
3,468,786
|
|
December
31,
2005
|
December
31,
2004
|
|||||
Consolidated
Balance Sheet Data:
|
|||||||
Cash
and cash equivalents
|
$
|
21,804
|
$
|
21,884
|
|||
Working
capital
|
$
|
21,561
|
$
|
22,000
|
|||
Total
assets
|
$
|
21,816
|
$
|
22,016
|
|||
Common
stock subject to possible conversion
|
$
|
4,344
|
$
|
4,218
|
|||
Stockholder
equity
|
$
|
17,217
|
$
|
17,782
|
|||
Common
stock issued and outstanding
|
$
|
5,110,000
|
$
|
5,110,000
|
|||
Book
value per common share
|
$
|
3.37
|
$
|
3.48
|
|
Year
Ended December 31,
|
|||||||||||||||
Consolidated
Statement of Operations Data:
|
2005
|
2004
|
2003
|
2002(1)
|
2001
|
|||||||||||
Net
revenue
|
$
|
23,985
|
$
|
21,174
|
$
|
19,790
|
$
|
14,351
|
$
|
11,287
|
||||||
Operating
loss
|
$
|
(2,670
|
)
|
$
|
(7,774
|
)
|
$
|
(530
|
)
|
$
|
(868
|
)
|
$
|
(1,913
|
)
|
|
Interest
expense
|
$
|
263
|
$
|
240
|
$
|
285
|
$
|
301
|
$
|
111
|
||||||
Net
loss
|
$
|
(2,961
|
)
|
$
|
(7,962
|
)
|
$
|
(309
|
)
|
$
|
(1,277
|
)
|
$
|
(1,772
|
)
|
|
Net
loss per share - basic and diluted
|
$
|
(0.13
|
)
|
$
|
(0.39
|
)
|
$
|
(0.02
|
)
|
$
|
(0.07
|
)
|
$
|
(0.10
|
)
|
|
Weighted
average shares outstanding
|
22,157
|
20,503
|
19,434
|
18,316
|
18,206
|
|||||||||||
Common
stock issued and outstanding
|
23,197
|
20,860
|
19,434
|
19,432
|
18,205
|
|||||||||||
Book
value per common share
|
$
|
(0.37
|
)
|
$
|
(0.33
|
)
|
$
|
0.03
|
$
|
0.06
|
$
|
0.13
|
|
As
of December 31,
|
|||||||||||||||
Consolidated
Balance Sheet Data:
|
2005
|
2004
|
2003
|
2002
|
2001
|
|||||||||||
|
|
|
|
|
|
|||||||||||
Cash
and equivalents
|
$
|
9
|
$
|
557
|
$
|
1,111
|
$
|
5
|
$
|
51
|
||||||
Working
capital (deficit)
|
$
|
(9,700
|
)
|
$
|
(9,420
|
)
|
$
|
(2,556
|
)
|
$
|
(1,320
|
)
|
$
|
(784
|
)
|
|
Total
assets
|
$
|
12,192
|
$
|
11,454
|
$
|
11,481
|
$
|
8,015
|
$
|
7,663
|
||||||
Deferred
revenue
|
$
|
16,071
|
$
|
13,200
|
$
|
8,479
|
$
|
4,370
|
$
|
2,965
|
||||||
Long
term obligation less current portion
|
$
|
5
|
$
|
40
|
$
|
33
|
$
|
0
|
$
|
300
|
||||||
Stockholder
equity (deficit)
|
$
|
(8,555
|
)
|
$
|
(6,812
|
)
|
$
|
650
|
$
|
1,136
|
$
|
2,274
|
(1)
Effective January 1, 2002, St. Bernard adopted the provisions of
SFAS No.
142.
|
Pro
Forma Condensed
|
|
|
|
|
Consolidated
Statement of Operations Data:
|
|
|
|
|
Dollars
and shares in thousands
|
|
|
|
|
|
Year
Ended December 31, 2005
|
|||
Assumes
no conversions (1)
|
|
|
|
|
Net
revenue
|
$
|
23,985
|
|
|
Operating
loss
|
$
|
(3,776
|
)
|
|
Interest
expense
|
$
|
(263
|
)
|
|
Net
loss
|
$
|
(3,430
|
)
|
|
Net
loss per share - basic
|
$
|
(0.23
|
)
|
|
Shares
used - basic and diluted
|
|
14,867
|
|
|
Pro
Forma Condensed
|
|
|
|
|
Consolidated
Balance Sheet Data:
|
|
|
|
|
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005
|
|
||
Cash
and cash equivalents
|
$
|
20,113
|
|
|
Working
capital
|
$
|
10,162
|
|
|
Total
assets
|
$
|
32,308
|
|
|
Deferred
Revenue
|
$
|
16,071
|
|
|
Long-term
obligations less current portion
|
$
|
5
|
|
|
Stockholder
equity
|
$
|
11,306
|
|
|
|
|
Year ended
December 31, 2005
|
|
|||
|
|
|
Assuming
No
Conversions (1)
|
|
|
Assuming
Maximum
Conversions (2)
|
|
|
|
|
(In
thousands, except per share data)
|
|
|||
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
23,985
|
|
$
|
23,985
|
|
Net
loss
|
|
|
(3,430
|
)
|
|
(3,517
|
)
|
Net
loss per share
|
|
|
(0.23
|
)
|
|
(0.25
|
)
|
Shares
used basic and diluted
|
|
|
14,867
|
|
|
14,049
|
|
|
|
|
December
31, 2005
|
|
|||
|
|
|
Assuming
No
Conversions (1)
|
|
|
Assuming
Maximum
Conversions (2)
|
|
|
|
|
(in
thousands)
|
|
|||
|
|
|
|
|
|||
Total
assets
|
|
$
|
32,308
|
|
$
|
27,964
|
|
Total
liabilities
|
|
|
21,002
|
|
|
21,002
|
|
Stockholders’
equity
|
|
|
11,306
|
|
|
6,962
|
|
Number
of shares of common stock
outstanding
upon consummation of the merger:
|
|
|
St.
Bernard
|
|
|
Sand
Hill(1)
|
|
|
|
|
|
Combined
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assuming
no conversions
|
|
|
9,782,357
|
|
|
5,110,000
|
|
|
|
|
|
14,892,357
|
|
|
|
|
65.7
|
%
|
|
34.3
|
%
|
|
|
|
|
100
|
%
|
Assuming
maximum conversions
|
|
|
9,782,357
|
|
|
4,292,110
|
|
|
|
|
|
14,074,467
|
|
|
|
|
69.5
|
%
|
|
30.5
|
%
|
|
|
|
|
100
|
%
|
Net
(loss) per share—historical:
|
|
|
|
|
|
|
|
|
|
|
|||
Year
ended December 31, 2005:
|
|
|
($0.13)
|
|
($0.09)
|
|
(2
|
)
|
|
|
|||
Book
value per share— Historical December 31, 2005
|
|
|
($0.37)
|
$
|
4.22
|
|
|
(4
|
)
|
|
|
||
Net
loss per share—pro forma: (2)
|
|
|
|
|
|
|
|
|
|
||||
Year
ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
||||
No
conversions
|
|
|
|
|
|
|
|
|
|
|
|
($0.23)
|
|
Maximum
conversions (3)
|
|
|
|
|
|
|
|
|
|
|
|
($0.25)
|
|
Book
value per share—pro forma December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No
conversions
|
|
|
|
|
|
|
|
|
|
|
$
|
0.76
|
|
Maximum
conversions (3)
|
|
|
|
|
|
|
|
|
|
|
$
|
0.51
|
|
|
Common
Stock
|
Warrants
|
Units
|
||||||||||||||||
Quarter
Ended
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
|||||||||||||
|
|
|
|
|
|
|
|||||||||||||
December
31, 2004
|
$
|
4.95
|
$
|
4.55
|
$
|
0.70
|
$
|
0.43
|
$
|
6.20
|
$
|
5.42
|
|||||||
|
|||||||||||||||||||
March
31, 2005
|
$
|
5.25
|
$
|
4.80
|
$
|
0.95
|
$
|
0.55
|
$
|
7.25
|
$
|
6.00
|
|||||||
|
|||||||||||||||||||
June
30, 2005
|
$
|
5.47
|
$
|
4.91
|
$
|
0.96
|
$
|
0.56
|
$
|
7.25
|
$
|
6.00
|
|||||||
|
|||||||||||||||||||
September
30, 2005
|
$
|
5.50
|
$
|
5.10
|
$
|
1.60
|
$
|
0.75
|
$
|
8.51
|
$
|
6.45
|
|||||||
|
|||||||||||||||||||
December
31, 2005
|
$
|
5.50
|
$
|
5.10
|
$
|
1.70
|
$
|
0.77
|
$
|
8.80
|
$
|
6.60
|
|||||||
|
|||||||||||||||||||
March
31, 2006
|
$
|
5.35
|
$
|
5.19
|
$
|
1.17
|
$
|
0.77
|
$
|
7.50
|
$
|
6.95
|
|||||||
|
|||||||||||||||||||
Through
April 19, 2006
|
$
|
5.35
|
$
|
5.23
|
$
|
0.90
|
$
|
0.67
|
$
|
6.95
|
$
|
6.70
|
· |
The
fact that Ai-Investments N.V., an affiliate of Mr. Bart van Hedel,
purchased common stock and warrants in St. Bernard in July 2005
for
$1,000,000 that will, upon consummation of the merger, entitle
it to
receive 252,851 shares of Sand Hill common stock and warrants
for the
acquisition of 421,419 shares of Sand Hill common stock, at an
exercise
price of $2.9662 per share, while a $1,000,000 investment in
the initial
public offering of Sand Hill would have purchased 166,666.67
shares of
Sand Hill common stock and warrants for the acquisition of 333,333
shares
of Sand Hill common stock, at an exercise price of $5.00 per
share;
and
|
Company
|
Enterprise
Value
|
Sales
|
EV/Sales
|
|||||||
Blue
Coat
|
$
|
567.9
|
$
|
123.2
|
4.7x
|
|||||
Check
Point
|
$
|
4,576.8
|
$
|
554.6
|
8.3x
|
|||||
Entrust
|
$
|
255.9
|
$
|
98.1
|
2.6x
|
|||||
McAfee
|
$
|
4,188.7
|
$
|
946.9
|
4.4x
|
|||||
RSA
|
$
|
633.1
|
$
|
312.1
|
2.0x
|
|||||
Secure
Computing
|
$
|
462.0
|
$
|
104.5
|
4.4x
|
|||||
Sonic
Wall
|
$
|
170.4
|
$
|
126.3
|
1.3x
|
|||||
Symantec
|
$
|
23,350.8
|
$
|
2,730.0
|
8.6x
|
|||||
Trend
Micro
|
$
|
2,298.8
|
$
|
595.6
|
3.9x
|
|||||
Tumbleweed
|
$
|
185.5
|
$
|
47.8
|
3.9x
|
|||||
VeriSign
|
$
|
4,211.9
|
$
|
1,530.0
|
2.8x
|
|||||
WatchGuard
|
$
|
59.5
|
$
|
77.0
|
0.8x
|
|||||
WebSense
|
$
|
978.9
|
$
|
130.8
|
7.5x
|
|||||
Average
EV/Sales
|
4.2x
|
Company
|
EV/Sales
|
|
Bindview/Symantec
|
2.9x
|
|
Brightmail/Symantec
|
14.2x
|
|
Foundstone/McAfee
|
5.7x
|
|
iDefense/VeriSign
|
8.0x
|
|
Intermute/Trend
Micro
|
2.8x
|
|
Pedestal/Altiris
|
3.7x
|
|
SourceFire/Check
Point
|
9.0x
|
|
Sygate/Symantec
|
8.8x
|
|
Webwasher/Cyber
Guard
|
3.6x
|
|
Average
EV/Sales
|
6.5x
|
2005
|
2006
|
||||||
Revenues
|
$
|
24
|
$
|
27
|
|||
EBITDA
|
($2.2
|
)
|
$
|
1.0
|
• |
After
the completion of the merger, several of the present directors of
St.
Bernard, specifically, Messrs. John E. Jones, Bart van Hedel and
a third person yet to be named will remain as directors of the combined
company;
|
• |
After
the completion of the merger, the current officers of St. Bernard
will
remain as officers of the combined company;
and
|
• |
The
directors and executive officers of St. Bernard hold stock options
granted
to them under various St. Bernard Stock Option Plans. Under the terms
of
the merger agreement, at the effective time of the merger, each
outstanding option to purchase shares of St. Bernard common stock
that has
been granted under St. Bernard’s 1992, 2000 and 2005 Stock Option Plans,
whether vested or unvested, will be fully accelerated pursuant to
its
terms, and assumed by Sand Hill and become an option to acquire,
on the
same terms and conditions as were applicable under the applicable
stock
option plan immediately prior to the effective time of the merger,
an
option to purchase shares of Sand Hill common stock. The number of
shares
of Sand Hill common stock for which each option will be exercisable
will
be determined by multiplying the number of shares of St. Bernard
common
stock for which such option was exercisable by a conversion ratio
of
0.421419. The exercise price per share of Sand Hill common stock
at which
each such option will be exercisable will be determined by dividing
the
exercise price per share of St. Bernard common stock at which such
option
was exercisable by the conversion ratio of 0.421419.
|
STOCK
OPTIONS ISSUED TO OFFICERS AND DIRECTORS
OF
ST. BERNARD SOFTWARE(1)
|
||||||||||
Name
|
Number
of Options Held
|
Number
of Options Vested
|
Number
of Unvested Options Held
|
|||||||
Mr.
John E. Jones,
Chief Executive Officer, President and Director
|
170,000
|
165,833
|
4,167
|
|||||||
Mr.
Bart A.M. van Hedel, Director
|
95,000
|
86,111
|
8,889
|
|||||||
Mr.
Robert G. Copeland, Director
|
95,000
|
86,111
|
8,889
|
|||||||
Mr.
Mel Lavitt, Director
|
34,723
|
25,834
|
8,889
|
|||||||
Mr.
Al Riedler, Chief
Financial Officer
|
90,167
|
61,128
|
29,039
|
iPrism
|
iPrism
is a dedicated internet filtering appliance that delivers perimeter
protection from emerging internet threats in HTTP websites, IM (instant
messaging) and P2P (peer 2 peer) traffic including spyware, malware
and
phishing. In addition, iPrism allows customers to enforce their Internet
usage policy to reduce potential legal liability, improve employee
productivity and reduce saturation of network bandwidth. iPrism combines
hardware, OS, Free BSD and applications into a single appliance.
|
|
|
|
iPrism’s
proprietary kernel-level filtering technology delivers superior internet
traffic throughput performance. iPrism uses iGuard, St. Bernard’s
proprietary URL database, which is 100% human-reviewed for accuracy.
iGuard uses 63 URL classifications and tracks and monitors over 6
million
web sites, worldwide. The iGuard database is updated daily and certain
critical security categories such as spyware, malware and phishing
sites
are updated hourly. The first version of iPrism was released in 1999
by
Internet Products, Inc., which was acquired by St. Bernard in
2000.
|
ePrism
|
The
ePrism appliance product group provides perimeter email security
for small
and medium businesses and larger enterprises. This is the messaging
security component of the St. Bernard product family. The ePrism M500
is an email filtering appliance targeted at small and medium sized
businesses, that combines spam filtering technology with award-winning
Kaspersky Labs Anti-Virus to provide superior perimeter defense against
spam and email borne malicious code. ePrism uses eGuard, St. Bernard’s
proprietary database, which is 100% human-reviewed and contains spam
profiles and customized anti-spam heuristics,. The eGuard database
is
updated daily.
|
|
|
|
The
ePrism Enterprise includes three appliance models that provide business
organizations with a total perimeter defense solution. ePrism Enterprise
is a EAL4+ certified firewall that delivers advanced features, and
is
available in three models. EAL4 is one of the Common Criteria Evaluation
Assurance Levels for evaluating the security of IT products and systems.
EAL4 provides a high level of assurance and guarantees that the certified
product is methodically designed,
tested and reviewed to be secure. St. Bernard’s ePrism Enterprise models
combine spam filtering technology with award-winning Kaspersky Labs
Anti-Virus to provide superior perimeter defense against spam and
email
borne malicious code. The first version of ePrism was released in
2003.
|
Secure
System Management
|
|
|
|
UpdateEXPERT
|
UpdateEXPERT
offers system administrators simplified patch and settings management.
System administrators face the daunting challenge of keeping systems
up to
date and ensuring that the operating systems and applications are
current.
This includes deploying patches and settings to systems that are
vulnerable. UpdateEXPERT is patch management software that addresses
the
administrative challenge of deploying numerous complex patches that
may
interact with one another in unexpected and undesirable
ways.
|
|
|
|
UpdateEXPERT
discovers applicable patches for customer’s installed software that are
missing and applicable and deploys them. By encouraging continual
updating
of patches, UpdateEXPERT enforces software security policies and
provides
a superior way of managing hotfixes, patches and service
packs.
|
|
|
|
UpdateEXPERT
can function automatically by assessing security risk factors and
establishing enforcement policies based its internal criteria based
on
input from industry experts. Customers can create and edit their
own
policies, as well. The first version of UpdateEXPERT was released
in
2000.
|
|
|
Open
File Manager (OFM)
|
OFM
is enterprise-class software that enables backup applications to
back up
open files, ensuring business continuity and protection of mission
critical data. We believe it is a reliable, easy-to-use, disk-level
open
file solution that is cost-effective and scalable from workstations
to
servers.
|
|
|
.
|
The
rich feature set of OFM helps IT professionals automate backup of
open
files through system-wide synchronization, improve application
availability and lower operating costs. St. Bernard has designed
OFM to
integrate with leading backup software, including Computer Associates
BrightStor ARCserve, VERITAS Backup Exec and NetBackup, IBM Tivoli
Storage
Manager, Hewlett-Packard Data Protector, EMC/LEGATO NetWorker and
many
more. OFM has three license levels - Enterprise Server, Server and
Workstation. It is also available for OEM applications as an embedded
feature. The first version of Open File Manager (OFM) was released
in
1995
|
|
•
|
Data
protection over an expanding list of operating platforms.
St. Bernard has successfully ported the enterprise data protection
products to Linux, NetWare and Windows and is seeing good acceptance
of
the new platform offerings in the marketplace.
|
|
|
|
|
•
|
New
SCM products. St.
Bernard has successfully launched two major products and two major
product
version upgrades in 2005. The product releases include e-mail filtering
and Web filtering products and product improvements.
|
|
|
|
|
•
|
Local
language support.
St. Bernard continues to focus on providing local language support
for
system security products and secure content management products to
increase the acceptance of these products in international markets.
|
|
|
|
|
•
|
Scalability
improvements for system protection products. A
major architectural upgrade to St. Bernard’s patch management product has
been completed. The upgrade provides patch and security settings
management for large and small segmented networks gaining clear
differentiation over competitive products.
|
|
|
|
|
•
|
Subscription
database expansion. The
majority of St. Bernard’s products are driven by data. St. Bernard
engineers keep these databases up to date. Presently, the database
keeps track of over 6 million web sites, worldwide. Customers pay an
annual subscription fee for access to the latest data. The quality
and
quantity of this data is a key differentiator for St. Bernard’s
products.
|
Patent
or
Application
Number
|
Dated
Filed
|
Date
of Patent
|
Description
of
Patent/Application
|
Product
|
||||
5557747
|
June
22, 1993
|
September
17, 1996
|
Network
policy implementation system for performing network control operations
on
response to changes in network state.
|
Technology
not in use by current products.
|
||||
|
|
|
|
|
||||
11/266528
|
November
3, 2005
|
Application
|
Malware
and Spyware attack recovery system and method.
|
Technology
being internally evaluated and is not in use.
|
||||
|
|
|
|
|
||||
11/006410
|
December
6, 2004
|
Application
|
Method
for logically consistent backup of open computer files.
|
Technology
is used with Open File Manager to perform consistent backups under
Windows
VSS.
|
• |
revenue
recognition;
|
• |
allowance
for doubtful accounts;
|
• |
impairment
of goodwill and long-lived assets;
|
• |
accounting
for income taxes; and
|
• |
accounting
for stock options.
|
|
Net
Revenues
|
|
|
|
For
the Year Ended
December
31,
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions, except percentages)
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
Total
net revenue
|
|
$
|
24.0
|
|
$
|
21.2
|
|
|
13.2
|
%
|
|
Net
License Revenues
|
|
|
|
For
the Year Ended
December
31,
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions, except percentages)
|
|
||||||
Net
license revenue
|
|
$
|
6.4
|
|
$
|
7.5
|
|
|
(14.7)
|
%
|
As
a percent of net revenue
|
|
|
26.7
|
%
|
|
35.4%
|
|
|
|
|
Net
Hardware Revenues
|
|
|
|
For
the Year Ended
December
31,
|
|
|
|
|
|||
|
|
|
2005
|
|
|
2004
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions, except percentages)
|
|
||||||
Net
hardware revenue
|
|
$
|
3.6
|
|
$
|
3.5
|
|
|
2.9
|
%
|
As
a percent of net revenue
|
|
|
15.0
|
%
|
|
16.5
|
%
|
|
|
|
|
Net
Subscription Revenues
|
|
|
|
For
the Year Ended
December
31,
|
|
|
|
|
|||
|
|
|
2005
|
|
|
2004
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions, except percentages)
|
|
||||||
Net
subscription revenue
|
|
$
|
14.0
|
|
$
|
10.2
|
|
|
37.3
|
%
|
As
a percent of net revenue
|
|
|
58.3
|
%
|
|
48.1
|
%
|
|
|
|
|
Cost
of Revenue
|
|
|
Year
Ended
|
|
|
|
|||||
|
|
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|||||
|
|
2005
|
|
2004
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
(In
millions, except percentages)
|
|
|||||||
Total
cost of revenue
|
|
$
|
6.6
|
|
|
5.8
|
|
|
13.8
|
%
|
Margin
as a percentage of total net revenue
|
|
|
72.5
|
%
|
|
72.6
|
%
|
|
|
|
|
Cost
of License Revenue
|
|
|
Year
Ended
|
|
|
|
|||||
|
|
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|||||
|
|
2005
|
|
2004
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
(In
millions, except percentages)
|
|
|||||||
Cost
of license revenue
|
|
$
|
0.0
|
|
$
|
0.1
|
|
|
(100.0
|
%)
|
Gross
margin percent
|
|
|
100.0
|
%
|
|
98.8
|
%
|
|
|
|
|
Cost
of Hardware Revenue
|
|
|
Year
Ended
|
|
|
|
|||||
|
|
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|||||
|
|
2005
|
|
2004
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
(In
millions, except percentages)
|
|
|||||||
Cost
of hardware revenue
|
|
$
|
3.2
|
|
$
|
2.6
|
|
|
23.1
|
%
|
Gross
margin percent
|
|
|
11.1
|
%
|
|
25.7
|
%
|
|
|
|
|
Cost
of Subscription Revenue
|
|
|
Year
Ended
|
|
|
|
|||||
|
|
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|||||
|
|
2005
|
|
2004
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
(In
millions, except percentages)
|
|
|||||||
Cost
of subscription revenue
|
|
$
|
3.4
|
|
$
|
3.1
|
|
|
9.7
|
%
|
Gross
margin percent
|
|
|
75.7
|
%
|
|
69.6
|
%
|
|
|
|
|
Selling
and Marketing
|
|
|
Year
Ended
|
|
|
|
|||||
|
|
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|||||
|
|
2005
|
|
2004
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
(In
millions, except percentages)
|
|
|||||||
Selling
and marketing
|
|
$
|
10.4
|
|
$
|
12.2
|
|
|
(14.8
|
%)
|
As
a percentage of net revenue
|
|
|
43.3
|
%
|
|
57.5
|
%
|
|
|
|
Technical
Operations
|
|
|
Year
Ended
|
|
|
|
|||||
|
|
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|||||
|
|
2005
|
|
2004
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
(In
millions, except percentages)
|
|
|||||||
Technical
Operations
|
|
$
|
7.0
|
|
$
|
8.4
|
|
|
(16.7
|
)%
|
As
a percentage of net revenue
|
|
|
29.2
|
%
|
|
39.6
|
%
|
|
|
|
General
and Administrative
|
|
|
Year
Ended
|
|
|
|
|||||
|
|
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|||||
|
|
2005
|
|
2004
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
(In
millions, except percentages)
|
|
|||||||
General
and administrative
|
|
$
|
2.7
|
|
$
|
2.5
|
|
|
(8.0)
|
%
|
As
a percentage of net revenue
|
|
|
11.3
|
%
|
|
11.8
|
%
|
|
|
|
Interest
and Other Income, Net
|
|
|
|
For
the Years Ended
December
31,
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
2005
|
|
|
2004
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions, except percentages)
|
|
||||||
Interest
and other income, net
|
|
$
|
(.3
|
)
|
$
|
(.2
|
)
|
|
50.0
|
%
|
As
a percentage of net revenue
|
|
|
1.3
|
%
|
|
.9
|
%
|
|
|
|
Net
Revenues
|
|
|
Years
Ended
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|||
|
|
2004
|
|
2003
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions, except percentages)
|
|
|||||||
Total
net revenue
|
|
$
|
21.2
|
|
$
|
20.0
|
|
|
6.0
|
%
|
|
Net
License Revenues
|
|
|
For
the Year Ended
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|||
|
|
2004
|
|
2003
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
||||
|
|
(In
millions, except percentages)
|
|
|||||||
Net
license revenue
|
|
$
|
7.5
|
|
$
|
10.8
|
|
|
(30.6)
|
%
|
As
a percent of net revenue
|
|
|
35.4
|
%
|
|
54.0
|
%
|
|
|
|
|
Net
Hardware Revenues
|
|
|
For
the Year Ended
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|||
|
|
2004
|
|
2003
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
||||
|
|
(In
millions, except percentages)
|
|
|||||||
Net
hardware revenue
|
|
$
|
3.5
|
|
$
|
2.2
|
|
|
59.1
|
%
|
As
a percent of net revenue
|
|
|
16.5
|
%
|
|
11.0
|
%
|
|
|
|
|
Net
Subscription Revenues
|
|
|
For
the Year Ended
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|||
|
|
2004
|
|
2003
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
(In
millions, except percentages)
|
|
|||||||
Net
subscription revenue
|
|
$
|
10.2
|
|
$
|
7.0
|
|
|
45.7
|
%
|
As
a percent of net revenue
|
|
|
48.1
|
%
|
|
35.0
|
%
|
|
|
|
|
Cost
of Revenue
|
|
|
Year
Ended
|
|
|
|
|||||
|
|
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|||||
|
|
2004
|
|
2003
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
(In
millions, except percentages)
|
|
|||||||
Cost
of revenue
|
|
$
|
5.8
|
|
$
|
3.7
|
|
|
56.8
|
%
|
Margin
as a percentage of net revenue
|
|
|
72.6
|
%
|
|
81.5
|
%
|
|
|
|
Cost
of License Revenue
|
|
|
Year
Ended
|
|
|
|
|||||
|
|
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|||||
|
|
2004
|
|
2003
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
(In
millions, except percentages)
|
|
|||||||
Cost
of license revenue
|
|
$
|
.1
|
|
$
|
.2
|
|
|
(50.0)
|
%
|
Gross
Margin percent
|
|
|
98.8
|
%
|
|
98.3
|
%
|
|
|
|
Cost
of Hardware Revenue
|
|
|
Year
Ended
|
|
|
|
|||||
|
|
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|||||
|
|
2004
|
|
2003
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
(In
millions, except percentages)
|
|
|||||||
Cost
of hardware revenue
|
|
$
|
2.6
|
|
$
|
1.3
|
|
|
100.0
|
%
|
Gross
margin percent
|
|
|
25.7
|
%
|
|
40.9
|
%
|
|
|
|
|
Cost
of Subscription Revenue
|
|
|
Year
Ended
|
|
|
|
|||||
|
|
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|||
|
|
2004
|
|
2003
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
(In
millions, except percentages)
|
|
|||||||
Cost
of subscription revenue
|
|
$
|
3.1
|
|
$
|
2.2
|
|
|
40.9
|
%
|
Gross
margin percent
|
|
|
69.6
|
%
|
|
63.3
|
%
|
|
|
|
|
Selling
and Marketing
|
|
|
Years
Ended
|
|
|
|
|||||
|
|
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|||
|
|
2004
|
|
2003
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
(In
millions, except percentages)
|
|
|||||||
Selling
and marketing
|
|
$
|
12.2
|
|
$
|
9.4
|
|
|
29.8
|
%
|
As
a percentage of net revenue
|
|
|
57.6
|
%
|
|
47.0
|
%
|
|
|
|
Technical
Operations
|
|
|
Years
Ended
|
|
|
|
|||||
|
|
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|||
|
|
2004
|
|
2003
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
(In
millions, except percentages)
|
|
|||||||
Technical
Operations
|
|
$
|
8.4
|
|
$
|
4.2
|
|
|
100.0
|
%
|
As
a percentage of net revenue
|
|
|
39.6
|
%
|
|
21.0
|
%
|
|
|
|
General
and Administrative
|
|
|
Years
Ended
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|||
|
|
2004
|
|
2003
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
(In
millions, except percentages)
|
|
|||||||
General
and administrative
|
|
$
|
2.5
|
|
$
|
3.2
|
|
|
(21.9)%
|
|
As
a percentage of net revenue
|
|
|
11.8
|
%
|
|
16.0
|
%
|
|
|
|
Interest
and Other Income, Net
|
|
|
Years
Ended
December
31,
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|||
|
|
2004
|
|
2003
|
|
%
Change
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
(In
millions, except percentages)
|
|
|||||||
Interest
and other income, net
|
|
$
|
(.2
|
)
|
$
|
(.3
|
)
|
|
(33.3)%
|
|
As
a percentage of net revenue
|
|
|
0.9
|
%
|
|
1.5
|
%
|
|
|
Year
Ending December 31,
(In
thousands)
|
|
|||
2006
|
1,153,841
|
|||
2007
|
1,177,234
|
|||
2008
|
1,156,689
|
|||
2009
|
1,195,887
|
|||
2010
|
1,236,364
|
|||
Total
|
$
|
5,920,015
|
|
Historical
St. Bernard Software
|
Historical
Sand Hill IT Security
|
Pro-forma
Adjustment
|
Combined
|
|||||||||
Net
revenues
|
$
|
23,985
|
$
|
--
|
$
|
-
|
$
|
23,985
|
|||||
Cost
of sales
|
6,590
|
-
|
-
|
6,590
|
|||||||||
Gross
profit
|
17,395
|
--
|
--
|
17,395
|
|||||||||
Operating
expenses:
|
|||||||||||||
Sales
and marketing
|
10,399
|
-
|
-
|
10,399
|
|||||||||
|
|||||||||||||
Technical
operations
|
6,987
|
-
|
-
|
6,987
|
|||||||||
General
and administrative
|
2,678
|
1,107
|
-
|
3,785
|
|||||||||
|
|||||||||||||
Total
operating expenses
|
20,064
|
1,107
|
-
|
21,171
|
|||||||||
|
|||||||||||||
Loss
from operations
|
(2,669
|
)
|
(1,107
|
)
|
-
|
(3,776
|
)
|
||||||
|
|||||||||||||
Interest
and other income, net
|
-
|
638
|
-
|
638
|
|||||||||
Interest
expense
|
(263
|
)
|
-
|
-
|
(263
|
)
|
|||||||
Income
tax expense
|
(29
|
)
|
(29
|
)
|
|||||||||
|
|||||||||||||
Net
loss
|
$
|
(2,961
|
)
|
$
|
(469
|
)
|
$
|
-
|
$
|
(3,430
|
)
|
||
|
|||||||||||||
Pro
forma net loss per share -
|
|||||||||||||
Basic
and Diluted
|
$
|
(0.23
|
)
|
||||||||||
Pro
forma shares used to compute net
loss
per share
|
|||||||||||||
Basic
and Diluted
|
14,867
|
|
|
|
Historical
St. Bernard Software
|
|
|
Historical
Sand Hill IT Security
|
|
|
Pro
Forma Adjustments
|
|
|
|
|
|
Pro
Forma Combined
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
9
|
|
$
|
73
|
|
$
|
21,731
|
|
|
a.
|
|
$
|
20,113
|
|
|
|
|
|
|
|
|
|
|
(1,200
|
)
|
|
b.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500
|
)
|
|
c.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
bill held in trust
|
|
|
|
|
|
21,731
|
|
|
(21,731
|
)
|
|
a.
|
|
|
-
|
|
Accounts
receivable - net of allowance for doubtful accounts
|
|
|
4,460
|
|
|
|
|
|
|
|
|
|
|
|
4,460
|
|
Inventories
|
|
|
567
|
|
|
-
|
|
|
-
|
|
|
|
|
|
567
|
|
Prepaid
expenses and other current assets
|
|
|
208
|
|
|
12
|
|
|
-
|
|
|
|
|
|
220
|
|
Deferred
income taxes
|
|
|
473
|
|
|
-
|
|
|
-
|
|
|
|
|
|
473
|
|
|
||||||||||||||||
Total
current assets
|
|
|
5,717
|
|
|
21,816
|
|
|
(1,700
|
)
|
|
|
|
|
25,833
|
|
|
||||||||||||||||
Fixed
Assets - Net
|
|
|
1,457
|
|
|
-
|
|
|
-
|
|
|
|
|
|
1,457
|
|
|
||||||||||||||||
Other
Assets
|
|
|
1,147
|
|
|
-
|
|
|
-
|
|
|
|
|
|
1,147
|
|
|
||||||||||||||||
Goodwill
|
|
|
3,285
|
|
|
-
|
|
|
-
|
|
|
|
|
|
3,285
|
|
|
||||||||||||||||
Deferred
Income Taxes
|
|
|
586
|
|
|
-
|
|
|
-
|
|
|
|
|
|
586
|
|
|
||||||||||||||||
|
|
$
|
12,192
|
|
$
|
21,816
|
|
$
|
(1,700
|
)
|
|
|
|
$
|
32,308
|
|
|
||||||||||||||||
Current
Liabilities
|
||||||||||||||||
Line
of credit
|
|
$
|
940
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
$
|
940
|
|
Note
payable
|
|
|
178
|
|
|
-
|
|
|
-
|
|
|
|
|
|
178
|
|
Current
portion of capitalized lease obligations
|
|
|
39
|
|
|
-
|
|
|
-
|
|
|
|
|
|
39
|
|
Accounts
payable
|
|
|
2,092
|
|
|
255
|
|
|
-
|
|
|
|
|
|
2,347
|
|
Accrued
Compensation
|
|
|
1,240
|
|
|
-
|
|
|
-
|
|
|
|
|
|
1,240
|
|
Accrued
expenses and other current liabilities
|
|
|
183
|
|
|
-
|
|
|
-
|
|
|
|
|
|
183
|
|
Deferred
revenue
|
|
|
10,744
|
|
|
-
|
|
|
-
|
|
|
|
|
|
10,744
|
|
|
||||||||||||||||
Total
current liabilities
|
|
|
15,416
|
|
|
255
|
|
|
-
|
|
|
|
|
|
15,671
|
|
|
||||||||||||||||
Capitalized
Lease Obligations, Less Current Portion
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
Deferred
Revenue
|
|
|
5,326
|
|
|
-
|
|
|
-
|
|
|
|
|
|
5,326
|
|
|
||||||||||||||||
Total
liabilities
|
|
|
20,747
|
|
|
255
|
|
|
-
|
|
|
|
|
|
21,002
|
|
|
||||||||||||||||
Common
stock subject to possible conversion (821,589 shares of conversion
value)
|
|
|
-
|
|
|
4,344
|
|
|
(4,344
|
)
|
|
h.
|
|
|
-
|
|
Stockholders’
(Deficit) Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
2,320
|
|
|
43
|
|
|
(2,219
|
)
|
|
d.
|
|
|
144
|
|
Additional
paid-in capital
|
|
|
18,138
|
|
|
17,692
|
|
|
|
|
|
|
|
|
40,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,219
|
|
|
d.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,200
|
)
|
|
b.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,018
|
)
|
|
e.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,344
|
|
|
h.
|
|
|
|
|
Accumulated
deficit
|
|
|
(29,013
|
)
|
|
(518
|
)
|
|
1,018
|
|
|
e.
|
|
|
(29,013
|
)
|
|
|
|
|
|
|
|
|
|
(500
|
)
|
|
c.
|
|
|
|
|
|
||||||||||||||||
Total
stockholders’ (deficit) equity
|
|
|
(8,555
|
)
|
|
17,217
|
|
|
2,644
|
|
|
|
|
|
11,306
|
|
|
||||||||||||||||
|
|
$
|
12,192
|
|
$
|
21,816
|
|
$
|
(1,700
|
)
|
|
|
|
$
|
32,308
|
|
|
|
Historical
St. Bernard Software
|
|
Historical
Sand Hill IT Security
|
|
Pro-forma
Adjustments
|
|
|
|
Combined
|
|
|||||
Net
revenues
|
|
$
|
23,985
|
|
$
|
--
|
|
$
|
-
|
|
|
|
|
$
|
23,985
|
|
Cost
of sales
|
|
|
6,590
|
|
|
-
|
|
|
-
|
|
|
|
|
|
6,590
|
|
Gross
profit
|
|
|
17,395
|
|
|
--
|
|
|
--
|
|
|
|
|
|
17,395
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
10,399
|
|
|
-
|
|
|
-
|
|
|
|
|
|
10,399
|
|
Technical
operations
|
|
|
6,987
|
|
|
-
|
|
|
-
|
|
|
|
|
|
6,987
|
|
General
and administrative
|
|
|
2,678
|
|
|
1,107
|
|
|
-
|
|
|
|
|
|
3,785
|
|
Total
operating expenses
|
|
|
20,064
|
|
|
1,107
|
|
|
-
|
|
|
|
|
|
21,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(2,669
|
)
|
|
(1,107
|
)
|
|
-
|
|
|
|
|
|
(3,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income, net
|
|
|
-
|
|
|
638
|
|
|
(87
|
)
|
|
g.
|
|
|
551
|
|
Interest
expense
|
|
|
(263
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
(263
|
)
|
Income
tax expense
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,961
|
)
|
$
|
(469
|
)
|
$
|
(87
|
)
|
|
|
|
$
|
(3,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma net loss per share -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.25
|
)
|
Pro
forma shares used to compute net
loss
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,049
|
|
UNAUDITED
PRO FORMA CONDENSED
COMBINED
BALANCE SHEET
OF
ST.
BERNARD SOFTWARE AND SAND HILL IT SECURITY
DECEMBER
31, 2005
(IN
THOUSANDS)
|
|
|||||||||||||||
|
|
Historical
St. Bernard Software
|
|
Historical
Sand Hill IT Security
|
|
Pro
Forma Adjustments
|
|
|
|
Pro
Forma Combined
|
|
|||||
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash
and cash equivalents
|
|
$
|
9
|
|
$
|
73
|
|
$
|
21,731
|
|
|
a.
|
|
$
|
15,769
|
|
|
|
|
|
|
|
|
|
|
(1,200
|
)
|
|
b.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,344
|
)
|
|
f.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500
|
)
|
|
c.
|
|
|
|
|
Treasury
bill held in trust
|
|
|
|
|
|
21,731
|
|
|
(21,731
|
)
|
|
a.
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable - net of allowance for doubtful accounts of
$488,600
|
|
|
4,460
|
|
|
|
|
|
|
|
|
|
|
|
4,460
|
|
Inventories
|
|
|
567
|
|
|
-
|
|
|
-
|
|
|
|
|
|
567
|
|
Prepaid
expenses and other current assets
|
|
|
208
|
|
|
12
|
|
|
-
|
|
|
|
|
|
220
|
|
Deferred
income taxes
|
|
|
473
|
|
|
-
|
|
|
-
|
|
|
|
|
|
473
|
|
|
||||||||||||||||
Total
current assets
|
|
|
5,717
|
|
|
21,816
|
|
|
(6,044
|
)
|
|
|
|
|
21,489
|
|
|
||||||||||||||||
Fixed
Assets - Net
|
|
|
1,457
|
|
|
-
|
|
|
-
|
|
|
|
|
|
1,457
|
|
|
||||||||||||||||
Other
Assets
|
|
|
1,147
|
|
|
-
|
|
|
-
|
|
|
|
|
|
1,147
|
|
|
||||||||||||||||
Goodwill
|
|
|
3,285
|
|
|
-
|
|
|
-
|
|
|
|
|
|
3,285
|
|
|
||||||||||||||||
Deferred
Income Taxes
|
|
|
586
|
|
|
-
|
|
|
-
|
|
|
|
|
|
586
|
|
|
||||||||||||||||
|
|
$
|
12,192
|
|
$
|
21,816
|
|
$
|
(6,044
|
)
|
|
|
|
$
|
27,964
|
|
|
||||||||||||||||
Current
Liabilities
|
||||||||||||||||
Line
of credit
|
|
$
|
940
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
$
|
940
|
|
Note
payable
|
|
|
178
|
|
|
-
|
|
|
-
|
|
|
|
|
|
178
|
|
Current
portion of capitalized lease obligations
|
|
|
39
|
|
|
-
|
|
|
-
|
|
|
|
|
|
39
|
|
Accounts
payable
|
|
|
2,098
|
|
|
255
|
|
|
-
|
|
|
|
|
|
2,353
|
|
Accrued
Compensation
|
|
|
1,240
|
|
|
-
|
|
|
-
|
|
|
|
|
|
1,240
|
|
Accrued
expenses and other current liabilities
|
|
|
177
|
|
|
-
|
|
|
-
|
|
|
|
|
|
177
|
|
Deferred
revenue
|
|
|
10,744
|
|
|
-
|
|
|
-
|
|
|
|
|
|
10,744
|
|
|
||||||||||||||||
Total
current liabilities
|
|
|
15,416
|
|
|
255
|
|
|
-
|
|
|
|
|
|
15,671
|
|
|
||||||||||||||||
Capitalized
Lease Obligations, Less Current Portion
|
|
|
5
|
|
|
-
|
|
|
-
|
|
|
|
|
|
5
|
|
|
|
|
|
|||||||||||||
|
||||||||||||||||
Deferred
Revenue
|
|
|
5,326
|
|
|
-
|
|
|
-
|
|
|
|
|
|
5,326
|
|
|
||||||||||||||||
Total
liabilities
|
|
|
20,747
|
|
|
255
|
|
|
-
|
|
|
|
|
|
21,002
|
|
|
||||||||||||||||
Common
Stock subject to possible conversion (821,589 shares at conversion
value)
|
|
|
-
|
|
|
4,344
|
|
|
(4,344
|
)
|
|
f.
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
(Deficit) Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
2,320
|
|
|
43
|
|
|
(2,230
|
)
|
|
d.
|
|
|
133
|
|
Additional
paid-in capital
|
|
|
18,138
|
|
|
17,692
|
|
|
|
|
|
|
|
|
35,842
|
|
|
|
|
|
|
|
|
|
|
2,230
|
|
|
d.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,200
|
)
|
|
b.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,018
|
)
|
|
e.
|
|
|
|
|
Accumulated
deficit
|
|
|
(29,013
|
)
|
|
(518
|
)
|
|
1,018
|
|
|
e.
|
|
|
(29,013
|
)
|
|
|
|
|
|
|
|
|
|
(500
|
)
|
|
c.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ (deficit) equity
|
|
|
(8,555
|
)
|
|
17,217
|
|
|
(1,700
|
)
|
|
|
|
|
6,962
|
|
|
||||||||||||||||
|
|
$
|
12,192
|
|
$
|
21,816
|
|
$
|
(6,044
|
)
|
|
|
|
$
|
27,964
|
|
•
|
Accompanying
notes to the unaudited pro forma combined condensed financial
statements.
|
•
|
Separate
historical financial statements of St. Bernard for the year ended
December
31, 2005 included elsewhere in this
document.
|
•
|
Separate
historical financial statements of Sand Hill for the year ended December
31, 2005 included elsewhere in this
document.
|
•
|
Assuming
Maximum Approval: This presentation assumes that 100% of Sand Hill
stockholders approve the merger;
and
|
•
|
Assuming
Minimum Approval: This presentation assumes that only 80.1% of Sand
Hill
stockholders approve the merger.
|
Name
|
Age
|
Position
|
||
|
|
|
||
Humphrey
P. Polanen
|
55
|
Chairman
of the Board
|
||
|
|
|
||
John
E. Jones
|
60
|
President
and Chief Executive Officer
|
||
|
|
|
||
Gary
Stowell, Ph.D.
|
57
|
Vice
President, Business Development/Product Management
|
||
|
|
|
||
Bob
Crowe
|
42
|
Vice
President, Engineering
|
||
|
|
|
||
Steve
Yin
|
39
|
Vice
President, Sales and Marketing
|
||
|
|
|
||
Alfred
Riedler
|
56
|
Chief
Financial Officer
|
||
|
|
|
||
Jeannie
Moravits
|
39
|
Vice President,
Human Resources
|
||
|
|
|
||
Scott
R. Broomfield
|
49
|
Director
|
||
|
|
|
||
Bart
A.M. van Hedel
|
61
|
Director
|
Name
|
|
Title
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Other
Annual
Compensation
(1)
|
|
|
SARS/
Options
Granted
|
|
All
Other
Compensation
|
||||||
John
E. Jones
|
|
President
and Chief Executive Officer
|
|
2005
|
|
$
|
245,500
|
|
$
|
30,000
|
|
$
|
61,200
|
|
|
0
|
|
$
|
0
|
||
|
|
|
|
2004
|
|
$
|
236,500
|
|
$
|
150,000
|
|
$
|
61,200
|
|
|
0
|
|
$
|
0
|
||
|
|
|
|
2003
|
|
$
|
232,653
|
|
$
|
30,000
|
|
$
|
61,200
|
|
|
150,000
|
|
$
|
0
|
||
|
|
|
|
|
|
|
|
||||||||||||||
Alfred
F. Riedler
|
|
Chief
Financial Officer
|
|
2005
|
|
$
|
174,962
|
|
$
|
27,855
|
|
$
|
0
|
|
|
30,000
|
|
$
|
0
|
||
|
|
|
|
2004
|
|
$
|
151,566
|
|
$
|
19,926
|
|
$
|
0
|
|
|
35,000
|
|
$
|
0
|
||
|
|
|
|
2003
|
|
$
|
143,789
|
|
$
|
24,186
|
|
$
|
0
|
|
|
25,000
|
|
$
|
0
|
||
|
|
|
|
|
|
|
|
||||||||||||||
Gary
Stowell, Ph.D.
|
|
VP
-
Business
Development/
Product
Management
|
|
2005
|
|
$
|
164,037
|
|
$
|
21,761
|
|
$
|
0
|
|
|
30,000
|
|
$
|
0
|
||
|
|
|
|
2004
|
|
$
|
157,752
|
|
$
|
20,738
|
|
$
|
0
|
|
|
20,000
|
|
$
|
0
|
||
|
|
|
|
2003
|
|
$
|
149,494
|
|
$
|
25,636
|
|
$
|
0
|
|
|
25,000
|
|
$
|
0
|
||
|
|
|
|
|
|
|
|
||||||||||||||
Bob
Crowe
|
|
VP
Internet
Appliance Technology
|
|
2005
|
|
$
|
161,580
|
|
$
|
23,423
|
|
$
|
0
|
|
|
0
|
|
$
|
0
|
||
|
|
|
|
2004
|
|
$
|
151,879
|
|
$
|
19,970
|
|
$
|
0
|
|
|
0
|
|
$
|
0
|
||
|
|
|
|
2003
|
|
$
|
143,314
|
|
$
|
24,620
|
|
$
|
0
|
|
|
0
|
|
$
|
0
|
||
|
|
|
|
|
|
|
|
||||||||||||||
Gary
Pritchett (2)
|
|
VP
Technical
Operations
|
|
2005
|
|
$
|
226,288
|
|
$
|
31,811
|
|
$
|
0
|
|
|
0
|
|
$
|
0
|
||
|
|
|
|
2004
|
|
$
|
233,438
|
|
$
|
28,063
|
|
$
|
0
|
|
|
20,000
|
|
$
|
0
|
||
|
|
|
|
2003
|
|
$
|
199,375
|
|
$
|
34,183
|
|
$
|
0
|
|
|
0
|
|
$
|
0
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Steve
Yin
|
|
VP
Sales
and Marketing
|
|
2005
|
|
$
|
175,069
|
|
|
|
|
$
|
0
|
|
|
100,000
|
|
$
|
|
||
|
|
|
|
2004
|
|
$
|
30,846
|
|
|
|
|
$
|
0
|
|
|
0
|
|
$
|
0
|
(1)
|
Consists
of automobile allowance of $750 per month, housing and utilities
allowance
of $3,200 per month and travel reimbursement to Chicago of $1,150
per
month.
|
(2)
|
As
of November 4, 2005 Mr. Pritchett is no longer an executive officer
of St.
Bernard. Mr. Pritchett is within the definition of a named
executive officer in Item 402(a)(3)(iii) of Regulation
S-K.
|
|
|
|
Number
of Securities
Underlying
Unexercised
Options
at
December 31, 2005
|
|
|
Value
of Unexercised
In-the-Money
Options at
December
31, 2005 (1)
|
|
||||||
Name
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
E. Jones
|
|
|
165,833
|
|
|
4,167
|
|
$
|
169,086
|
|
$
|
4,182
|
|
Alfred
F. Riedler
|
|
|
61,128
|
|
|
29,039
|
|
$
|
66,010
|
|
$
|
27,674
|
|
Gary
Stowell, Ph.D.
|
|
|
50,316
|
|
|
22,462
|
|
$
|
48,346
|
|
$
|
21,182
|
|
Bob
Crowe
|
|
|
211,346
|
|
|
0
|
|
$
|
158,510
|
|
$
|
0
|
|
Steve
Yin
|
|
|
52,084
|
|
|
47,916
|
|
$
|
47,396
|
|
$
|
43,604
|
|
Gary
Pritchett
|
|
|
0
|
|
|
0
|
|
$
|
0
|
|
$
|
0
|
|
(1)
|
Based
upon $1.25 (the fair market value of St. Bernard’s common stock as
determined by its board of directors in February 2006) minus the
exercise
price, multiplied by the number of shares issued upon the exercise
of, or
subject to the option, without taking into account any taxes that
may be
payable in connection with the
transaction
|
|
|
|
|
|
|
Potential
Realizable
Value
At
Assumed Annual
Rates
of
Stock Price
Appreciation
For
Option Term
|
||||||||||||||||
Named
Executive Officer
|
Number
of
Shares
Subject
to
Options
|
%
of Total
Options
Granted
During
Period
|
Date
of
Grant
|
Exercise
Price
|
Expiration
Date
|
5%
(1)
|
10%
(1)
|
|||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
John
E. Jones
|
0
|
0
|
%
|
$
|
0
|
$
|
0
|
|||||||||||||||
Alfred
F. Riedler
|
30,000
|
9.6
|
%
|
03/02
|
$
|
0.3400
|
2/28/15
|
$
|
6,414.73
|
$
|
16,256.17
|
|||||||||||
Gary
Stowell, Ph.D.
|
30,000
|
9.6
|
%
|
03/02
|
$
|
0.3400
|
2/28/15
|
$
|
6,414.73
|
$
|
16,256.17
|
|||||||||||
Bob
Crowe
|
0
|
0
|
%
|
$
|
0.00
|
$
|
0.00
|
|||||||||||||||
Steve
Yin
|
100,000
|
31.9
|
%
|
01/01
|
$
|
0.3400
|
2/28/15
|
$
|
21,382.42
|
$
|
54,187.24
|
|||||||||||
Gary
Pritchett
|
0
|
0
|
%
|
$
|
0
|
$
|
0
|
(1)
|
In
accordance with SEC rules, these columns show gains that could accrue
for
the respective options, assuming that the market price of St. Bernard
common stock appreciates from the date of grant over the maximum
life of
the option at an annualized compounded rate of 5% and 10%, respectively.
If the stock price does not increase above the exercise price at
the time
of exercise, realized value to the named executives from these options
will be zero. Rules of the Securities and Exchange Commission permit
St.
Bernard to use 5% and 10% in this table. There can be no assurance
that
the price of St. Bernard stock will increase and this table does
not
constitute any prediction of the future value of its stock by St.
Bernard.
|
Name
and Address of Beneficial
Owner(1)
|
|
|
Amount
and Nature of Beneficial Ownership
|
|
|
Approximate
Percentage of Outstanding Common Stock
|
|
|
|
|
|
|
|
|
|
Humphrey
Polanen
|
|
|
459,441
|
|
|
9.0
|
%
|
Sand
Hill Security, LLC(1)
|
|
|
100,000
|
|
|
2.0
|
%
|
Keith
Walz
|
|
|
174,825
|
|
|
3.4
|
%
|
Scott
Broomfield(2)
|
|
|
174,825
|
|
|
3.4
|
%
|
Cary
Grossman(3)
|
|
|
48,951
|
|
|
1.0
|
%
|
Dan
Johnson
|
|
|
20,979
|
|
|
*
|
|
Alberto
Micalizzi
|
|
|
20,979
|
|
|
*
|
|
All
directors and executive officers as a group (6
individuals)
|
|
|
1,000,000
|
|
|
19.6
|
%
|
(1) |
Sand
Hill Security, LLC Membership Interests are held by (i) the Polanen
and
Nicodimos Family Trust, of which Mr. Polanen is a trustee, (ii) the
Broomfield Family Trust, of which Mr. Broomfield is a trustee, (iii)
Dan
Johnson, (iv) Keith Walz, (v) Alberto Micalizzi, and (vi) the Grossman
Family Limited Partnership, of which Mr. Grossman is a general
partner.
|
(2) |
Mr.
Broomfield’s shares are held by the Broomfield Family Trust, of which Mr.
Broomfield is a Co-Trustee.
|
(3) |
Mr.
Grossman’s shares are held by Grossman Family Limited Partnership, of
which Mr. Grossman is a general
partner.
|
|
|
Beneficial
Ownership of
our
common stock on
September 30,
2005
|
|
Beneficial ownership of our
common
stock after the
consummation of the merger
|
|
||||||||
Name
and Address of Beneficial Owner(1)
|
|
Number of
Shares
|
|
Percent of
Class before
Merger
|
|
Number of
Shares
|
|
Percent of
Class after
Merger
|
|
||||
Humphrey
P. Polanen (2)
|
|
|
567,941
|
|
|
10.9
|
%
|
|
567,941
|
|
|
3.8%
|
|
Sand
Hill Security, LLC (3)
|
|
|
100,000
|
|
|
2.0
|
%
|
|
100,000
|
|
|
*
|
|
Keith
Walz
|
|
|
174,825
|
|
|
3.4
|
%
|
|
174,825
|
|
|
1.2%
|
|
Scott
Broomfield (4)
|
|
|
279,825
|
|
|
5.4
|
%
|
|
279,825
|
|
|
1.9%
|
|
Cary
Grossman (5)
|
|
|
56,951
|
|
|
1.1
|
%
|
|
56,951
|
|
|
*
|
|
Daniel
Johnson (6)
|
|
|
95,979
|
|
|
1.8
|
%
|
|
20,979
|
|
|
*
|
|
Alberto
Micalizzi (7)
|
|
|
20,979
|
|
|
*
|
|
|
20,979
|
|
|
*
|
|
Sapling
LLC (8)
|
|
|
400,000
|
|
|
7.8
|
%
|
|
400,000
|
|
|
2.7%
|
|
Amaranth,
LLC (9)
|
|
|
287,098
|
|
|
5.6
|
%
|
|
287,098
|
|
|
1.9%
|
|
Roger
Feldman and Harvey Hanerfeld (10)
|
|
|
385,600
|
|
|
7.5
|
%
|
|
385,600
|
|
|
2.6%
|
|
John
Jones (11)
|
|
|
0
|
|
|
0
|
%
|
|
1,401,456
|
|
|
9.4%
|
|
Alfred
Riedler (12)
|
|
|
0
|
|
|
0
|
%
|
|
99,455
|
|
|
*
|
|
Gary
Stowell, Ph.D. (13)
|
|
|
0
|
|
|
0
|
%
|
|
122,212
|
|
|
*
|
|
Bob
Crowe (14)
|
|
|
0
|
|
|
0
|
%
|
|
497,864
|
|
|
3.3%
|
|
Bart
van Hedel (15)
|
|
|
0
|
|
|
0
|
%
|
|
3,287,406
|
|
|
21.4%
|
|
All
current Sand Hill directors and
executive
officers as a group (6 individuals)
|
|
|
1,296,500
|
|
|
24.0
|
%
|
|
1,296,500
|
|
|
8.5%
|
|
All
post-merger directors and
executive
officers as a group (7 individuals)
|
|
|
|
|
|
|
|
|
6,256,159
|
|
|
39.6%
|
(1)
|
Unless
otherwise indicated, the business address of each of the following
is 3000
Sand Hill Road, Building 1, Suite 240, Menlo Park,
California.
|
(2)
|
Includes
108,500 shares of common stock issuable upon exercise of warrants
that are
exercisable within 60 days of the date of this joint proxy
statement/prospectus.
|
(3)
|
Sand
Hill Security, LLC Membership Interests are held by (i) the Polanen
and
Nicodimos Family Trust, of which Mr. Polanen is a trustee, (ii) the
Broomfield Family Trust, of which Mr. Broomfield is a trustee, (iii)
Dan
Johnson, (iv) Keith Walz, (v) Alberto Micalizzi, and (vi) the Grossman
Family Limited Partnership, of which Mr. Grossman is a general
partner.
|
(4)
|
Mr.
Broomfield’s shares are held by the Broomfield Family Trust, of which Mr.
Broomfield is a Co-Trustee. Includes 105,000 shares of common stock
issuable upon exercise of warrants that are exercisable within 60
days of
the date of this joint proxy statement/prospectus.
|
(5)
|
Mr.
Grossman’s shares are held by Grossman Family Limited Partnership, of
which Mr. Grossman is a general partner. Includes 8,000 shares of
common stock issuable upon exercise of warrants that are exercisable
within 60 days of the date of this joint proxy
statement/prospectus.
|
(6)
|
Includes
75,000 shares of common stock issuable upon exercise of warrants
that are
exercisable within 60 days of the date of this joint proxy
statement/prospectus.
|
(7)
|
Mr.
Micalizzi’s business address is Corso Italia 66, 20136, Milan,
Italy.
|
(8)
|
Represents
shares beneficially owned by Sapling, LLC, FirTree Master Fung, LP,
is the
sole member of Sapling, LLC, and Fir Trees, Inc. is the manager of
Sapling, LLC. The business address is One American Lane, Greenwich,
Connecticut 06831.
|
(9)
|
Represents
shares beneficially owned by Amaranth, LLC, Amaranth Advisors L.L.C.,
and
Nicholas M. Maounis. The business address is 535 Fifth Ave.,
31st
Floor, New York, New York 10003. Amaranth Advisors L.L.C. and Nicholas
M.
Maounis are the managing members of Amaranth L.L.C.
|
(10)
|
Represents
shares of common stock held by West Creek Partners Fund, L.P., certain
private accounts and Cumberland Investment Partners, L.L.C. Messrs.
Feldman and Hanerfeld are the sole stockholders, directors and executive
officers of West Creek Capital, Inc., a Delaware corporation that
is the
general partner of West Creek Capital, L.P., a Delaware limited
partnership that is the investment adviser to (i) West Creek Partners
Fund
L.P., a Delaware limited partnership (the “Fund”) and (ii) certain private
accounts (the “Accounts”), Messrs. Feldman and Hanerfeld may be deemed to
have the shared power to direct the voting and disposition of the
232,000
shares of common stock owned by the Fund and the 22,100 shares of
common
stock held in the Accounts. As voting members of Cumberland Investment
Partners, L.L.C., a Delaware limited liability company (“Cumberland”),
Messrs. Feldman and Hanerfeld may be deemed to have the shared power
to
direct the voting and disposition of the 131,500 shares of common
stock
owned by Cumberland. Neither of Messrs. Feldman or Hanerfeld has
sole
power to direct the voting and disposition of any of the shares of
common
stock beneficially owned by them. The business address for Messrs.
Feldman
and Hanerfeld is 1919 Pennsylvania Avenue, NW, Suite 725, Washington,
DC
20006.
|
(11)
|
Includes
71,641 shares of common stock that will be issuable upon exercise
of
options that will be exercisable within 60 days of the date of this
joint
proxy statement/prospectus. The business address for Mr. Jones is
15015
Avenue of Science, San Diego, California 92128.
|
(12)
|
Includes
37,998 shares of common stock that will be issuable upon exercise
of
options that will be exercisable within 60 days of the date of this
joint
proxy statement/prospectus. The business address for Mr. Riedler
is 15015
Avenue of Science, San Diego, California 92128.
|
(13)
|
Includes
30,645 shares of common stock that will be issuable upon exercise
of
options that will be exercisable within 60 days of the date of this
joint
proxy statement/prospectus. The business address for Mr. Stowell,
Ph.D. is
15015 Avenue of Science, San Diego, California 92128.
|
(14)
|
Includes
89,065 shares of common stock that will be issuable upon exercise
of
options that will be exercisable within 60 days of the date of this
joint
proxy statement/prospectus. The business address for Mr. Crowe is
15015
Avenue of Science, San Diego, California 92128.
|
(15)
|
Includes
2,825,952 shares of common stock held in trust by Stichting Trustee
Ai-Investments for Ai-Investments N.V. and Perennial Investments
B.V. and
others and warrants exercisable for the purchase of 421,419 shares
of
common stock held by Ai-Investments N.V. and 40,035 shares of common
stock
that will be issuable upon exercise of options that will be exercisable
within 60 days of the date of this joint proxy statement/prospectus.
Mr.
van Hedel is a board member for Stichting Trustee Ai-Investments
and
managing director for both Ai-Investments N.V. and Perennial Investments
B.V. The business address for Mr. van Hedel is Strawinsky laan 3107,
10722x, Amsterdam, The Netherlands.
|
Name
and Address of Beneficial Owner
|
|
|
Amount
and Nature of Beneficial Ownership
|
|
|
Approximate
Percentage of Outstanding Common Stock
|
|
John
E. Jones(1)
|
|
|
3,325,565
|
|
|
12.93
|
%
|
Alfred
Riedler(2)
|
|
|
236,000
|
|
|
0.92
|
%
|
Gary
Stowell, Ph.D.
(3)
|
|
|
290,000
|
|
|
1.13
|
%
|
Bob
Crowe(4)
|
|
|
1,181,399
|
|
|
4.59
|
%
|
Steve
Yin(5)
|
|
|
100,000
|
|
|
*
|
|
April
Juric(6)
|
|
|
100,000
|
|
|
*
|
|
Bart
van Hedel(7)
|
|
|
7,800,801
|
|
|
30.33%
|
|
Robert
G. Copeland(8)
|
|
|
95,000
|
|
|
*
|
|
Mel
Lavitt(9)
|
|
|
369,364
|
|
|
1.44
|
%
|
All
directors and executive officers as a group (9
individuals)
|
|
|
12,498,129
|
|
|
52.30
|
%
|
(1) |
Includes
3,155,565 shares of common stock and 170,000 shares that are subject
to
options granted under one or more of St. Bernard’s 1992 Stock Option Plan
(the “1992 Plan”), 2000 Stock Option Plan (the “2000 Plan”) and 2005 Stock
Option Plan (the “2005 Plan”), collectively referred to in this table as
(the “Plans”), of which 165,833 shares were exercisable as of December 31,
2005 and 4,167 shares which will be exercisable upon consummation
of the
merger.
|
(2) |
Includes
145,833 shares of common stock and 90,167 shares that are subject
to
options granted under one or more of the Plans, of which 61,128 shares
were exercisable as of December 31, 2005 and 29,039 shares which
will be
exercisable upon consummation of the
merger.
|
(3) |
Includes
217,222 shares of common stock and 72,778 shares that are subject
to
options granted under one or more of the Plans, of which 50,316 shares
were exercisable as of December 31, 2005 and 22,462 shares which
will be
exercisable upon consummation of the
merger.
|
(4) |
Includes
970,053 shares of common stock and 211,346 shares that are subject
to
options granted under one or more of the Plans, of which 211,346
shares
were exercisable as of December 31,
2005.
|
(5) |
Includes
100,000 shares that are subject to options granted under one or more
of
the Plans, of which 52,084 shares were exercisable as of December 31,
2005 and 47,916 shares which will be exercisable upon consummation
of the
Merger.
|
(6) |
Includes
36,667 shares of common stock and 39,013 shares that are subject
to
options granted under one or more of the Plans, of which 5,059 shares
were
exercisable as of December 31, 2005 and 33,954 shares which will
be
exercisable upon consummation of the
merger.
|
(7) |
Includes
6,705,801 shares of common stock held in trust by Stichting Trustee
Ai-
Investments for Ai-Investments N.V. and Perennial Investments B.V.
and
others and warrants exercisable for the purchase of 1,000,000 shares
of
common stock held by Ai- Investments N.V. and 95,000 shares that
are
subject to options granted under one or more of the Plans, of which
86,111
shares were exercisable as of December 31, 2005 and 8,889 shares
which will be exercisable upon consummation of the merger. Mr. van
Hedel
is a board member for Stichting Trustee Ai-Investments and managing
director for both Ai-Investments N.V. and Perennial Investments
B.V.
|
(8) |
Includes
95,000 shares that are subject to options granted under one or more
of the
Plans, of which 86,111 shares were exercisable as of December 31,
2005 and
8,889 shares which will be exercisable upon consummation of the
merger.
|
(9) |
Includes
334,641 shares of common stock and 34,723 shares that are subject
to
options granted under one or more of the Plans, of which 25,834 shares
were exercisable as of December 31, 2005 and 8,889 shares which will
be
exercisable upon consummation of the
merger.
|
|
Common
Stock
|
Warrants
|
Units
|
||||||||||||||||
Quarter
Ended
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
|||||||||||||
December
31, 2004
|
$
|
4.95
|
$
|
4.55
|
$
|
0.80
|
$
|
0.45
|
$
|
6.20
|
$
|
5.42
|
|||||||
March
31, 2005
|
$
|
5.25
|
$
|
4.80
|
$
|
0.95
|
$
|
0.55
|
$
|
7.25
|
$
|
6.00
|
|||||||
June
30, 2005
|
$
|
5.47
|
$
|
4.91
|
$
|
0.96
|
$
|
0.56
|
$
|
7.25
|
$
|
6.00
|
|||||||
September
30, 2005
|
$
|
5.57
|
$
|
5.08
|
$
|
1.59
|
$
|
0.74
|
$
|
8.51
|
$
|
6.45
|
|||||||
December
31, 2005
|
$
|
5.50
|
$
|
5.10
|
$
|
1.70
|
$
|
0.77
|
$
|
8.80
|
$
|
6.60
|
|||||||
March
31, 2006
|
$
|
5.35
|
$
|
5.19
|
$
|
1.17
|
$
|
0.77
|
$
|
7.50
|
$
|
6.95
|
|||||||
Through
April 19, 2006
|
$
|
5.35
|
$
|
5.23
|
$
|
0.90
|
$
|
0.67
|
$
|
6.95
|
$
|
6.70
|
Sand
Hill
|
|
St.
Bernard
|
|
AUTHORIZED
CAPITAL STOCK
|
|||
|
|
Authorized
Shares. Sand
Hill is authorized under its certificate of incorporation to issue
50,000,000 shares of common stock, par value $0.01 per share, and
5,000,000 shares of preferred stock, par value $0.01 per
share.
Preferred
Stock. Sand
Hill’s certificate of incorporation provides that shares of preferred
stock may be issued from time to time in one or more series by
the board
of directors. The board can fix voting powers, full or limited,
and
designations, preferences and relative, participating, option or
other
special rights and such qualifications, limitations or restrictions.
No
shares of preferred stock have been issued.
|
|
Authorized
Shares. St.
Bernard is authorized under its fifth restated certificate of
incorporation to issue 37,000,000 shares of common stock, par value
$0.10
per share and 10,000,000 shares of common stock, par value $1.00
per
share.
Preferred
Stock. St.
Bernard’s fifth restated certificate of incorporation provides that shares
of preferred stock may be issued from time to time in one or more
series
by the board of directors. The board can determine or alter the
rights,
preferences, privileges and restrictions granted or imposed upon
any
unissued series of the preferred stock. Currently, no shares of
preferred
stock are issued and outstanding.
|
CLASSIFICATION,
NUMBER AND ELECTION OF DIRECTORS
|
||
|
|
|
The
Sand Hill board of directors is divided into three classes, with
each
class serving a staggered two-year term. Currently, Sand Hill has
six
directors, including two Class A directors, one Class B
director, and three Class C directors. The Class A directors
have a term expiring at the first annual meeting of stockholders,
the
Class B director has a term expiring at the second annual meeting of
stockholders, and the Class C directors have a term expiring at the
third annual meeting of stockholders. The Sand Hill bylaws provide
that
its board of directors will consist of a number of directors to
be fixed
from time to time by a resolution duly adopted by the Sand Hill
board of
directors.
|
|
Currently,
St. Bernard’s bylaws provide that its board of directors will consist of
one or more members, the exact number to be determined from time
to time
by the board of directors. The number of directors currently serving
is
four, each of whom serves a one year term.
|
|
||
VACANCIES
ON THE BOARD OF DIRECTORS AND REMOVAL OF
DIRECTORS
|
||
|
||
Generally.
Delaware
law provides that if, at the time of filling of any vacancy or
newly
created directorship, the directors then in office constitute less
than a
majority of the authorized number of directors, the Delaware Court
of
Chancery may, upon application of any stockholder or stockholders
holding
at least 10% of the voting stock of the corporation then outstanding
having the right to vote for such directors, order an election
to be held
to fill the vacancy or replace the directors selected by the directors
then in office.
|
||
|
|
|
Any
vacancy in the Sand Hill board of directors, including vacancies
resulting
from any increase in the authorized number of directors may be
filled by a
vote of the remaining directors then in office or by a sole remaining
director.
Sand
Hill’s bylaws provide that the entire board of directors or any individual
director may be removed from office with or without cause by a
majority
vote of the holders of the outstanding shares then entitled to
vote at an
election of directors.
|
|
A
vacancy occurring in the St. Bernard’s board of directors, including a
newly created directorship, may be filled by a majority of the
remaining
board of directors, although less than a quorum, or by a plurality
of the
votes cast at a stockholders’ meeting.
St.
Bernard’s bylaws provide that directors may be removed from office with
or
without cause by a vote of stockholders holding a majority of the
outstanding shares entitled to vote at an election of directors.
|
|
COMMITTEES
OF THE BOARD OF DIRECTORS
|
||||
|
|
|||
Sand
Hill’s board of directors may, by resolution passed by a majority of
the
board, designate one or more committees, each committee to consist
of two
or more members of the board. Any such committee shall have and
may
exercise all the powers and authority of the board of directors
in the
management of the business and affairs of Sand Hill, except: (i) the
power to amend the certificate of incorporation; (ii) the power to
adopt an agreement of merger or consolidation, (iii) recommend to
stockholders the sale, lease or exchange of all or substantially
all of
Sand Hill’s property and assets, (iv) recommend to stockholders a
dissolution of Sand Hill or a revocation of a dissolution; and
(v) the power to amend the bylaws. There is currently no sitting
committee.
|
|
St.
Bernard’s board of directors may, by resolution passed by a majority of
the whole board, designate one or more committees, each committee
to
consist of one or more members of the board. Any such committee,
shall
have and may exercise all the powers and authority of the board
of
directors in the management of the business. St. Bernard currently
has an
audit committee and a compensation committee.
|
||
|
||||
AMENDMENTS
TO THE CERTIFICATE OF INCORPORATION
|
||||
General.
Under
Delaware law, an amendment to the certificate of incorporation
of a
corporation generally requires the approval of the corporation’s board of
directors and the approval of the holders of a majority of the
outstanding
stock entitled to vote upon the proposed amendment (unless a higher
vote
is required by the corporation’s certificate of
incorporation).
|
||||
|
|
|||
Sand
Hill’s certificate of incorporation may be amended in accordance with
the
general provisions of Delaware law; provided, however, that Article
Sixth
of Sand Hill’s certificate of incorporation may not be amended prior to
the consummation of any business combination, whether by merger,
capital
stock exchange, asset or stock acquisition or other similar type
of
transaction, of a company in the entertainment, media and communications
industry.
|
|
St.
Bernard’s fifth restated certificate of incorporation may be amended in
accordance with the general provisions of Delaware
law.
|
AMENDMENTS
TO BYLAWS
|
||
|
||
General.
Under
Delaware law, stockholders entitled to vote have the power to adopt,
amend
or repeal bylaws. In addition, a corporation may, in its certificate
of
incorporation, confer this power on the board of directors. The
stockholders always have the power to adopt, amend or repeal the
bylaws,
even though the board of directors may also be delegated the
power.
|
||
|
|
|
Sand
Hill’s bylaws provide that the bylaws may be amended by stockholders
entitled to vote thereon at any regular or special meeting; provided,
however, that Section 3.2 of the bylaws may not be amended without
the
affirmative vote of at least 80 percent of the combined voting
stock of
the corporation.
|
|
St.
Bernard’s bylaws provide that the bylaws may be amended by the
stockholders of the corporation.
|
|
ABILITY
TO CALL SPECIAL MEETINGS OF STOCKHOLDERS
|
||
|
|
|
Special
meetings of the Sand Hill stockholders may be called for any purpose
by
the chairman of the board, the chief executive officer or the president,
and shall be called by the chairman, the chief executive officer,
the
president or the secretary on the written request of a majority
of the
board of directors; or at the written request in writing of stockholders
owning not less than 10% of shares of the entire capital stock
of Sand
Hill issued and outstanding and entitled to vote.
|
|
Special
meetings of the St. Bernard stockholders may be called at any time
by the
board of directors, the chairman of the board, or the
president.
|
NOTICE
OF STOCKHOLDER ACTION
|
Pursuant
to Sand Hill’s bylaws, at annual meetings of the stockholders only such
business shall be conducted as has been properly brought before
the
meeting. A written notice must be given prior to any meeting which
shall
state the place, date and hour of the meeting, and in the case
of a
special meeting, the purpose or purposes for which the meeting
is called.
The written notice must be given no less than 10 nor more than
60 days
before the date of the meeting.
|
|
Pursuant
to St. Bernard’s’ bylaws, annual meetings of the stockholders shall be
held each year for the election of directors and the transaction
of such
other business as may properly come before the meeting. A written
notice
must be given prior to any meeting which shall state the place,
date and
hour of the meeting, and in the case of a special meeting, the
purpose or
purposes for which the meeting is called. The written notice must
be given
no less than 10 nor more than 60 days before the date of the
meeting.
|
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
|
||
General.
Under
Delaware law, a corporation may generally indemnify directors,
officers,
employees and agents in connection with any proceeding (other than
an
action by or in the right of the corporation):
(i)
for actions taken in good faith and in a manner they reasonably
believed
to be in, or not opposed to, the best interests of the
corporation; and with respect to any criminal proceeding, if they had
no reasonable cause to believe that their conduct was
unlawful
In
addition, Delaware law provides that a corporation may advance
to a
director or officer expenses incurred in defending any action upon
receipt
of an undertaking by the director or officer to repay the amount
advanced
if it is ultimately determined that he or she is not entitled to
indemnification.
|
||
|
||
Sand
Hill’s bylaws provide that Sand Hill shall indemnify any person who
was or
is a party or threatened to be made a party to any threatened,
pending or
completed action, suite or proceeding, whether civil, criminal,
administrative or investigative by reason of the fact that he is
or was a
director, officer, employee or agent of Sand Hill, or is or was
servicing
at the request of Sand Hill as a director, officer, employee or
agent of
another corporation, partnership, joint venture, trust or other
enterprise, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of Sand
Hill, and,
with respect to any criminal action or proceeding, had no reasonable
cause
to believe his conduct was unlawful.
Sand
Hill’s bylaws further provide that any indemnification shall be made
by
Sand Hill only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent
is proper
in the circumstances because he has met the applicable standard
of conduct
set forth in such section. Such determination shall be made: (i) by
the board of directors by a majority vote of a quorum consisting
of
directors who were not parties to such action, suit or proceeding;
(ii) if such quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal
counsel
in a written opinion, or (iii) by stockholders.
Sand
Hill’s bylaws and certificate of incorporation provide that no director
or
officer of Sand Hill shall be personally liable to Sand Hill or
to any
stockholder for monetary damages for breach of fiduciary duty as
a
director or officer. However, liability of an officer or director
shall
not be limited (i) for any breach of the director’s or the officer’s
duty of loyalty to Sand Hill or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct
or a
knowing violation of law, (iii) under Section 174 of the DGCL,
or (iv) for any transaction from which the director or officer
derived an improper personal benefit.
Sand
Hill’s certificate of incorporation further provides that Sand Hill,
to
the fullest extent permitted by Section 145 of the DGCL, shall
indemnify all persons whom it may indemnify pursuant
thereto.
|
|
St.
Bernard’s’ bylaws provide that St. Bernard will indemnify and hold
harmless, to the fullest extent permitted by applicable law, any
person
who was or is a party to, is threatened to be made a party to,
or is
otherwise involved in, any threatened, pending or completed action,
suit
or proceeding, by reason of the fact that he or she, or a person
for whom
he or she is the legal representative, is or was a director or
officer of
St. Bernard or is or was serving at the request of St. Bernard
as a
director or officer of another corporation against all liability
and loss
suffered and expenses in any such proceeding; provided, however,
that St.
Bernard shall be required to indemnify a person listed above in
connection
with a proceeding initiated by such person only if the initiation
was
authorized by the board.
St.
Bernard’s fifth restated certificate of incorporation provides that (i)
the liability of each director shall be eliminated to the fullest
extent
permissible under California law and (ii) no director of St. Bernard
shall
have personal liability for monetary damages for breach of fiduciary
duty
as a director: provided, however, that the foregoing shall not
limit or
eliminate the liability of a director (i) for any breach of the
director’s
duty of loyalty to St. Bernard or its stockholders, (ii) for acts
or
omissions not in good faith or which involve intentional misconduct
or a
knowing violation of law, (iii) under Section 174 of the DGCL or
any
successor provision, or (iv) for any transaction from which such
director
derived an improper personal
benefit.
|
ST.
BERNARD SOFTWARE, INC.
|
|
REPORTS
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
|
F-2
|
ST.
BERNARD, INC. CONSOLIDATED FINANCIAL STATEMENTS
|
|
Consolidated
Balance Sheets for the years ended December 31, 2005 and
2004
|
F-4
|
Consolidated
Statements of Operations for the years ended December 31, 2005
and
2004
|
F-6
|
Consolidated
Statements of Stockholders’ Deficit for the years ended December 31, 2005
and 2004
|
F-7
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2005
and
2004
|
F-8
|
Notes
to Consolidated Financial Statements
|
F-10
|
SAND
HILL
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
|
SAND
HILL FINANCIAL
STATEMENTS
|
F-27
|
Balance
Sheet for December 31, 2004
|
F-28
|
Statements
of Operation for the year ended December 31, 2005, the period from
April
15, 2004 (inception) to December 31, 2004, and the period from
April 15,
2004 (inception) to December 31, 2005
|
F-29
|
Statement
of Cash Flow for the year ended December 31, 2005, the period from
April
15, 2004 (inception) to December 31, 2004, and the period from
April 15,
2004 (inception) to December 31, 2005
|
F-30
|
Statement
of Stockholders’ Equity for the year ended December 31, 2005, the period
from April 15, 2004 (inception) to December 31, 2004, and the period
from
April 15, 2004 (inception) to December 31, 2005
|
F-31
|
Notes
to Financial Statements
|
F-32
|
December
31,
|
2005
|
2004
|
|||||
Assets
|
|||||||
Current
Assets
|
|||||||
Cash
and cash equivalents
|
$
|
9,211
|
$
|
556,727
|
|||
Accounts
receivable - net of allowance for doubtful accounts
of
$489,000 and $344,000 in 2005 and 2004,
respectively
|
4,460,116
|
3,202,157
|
|||||
Inventories
|
566,897
|
629,240
|
|||||
Prepaid
expenses and other current assets
|
207,534
|
235,483
|
|||||
Deferred
income taxes
|
473,000
|
218,000
|
|||||
Total
current assets
|
5,716,758
|
4,841,607
|
|||||
Fixed
Assets - Net
|
1,456,989
|
1,867,493
|
|||||
Other
Assets
|
1,147,279
|
618,086
|
|||||
Goodwill
|
3,285,319
|
3,285,319
|
|||||
Deferred
Income Taxes
|
586,000
|
841,000
|
|||||
$
|
12,192,345
|
$
|
11,453,505
|
December
31,
|
2005
|
2004
|
|||||
Liabilities
and Stockholders’ Deficit
|
|||||||
Current
Liabilities
|
|||||||
Line
of credit
|
$
|
940,155
|
$
|
812,714
|
|||
Accounts
payable
|
2,092,218
|
2,617,524
|
|||||
Accrued
compensation expenses
|
1,239,594
|
1,297,554
|
|||||
Other
accrued expenses and other current liabilities
|
182,912
|
78,518
|
|||||
Note
payable to related party
|
178,322
|
178,322
|
|||||
Current
portion of capitalized lease obligations
|
39,089
|
40,710
|
|||||
Deferred
revenue
|
10,744,230
|
9,236,381
|
|||||
Total
current liabilities
|
15,416,520
|
14,261,723
|
|||||
Capitalized
Lease Obligations, Less Current Portion
|
4,874
|
39,549
|
|||||
Deferred
Revenue
|
5,326,288
|
3,963,868
|
|||||
Total
liabilities
|
20,747,682
|
18,265,140
|
|||||
Commitments
and Contingencies
|
|||||||
Stockholders’
Deficit
|
|||||||
Preferred
stock, $1.00 par value; 10,000,000 shares
authorized
and 0 shares issued and outstanding
|
-
|
-
|
|||||
Common
stock, $0.10 par value; 37,000,000 shares
authorized
and 23,197,068 and 20,859,821 shares
issued and
outstanding in 2005 and 2004, respectively
|
2,319,708
|
2,085,983
|
|||||
Additional
paid-in capital
|
18,137,632
|
17,153,616
|
|||||
Accumulated
deficit
|
(29,012,677
|
)
|
(26,051,234
|
)
|
|||
Total
stockholders’ deficit
|
(8,555,337
|
)
|
(6,811,635
|
)
|
|||
$
|
12,192,345
|
$
|
11,453,505
|
Years
Ended December 31,
|
2005
|
2004
|
|||||
Sales
|
|||||||
License
|
$
|
6,382,501
|
$
|
7,453,339
|
|||
Appliance
|
3,560,611
|
3,509,246
|
|||||
Subscription
|
14,042,129
|
10,211,014
|
|||||
Total
Sales
|
23,985,241
|
21,173,599
|
|||||
Cost
of Sales
|
|||||||
License
|
32,321
|
94,105
|
|||||
Appliance
|
3,161,421
|
2,620,177
|
|||||
Subscription
|
3,395,970
|
3,091,960
|
|||||
Total
Cost of Sales
|
6,589,712
|
5,806,242
|
|||||
Gross
Profit
|
17,395,529
|
15,367,357
|
|||||
Sales
and marketing expenses
|
10,399,127
|
12,246,302
|
|||||
Technical
operation expenses
|
6,987,082
|
8,439,300
|
|||||
General
and administrative expenses
|
2,679,020
|
2,455,651
|
|||||
Loss
from Operations
|
(2,669,700
|
)
|
(7,773,896
|
)
|
|||
Other
Income (Expense)
|
|||||||
Interest
expense
|
(262,573
|
)
|
(240,140
|
)
|
|||
Other
income (expense)
|
(18
|
)
|
5,032
|
||||
Total
Other Income (Expense)
|
(262,591
|
)
|
(235,108
|
)
|
|||
Loss
Before Income Taxes
|
(2,932,291
|
)
|
(8,009,004
|
)
|
|||
Income
tax benefit (expense)
|
(29,152
|
)
|
46,677
|
||||
Net
Loss
|
$
|
(2,961,443
|
)
|
$
|
(7,962,327
|
)
|
|
Basic
and Diluted Loss Per Common Share
|
$
|
(0.13
|
)
|
$
|
(0.39
|
)
|
|
Weighted
Average Shares Outstanding
|
22,156,573
|
20,503,473
|
Common
Stock
|
||||||||||||||||
Shares
|
Amount
|
Additional
Paid-in Capital
|
Accumulated
Deficit
|
Total
|
||||||||||||
Balance
at December 31, 2003
|
19,434,429
|
$
|
1,943,445
|
$
|
16,796,408
|
$
|
(18,088,907
|
)
|
$
|
650,946
|
||||||
Exercise
of stock options
|
1,425,392
|
142,538
|
357,208
|
-
|
499,746
|
|||||||||||
Net
loss
|
-
|
-
|
-
|
(7,962,327
|
)
|
(7,962,327
|
)
|
|||||||||
Balance
at December 31, 2004
|
20,859,821
|
2,085,983
|
17,153,616
|
(26,051,234
|
)
|
(6,811,635
|
)
|
|||||||||
Purchase
of stock and warrants
|
600,000
|
60,000
|
940,000
|
-
|
1,000,000
|
|||||||||||
Exercise
of stock options
|
109,632
|
10,963
|
10,366
|
-
|
21,329
|
|||||||||||
Exercise
of warrants
|
1,627,615
|
162,762
|
22,135
|
-
|
184,897
|
|||||||||||
Compensation
expense
|
-
|
-
|
11,515
|
-
|
11,515
|
|||||||||||
Net
loss
|
-
|
-
|
-
|
(2,961,443
|
)
|
(2,961,443
|
)
|
|||||||||
Balance
at December 31, 2005
|
23,197,068
|
$
|
2,319,708
|
$
|
18,137,632
|
$
|
(29,012,677
|
)
|
$
|
(8,555,337
|
)
|
Years
Ended December 31,
|
2005
|
2004
|
|||||
Cash
Flows From Operating Activities
|
|||||||
Net
loss
|
$
|
(2,961,443
|
)
|
$
|
(7,962,327
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
Depreciation
and amortization
|
612,375
|
536,980
|
|||||
Provision
for bad debts
|
144,991
|
106,257
|
|||||
Asset
impairment
|
128,931
|
-
|
|||||
Compensation
expense
|
11,515
|
-
|
|||||
Noncash
interest expense
|
7,033
|
36,562
|
|||||
Increase
(decrease) in cash resulting from changes in:
|
|||||||
Accounts
receivable
|
(1,402,950
|
)
|
476,590
|
||||
Inventories
|
62,343
|
(377,829
|
)
|
||||
Prepaid
expenses and other current assets
|
27,949
|
(194,085
|
)
|
||||
Other
assets
|
(23,242
|
)
|
-
|
||||
Accounts
payable
|
(525,306
|
)
|
1,864,342
|
||||
Accrued
expenses and other liabilities
|
46,435
|
184,260
|
|||||
Deferred
revenue
|
2,870,269
|
4,720,890
|
|||||
Net
cash used in operating activities
|
(1,001,100
|
)
|
(608,360
|
)
|
|||
Cash
Flows From Investing Activities
|
|||||||
Purchases
of fixed assets
|
(107,039
|
)
|
(857,867
|
)
|
|||
Other
assets
|
-
|
(186,195
|
)
|
||||
Net
cash used in investing activities
|
(107,039
|
)
|
(1,044,062
|
)
|
|||
Cash
Flows From Financing Activities
|
|||||||
Proceeds
from the issuance of common stock and warrants
|
1,000,000
|
-
|
|||||
Prepaid
merger costs
|
(736,748
|
)
|
-
|
||||
Proceeds
from exercise of warrants
|
184,897
|
-
|
|||||
Net
increase in line of credit
|
127,441
|
635,159
|
|||||
Principal
payments on capitalized lease obligations
|
(36,296
|
)
|
(36,583
|
)
|
|||
Proceeds
from stock option exercises
|
21,329
|
499,746
|
|||||
Net
cash provided by financing activities
|
560,623
|
1,098,322
|
|||||
Net
Decrease in Cash and Cash Equivalents
|
(547,516
|
)
|
(554,100
|
)
|
|||
Cash
and Cash Equivalents at Beginning of Year
|
556,727
|
1,110,827
|
|||||
Cash
and Cash Equivalents at End of Year
|
$
|
9,211
|
$
|
556,727
|
Years
Ended December 31,
|
2005
|
2004
|
|||||
Supplemental
Disclosures of Cash Flow Information:
|
|||||||
Cash
paid during the year for:
|
|||||||
Interest
|
$
|
245,579
|
$
|
208,040
|
|||
Income
taxes
|
$
|
-
|
$
|
82,250
|
|||
Noncash
Investing and Financing Activities:
|
|||||||
During
2004 the Company entered into capitalized lease obligations
for the purchase of $67,471 in fixed assets.
|
|||||||
During
2004 the Company acquired an equity interest in one of its
customers for $128,931, paid for by reducing the accounts receivable
from
the customer.
|
1.
|
Summary
of
Significant
Accounting
Policies
|
A
summary of the Company’s significant accounting policies consistently
applied in the preparation of the accompanying consolidated financial
statements follows.
|
Nature
of
operations
|
St.
Bernard Software, Inc.,
a
Delaware corporation (the “Company”) is
a software development firm specializing in the design and production
of innovative network systems management software. The Company
sells its products through distributors, dealers and original
equipment
manufacturers, and directly to network managers and administrators
worldwide. The Company’s corporate office and main operating facility is
located in California. During 1998 the Company established as
a
wholly-owned subsidiary, St. Bernard Software U.K Ltd., which
operates
primarily as a sales office in the United Kingdom.
During 2004 St. Bernard Software U.K. Ltd. opened a second
sales office in France. The consolidated financial statements
include the
accounts and transactions of the Company and its subsidiary.
All
intercompany accounts and transactions have been eliminated in
consolidation.
|
|
Use
of
estimates
|
The
preparation of the consolidated financial statements in
conformity with
generally accepted accounting principles requires management
to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates. Significant estimates used in preparing the consolidated
financial statements includes those assumed in computing the allowance
for uncollectible accounts receivable, the valuation allowance
on deferred tax assets, and in testing goodwill for
impairment.
|
|
Liquidity
|
At
December 31, 2005, the Company’s current liabilities exceeded
its current
assets by approximately $9,700,000 and the Company had a stockholders’
deficit of approximately $8,600,000. The Company expects
sufficient cash flows from operation during 2006, along with
its available
line of credit financing to cover its anticipated 2006 operating
expenses. The Company’s expenses consist primarily of variable
costs such as payroll and related expenses that can be reduced to
meet the operating needs of the Company. In addition, approximately
$10,700,000 of the current liability balance at December
31, 2005 consists of deferred revenues, which represents amounts
that will be amortized into revenue over time, as they are earned.
While
there are costs that will be incurred as these revenues are
earned, these costs are far less than the approximately
$10,700,000 recorded
as a current liability or the approximately $16,100,000 recorded
as a liability in total. In addition to focusing on cost containment,
the Company has also raised additional funds in 2005, as well
as entered
into an agreement through which it will be acquired by a
public blank check company (Note
12).
|
Liquidity
(Cont.)
|
However,
while the likelihood of a liquidity crisis is considered remote,
should one occur there are no guarantees that the Company would
obtain sufficient cash from outside sources on a timely basis. Management
does not believe the situation represents a significant risk
to the Company.
|
|
Fair
value of
financial
instruments
|
The
Company’s financial instruments whose fair value approximates their
carrying value due to the short-term nature of the instruments consist
of cash, accounts receivable, accounts payable, and accrued expenses.
The fair value of the Company’s obligations under its line of
credit and note payable to a related party approximates their carrying
value as the stated interest rates of these instruments
reflect rates
which are otherwise currently available to the Company.
|
|
Cash
and cash
equivalents
|
The
Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
|
|
Inventories
|
Inventories
are stated at the lower of cost (first-in, first-out) or
market, and
consist primarily of computer hardware. At December 31, 2005 and
2004, the Company has provided a reserve for obsolete
inventory of
approximately $86,000 and $144,000, respectively.
|
|
Capitalized
software
costs
and
research
and
development
|
The
Company’s research and development expenses include payroll, employee
benefits, stock-based compensation, off-shore development and
other
head-count related costs associated with product development.
Research and development costs totaled approximately $6,690,000
and
$8,130,000 in 2005 and 2004, respectively, and are included
in technical operations expense in the consolidated statement of
operations. In accordance with Statement of Financial
Accounting Standards
(SFAS) No. 86, “Accounting for the Costs of Computer Software
to be Sold, Leased, or Otherwise Marketed,” capitalization of
costs begins when technological feasibility has been established
and ends
when the product is available for general release to
customers. The
Company has determined that technological feasibility for its products
is reached after beta testing which is shortly before the products
are released to manufacturing/operations. Costs incurred after
technological feasibility is established are not material, and accordingly,
the Company expenses all research and development costs
when incurred. The technological feasibility of significant intellectual
property that is purchased has been established prior to the acquisition
and therefore the cost is capitalized.
|
|
Amortization
is computed on an individual-product basis using the straight-line
method over a useful life ranging from three to six years. Amortization
expense was approximately $90,000 and $72,000 for 2005
and 2004, respectively.
|
Capitalized
software
costs
and
research
and
development
(Cont.)
|
At
December 31, 2005 the unamortized balance of software development
costs was approximately $197,000. Estimated remaining annual
amortization of this asset is:
2006
$93,000
2007
$66,000
2008
$38,000
|
|
Fixed
assets
and
depreciation
|
Property
and equipment are carried at cost. Expenditures that extend the
life of the asset are capitalized and depreciated. Depreciation
and amortization
are provided using the straight-line method over the estimated
useful lives of the related assets or, in the case of
leasehold improvements,
over the lesser of the useful life of the related asset or the
lease term. Estimated useful lives of fixed assets range from
three to
eight years. Depreciation includes amortization expense for
assets capitalized
under capital leases. When there is an indication of possible
impairment, the Company tests fixed assets for impairment by
comparing the estimated undiscounted future cash flows to be generated
from the assets to their carrying value. Should the assets carrying
value exceed this amount, the assets are written down to their estimated
fair value.
|
|
Goodwill
|
The
Company accounts for goodwill, which arose through a business acquisition
made in 2000, in accordance with the provisions of SFAS No.
142. The
Company subjects the goodwill to an annual impairment
test. The impairment test consists of a comparison of the estimated
fair value of the reporting unit to which the goodwill has been
assigned to the sum of the carrying value of the assets and liabilities
of that reporting unit. The
fair value used in this evaluation is
based upon discounted future cash flow projections for the
reporting unit.
Based upon the results of the impairment test, management of the
Company has concluded there was no impairment of goodwill at either
December 31, 2005 or 2004.
|
|
Revenue
and
cost
recognition
|
The
Company recognizes revenue in accordance with Statement of Position
(“SOP”) 97-2, Software
Revenue Recognition,
as amended by SOP
98-4 and SOP 98-9, and the interpretations of Securities and Exchange
Commission Staff Accounting Bulletin (“SAB”) 104, Revenue
Recognition.
|
Revenue
and
cost
recognition
(Cont.)
|
The
Company generates revenue primarily by licensing software and providing
related software subscription and support to its customers. The
Company’s software arrangements typically include: (i) an end- user
license fee paid in exchange for the use of its products in perpetuity,
generally based on a specified number of payees; and (ii) a subscription
or support arrangement that provides for technical support
and product updates, generally over renewable twelve to thirty-six
month periods. The Company does not require customers to purchase
support and maintenance in conjunction with purchasing a software
license.
|
|
In
accordance with the aforementioned guidance, the Company recognizes
revenue when the following criteria are met: (i) persuasive evidence
of the customer arrangements exists, (ii) fees are fixed and determinable,
(iii) acceptance has occurred, and (iv) collectibility is deemed
probable. The Company determines the fair value of each element
in the arrangement based on vendor-specific objective evidence
(“VSOE”) of fair value. VSOE of fair value is based upon the
normal pricing and discounting practices for those products
and services
when sold separately.
|
||
The
Company recognizes revenue for software licenses at the time
of shipment
or delivery of the authorization code, provided that all revenue
recognition criteria set forth in SOP 97-2 are fulfilled. Revenues
from support and subscription agreements are recognized ratably
over the term of the support subscription period.
|
||
Sales
to the Company’s customers include multi-element arrangements
that include a delivered element (a software license) and undelivered
elements (such as subscription and support). In these instances,
the Company determines if these elements can be separated into
multiple units of accounting. The entire fee from the
arrangement is
allocated to each respective element based on its relative fair
value. Revenue
for each element is then recognized when revenue recognition
criteria for that element is met. If the Company cannot establish
fair value for any undelivered element, the Company would be
required to recognize revenue for the whole arrangement at the time
revenue recognition criteria for the undelivered element is
met. Fair
value for the delivered software element is based on the value received
in transactions in which the software is sold on a stand-alone basis.
Fair value for subscription is based on substantive renewal rates.
The Company records shipping costs in both revenue and cost of
revenue when it bills its customers for shipping. The costs
incurred for
shipping are reflected in cost of revenue but not recorded in revenue.
Discounts applied to multiple-element sales are allocated to the
elements based upon their respective VSOE of fair value (i.e.
the price
charged when the same element is sold
separately.
|
Revenue
and
cost
recognition
(Cont.)
|
The
Company nets advanced billing receivable
amounts for future unearned maintenance and support renewals
against the
related amount in deferred revenue until such time as the legal
right to
collection of the receivable amount has been
established.
|
||
The
Company generally does not grant a right of
return to its customers.
When a right of return exists, revenue is deferred until the right
of return expires, at which time revenue is recognized
provided that
all other revenue recognition criteria are met.
|
|||
Probability
of collection is assessed on a
customer-by-customer basis. The
Company’s customers are subjected to a credit review process that
evaluates the customers’ financial condition and ability to pay
for the
Company’s products and services. If it is determined from the outset
of an arrangement that collection is not probable based upon
the review
process, revenue is not recognized until cash is received. The Company
performs ongoing credit evaluations of its customers’ financial
condition and maintains an allowance for doubtful accounts. The
Company analyzes accounts receivable and historical bad debts, customer
concentrations, customer solvency, current economic and geographic
trends, and changes in customer payment terms and practices
when evaluating the adequacy of such allowance, and any changes
are expensed as bad debt expense which is included in general
and administrative expense.
|
|||
Deferred
revenue
|
Revenues
from support and subscription
agreements are recognized ratably
over the term of the support subscription period. The Company
has contracts that extend to 2011. Post
contract subscription
and support revenues will be recognized over the following
periods:
|
||
Year
Ending December 31,
|
|||
2006
|
$10,744,000
|
||
2007
|
3,498,000
|
||
2008
|
1,507,000
|
||
2009
and further
|
321,000
|
||
Total
|
$16,070,000
|
||
Foreign
currency
|
The
functional currency of the Company’s
foreign operations is the U.S.
dollar. Monetary assets and liabilities of the foreign
operations are
translated into U.S. dollars at the exchange rate in effect at
the balance
sheet date while nonmonetary items are translated at
historical rates.
Revenues and expenses are translated at average exchange rates during
the period. Remeasurement gains or losses are recognized currently
in consolidated operations. For 2005 and 2004, such gains and
losses were insignificant.
|
Stock
options
|
The
Company applies Accounting Principles Board Opinion (“APB”) No.
25, “Accounting for Stock Issued to Employees,” and related Interpretations
in accounting for all stock option plans. Under APB No.
25, compensation cost is recognized for stock options granted
to employees
when the option price is less than the market price of the underlying
common stock on the date of grant. SFAS No. 123, “Accounting
for Stock-Based Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure,” require
the Company to provide pro forma information
regarding net loss as if compensation cost for the Company’s
stock option plans had been determined in accordance with
the fair value based method prescribed in SFAS No. 123. To provide
the required pro forma information, the Company estimates the
fair value of each stock option at the grant date by using the Minimum
Value Method. SFAS No. 148 also provides for alternative methods
of transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. The Company
has elected to continue to account for stock-based compensation
under APB No. 25.
|
|
Years
Ended December 31,
|
2005
|
2004
|
||||||
Net
loss as reported
|
$
|
(2,961,443
|
)
|
$
|
(7,962,327
|
)
|
||
Compensation
expense
|
(20,281
|
)
|
(15,105
|
)
|
||||
Net
loss pro forma
|
$
|
(2,981,724
|
)
|
$
|
(7,977,432
|
)
|
||
Net
loss per share - as reported
|
$
|
(0.13
|
)
|
$
|
(0.39
|
)
|
||
Net
loss per share - pro forma
|
$
|
(0.13
|
)
|
$
|
(0.39
|
)
|
Loss
per share
|
Basic
loss per share is calculated by dividing net loss by the
weighted- average
number of shares of common stock outstanding. Diluted loss per
share includes the components of basic loss per share and also gives
effect to dilutive common stock equivalents. Potentially
dilutive common
stock equivalents include stock options and warrants. At December
31, 2005 and 2004, options to acquire 1,357,116 and 1,393,321
shares of the Company’s common stock and warrants to acquire
1,165,000 and 1,792,615 shares of the Company’s common stock
were excluded from the computation of diluted loss per share
as they
were antidilutive.
|
|
Income
taxes
|
Deferred
income taxes are recognized for the tax consequences in future
years of differences between the tax basis of assets and liabilities
and their financial reporting amounts at each year end based on
enacted tax laws and statutory tax rates applicable to the periods
in which
the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense
is the combination of the tax payable for the year and the change
during the year in deferred tax assets and
liabilities.
|
Advertising
|
The
Company expenses advertising costs as incurred. Advertising expenses
were approximately $1,561,000 and $1,933,000 for 2005 and
2004, respectively.
|
|
Guarantees
and
warranty
obligations
|
The
Company’s customer agreements generally include certain provisions
for indemnifying such customers against liabilities if the Company’s
products infringe a third party’s intellectual property rights.
To date, the Company has not incurred any material costs as a result
of such indemnifications and has not accrued any liabilities related
to such obligations in the accompanying financial statements. The
Company accrues for warranty expenses as part of its cost of revenue
at the time revenue is recognized and maintains an accrual for estimated
future warranty obligations based upon the relationship between
historical and anticipated warranty costs and revenue volumes.
Historically, warranty expenses have not been significant. If actual
warranty expenses are greater than those projected, additional obligations
and other charges against earnings may be required. If actual
warranty expenses are less than projected, prior obligations could
be reduced, providing a positive impact on reported results.
The Company
generally provides a one-year warranty on hardware products
and a 60-day warranty on software products.
|
|
New
accounting
standards
|
In
December 2004 the FASB issued SFAS No. 123R, Share-Based Payment,
an amendment of SFAS Nos. 123 and 95. SFAS No. 123R eliminates
the ability to account for share-based compensation transactions
using APB 25 and requires that such transactions be accounted
for using a fair-value-based method and recognized as expenses
in the statement of operations. SFAS No. 123R allows for the
use of a modified version of prospective application, which requires
that the fair value of new awards granted after the effective date
of SFAS No. 123R, plus unvested awards at the date of
adoption, be
expensed over the applicable vesting period. The provisions of SFAS
No. 123R will be effective for interim or annual reporting periods
beginning after December 15, 2005. The
Company is currently
evaluating the impact the implementation guidance and revisions
included in SFAS No. 123R will have on its consolidated financial
statements.
|
|
In
November 2004, FASB issued SFAS No. 151 ”Inventory Costs an Amendment
of ARB No. 43 Charter 4” (“FAS 151”). FAS 151 requires
that items such as idle facility expense, excessive spoilage, double
freight, and re-handling be recognized as current period
charges rather
than included in inventory regardless of whether the costs
meet the
criterion of abnormal as defined in ARB 43. FAS 151 is applicable
for
inventory costs incurred during fiscal years beginning after
June 15,
2005. The Company will adopt this standard beginning in the first
quarter
2006 and does not believe the adoption will have a material impact
on the
financial statements as such costs have historically been expensed
as
incurred.
|
New
accounting
standards
(Cont.)
|
In
May 2005, the FASB issued SFAS 154, Accounting Changes and Error
Corrections, a replacement of APB 20, Accounting Changes and SFAS
3 Reporting Accounting Changes in Interim Financial Statements.
SFAS 154 requires retrospective application to prior periods’
financial statements of a voluntary change in accounting principle
unless it is impracticable. SFAS 154 improves financial reporting
because its requirements enhance the consistency of financial information
between periods. SFAS 154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after December
15, 2005. The Company is required to adopt the provisions of
SFAS 154 in its first fiscal quarter of fiscal 2006. We do not
expect the
adoption of this statement to have a material impact on our financial
position or results of operations.
|
|
Reclassifications
|
Certain
amounts in the 2004 financial statements have been reclassified
to conform with the 2005 classifications. These reclassifications
have no effect on reported net income.
|
|
2. |
Fixed
Assets
|
Fixed
assets consisted of the following:
|
December
31,
|
2005
|
2004
|
||||||
Computer
equipment
|
$
|
2,526,058
|
$
|
2,461,682
|
||||
Computer
software
|
1,222,274
|
1,184,366
|
||||||
Office
furniture
|
903,759
|
901,724
|
||||||
Office
equipment
|
270,051
|
267,331
|
||||||
Leasehold
improvements
|
211,455
|
211,455
|
||||||
5,133,597
|
5,026,558
|
|||||||
Less
accumulated depreciation and amortization |
(3,676,608
|
)
|
(3,159,065
|
)
|
||||
$
|
1,456,989
|
$
|
1,867,493
|
|||||
|
||||||||
Depreciation
and amortization expense was approximately $518,000and $464,000 for
2005 and 2004, respectively.
|
3. |
Other
Assets
|
Other
assets consisted of the following:
|
December
31,
|
2005
|
2004
|
||||
Merger
costs - legal and accounting
|
$
|
736,748
|
$
|
-
|
||
Capitalized
software costs net of
|
||||||
amortization
|
197,187
|
292,020
|
||||
Investment
in joint venture
|
-
|
128,931
|
||||
Security
deposits
|
213,344
|
190,102
|
||||
Prepaid
interest on warrants net of
|
||||||
amortization
|
-
|
7,033
|
||||
$
|
1,147,279
|
$
|
618,086
|
4.
|
Line
of Credit
|
The
Company has a $1,250,000 line of credit with a finance company that
automatically renews every six months. The line of credit provides
for advances of up to 80% of eligible accounts receivable. Interest
is payable monthly at 1.5% per month (18% per annum). The agreement
includes a provision for a 1% annual renewal fee and a 1% per
annum charge for the average daily unused portion of the line. The
agreement may be terminated without penalty but requires
thirty days
notice. The line of credit is secured by all of the assets of
the Company
and all assets acquired by the Company during the term of the
agreement. The Company is required to apply all accounts receivable
proceeds against the outstanding line of credit balance upon
receipt. At December 31, 2005 the remaining borrowing availability
was approximately $310,000.
|
5.
|
Note
Payable to
a
Related Party
|
At
December 31, 2005 and 2004, the Company owed approximately $178,000
to its chief executive officer pursuant to the terms of a promissory
note. The note is unsecured, bears interest at 18%, and requires
monthly interest only payments until May 2006, at which time
all amounts outstanding come due.
|
6.
|
Income
Taxes
|
The
Company’s income tax provision (benefit) consists of the following
components:
|
Year
ending December 31, 2005
|
||||||||
Current
|
Deferred
|
Total
|
||||||
Federal
|
$
|
2,430
|
$
|
-
|
$
|
2,430
|
||
State
|
1,318
|
-
|
1,318
|
|||||
Foreign
|
25,404
|
-
|
25,404
|
|||||
$
|
29,152
|
$
|
-
|
$
|
29,152
|
Income taxes (Cont.) |
Year
ending December 31, 2004
|
|||||||||
Current
|
Deferred
|
Total
|
||||||||
Federal
|
$
|
(73,978
|
)
|
$
|
-
|
$
|
(73,978
|
)
|
||
State
|
1,250
|
-
|
1,250
|
|||||||
Foreign
|
26,051
|
-
|
26,051
|
|||||||
$
|
(46,677
|
)
|
$
|
-
|
$
|
(46,677
|
)
|
Deferred income tax assets and liabilities consist of the following: |
December
31,
|
2005
|
2004
|
||||||
Allowance
for doubtful accounts
|
$
|
195,000
|
$
|
137,000
|
||||
Inventory
|
35,000
|
58,000
|
||||||
Fixed
assets
|
68,000
|
128,000
|
||||||
Accrued
compensation
|
184,000
|
107,000
|
||||||
Deferred
revenue
|
4,800,000
|
3,440,000
|
||||||
Other
|
34,000
|
3,000
|
||||||
Net
operating loss carryforwards
|
2,712,000
|
2,913,000
|
||||||
Tax
credits carryforwards
|
2,142,000
|
1,646,000
|
||||||
10,170,000
|
8,432,000
|
|||||||
Valuation
allowance
|
(9,111,000
|
)
|
(7,373,000
|
)
|
||||
Net
deferred tax asset
|
$
|
1,059,000
|
$
|
1,059,000
|
A reconciliation of the actual income tax benefit recorded to that based upon expected federal tax rates is as follows: |
2005
|
2004
|
|||||||
Expected
federal tax benefit
|
$
|
1,046,000
|
$
|
2,723,000
|
||||
Expected
state benefit, net of federal
|
||||||||
tax
effect
|
404,000
|
480,000
|
||||||
Change
in valuation allowance
|
(1,738,000
|
)
|
(3,639,000
|
)
|
||||
Tax
credits and other
|
294,000
|
827,000
|
||||||
Permanent
differences and other
|
(10,000
|
)
|
||||||
Foreign
tax
|
(25,000
|
)
|
(344,000
|
)
|
||||
$
|
(29,000
|
)
|
$
|
47,000
|
Income
taxes
(Cont.)
|
FASB
Statement No. 109 requires that the Company reduce its deferred
tax assets
by a valuation allowance if, based on the weight of the available
evidence, it is more likely than not that all or a portion of
a deferred
tax asset may not be realized. The ultimate realization of deferred
tax
assets is dependent upon the generation of future taxable income
during
the periods in which those temporary differences are deductible.
As of
December 31, 2005 and 2004, the Company had deferred tax assets
arising
from deductible temporary differences, tax losses, and tax credits
before
being offset against certain deferred tax liabilities
and a valuation allowance. Primarily due to differences between
the recognition of revenue between financial reporting and income
tax basis, the Company has historically had years in which it reported
a loss for financial reporting purposes but taxable income in its
income tax returns. This situation occurred in the current year
as well
as in 2003 and, based on currently available evidence, management
believes it is more likely than not that the Company will generate
taxable income in 2006 and is projected to generate taxable income
in 2007. Based on this analysis, management believes it is more
likely than not that approximately $1,100,000 of its overall deferred
tax asset will be utilized. Accordingly as of December 31, 2005
and 2004, a valuation allowance of $9,111,000 and $7,373,000, respectively,
has been recorded against the deferred tax asset for the benefits
of tax loss carryforwards that may not be realized. The Company
will continue to evaluate the realizability of the deferred
tax assets
quarterly by assessing the need for and amount of the
valuation allowance.
|
|
At
December 31, 2005 and 2004, the Company had federal net operating
loss carryforwards of approximately $7,063,000 and $7,600,000
and state net operating loss carryforwards of approximately
$5,300,000 and $5,800,000, respectively. The federal and
state tax net operating loss carryforwards will begin to expire
in 2015
and 2010, respectively. Approximately $1,900,000 of the Company’s
net operating loss carryforwards available for federal tax purposes
are subject to annual limitation usage restrictions.
|
||
Additionally,
at December 31, 2005 the Company has tax credit carryforwards,
primarily arising from its research and development activities,
available to offset future federal and state income taxes of approximately
$1,335,000 and $1,221,000, respectively. The federal tax
credits expire in 2021 through 2024 and the state research tax credits
have no expiration.
|
||
7. |
Stockholders’
Deficit
|
|
Capital
structure
|
The
Company is authorized to issue up to 37,000,000 shares of common
stock with a $0.10 par value and 10,000,000 shares of preferred
stock with a $1.00 par value. Common shares are voting shares
with equal dividend participation, if and when declared, and equal
rights in the event of liquidation. The Company has not issued any
preferred shares. Preferred shares may be issued in one or
more series,
and the Board of Directors is authorized to determine the rights,
preferences, privileges and restrictions of each series of preferred
shares upon issuance.
|
Stock
option
plans
|
The
Company has non-qualified and incentive stock option plans (together,
the “Plans”) providing for the issuance of options to employees
and others as deemed appropriate by the Board of Directors.
Terms of options issued under the Plans include an exercise
price equal to the estimated fair value (as determined by the Board
of Directors) at the date of grant, vesting periods generally between
three to five years, and expiration dates not to exceed ten years
from date of grant. The determination of fair value of the Company’s
stock is highly subjective. At each of the option grant dates,
the Company performed an analysis of the estimated fair value of
the common stock at that date. The analysis consisted of
various considerations,
including the Company’s financial performance, future financial
projections, general industry and economic factors, and then- market
valuations afforded to publicly traded companies which the Company
viewed as comprising a representative peer group.
|
|
In
2005, the Company adopted the St Bernard Software 2005 Stock Option
Plan (the “2005 Plan”). Under the 2005 Plan, the Company has
the ability to grant options to acquire up to 5,000,000 shares
of
its common
stock to employees and others. Following the adoption of the
2005 Plan, the Company granted options to acquire 205,000
shares of
common stock to various employees at a per share price of
$0.34. Subsequent
to granting the options, the Company reduced the vesting period
of the options. This modification of terms gave rise to a new measurement
date for accounting purposes for the options. However, the
Company currently estimates that few of the grantees will
directly benefit
from the option modification due to the short term nature of the
original vesting period and the limited size and employment
status of
the grantees. The Company recognized $11,515 of compensation expense
in 2005 for the sole employee who benefited from the modification.
The Company also granted options to acquire 92,000 and
16,000 shares of common stock to various employees at a per share
price of $0.34 and $1.25, respectively. At December 31, 2005, there
were 4,687,000 options available for grant under the 2005 Option
Plan
|
||
The
fair value of each option is estimated on the date of grant
using the
Minimum Value Method with the following weighted-average assumptions:
no volatility, a risk-free interest rate of 4.00% to 4.57% and
2.80% to 3.17% for 2005 and 2004, respectively, an expected
life of
four years, and dividend yield of
zero.
|
Stock option
plans (Cont.)
|
A summary of the Company’s stock option activity is as follows: |
|
||||
|
|
|||||
Number
of
Shares
Outstanding
|
Weighted
Average
Exercise
Price
|
|||||
Options
outstanding at December 31, 2003
|
2,675,102
|
$
|
0.36
|
|||
Granted
|
207,500
|
$
|
0.25
|
|||
Exercised
|
(1,425,392
|
)
|
$
|
0.35
|
||
Forfeited
|
(63,889
|
)
|
$
|
0.37
|
||
Options
outstanding at December 31, 2004
|
1,393,321
|
$
|
0.36
|
|||
Granted
|
313,000
|
$
|
0.39
|
|||
Exercised
|
(109,632
|
)
|
$
|
0.19
|
||
Forfeited
|
(239,573
|
)
|
$
|
0.40
|
||
Options
outstanding at December 31, 2005
|
1,357,116
|
$
|
0.37
|
|||
Additional
information regarding options
outstanding as of December 31, 2005 is as
follows:
|
Weighted
|
||||||||||
Range
|
Average
|
Weighted
|
Weighted
|
|||||||
of
|
Number
of
|
Remaining
|
Average
|
Average
|
||||||
Exercise
|
Shares
|
Contractual
|
Exercise
|
Number
|
Exercise
|
|||||
Prices
|
Outstanding
|
Life
in Years
|
Price
|
Exercisable
|
Price
|
|||||
$
|
0.11
|
41,000
|
0.64
|
$
|
0.11
|
41,000
|
$
|
0.11
|
||
$
|
0.25
|
512,090
|
7.10
|
$
|
0.25
|
441,090
|
$
|
0.25
|
||
$
|
0.34
|
283,346
|
9.23
|
$
|
0.34
|
111,085
|
$
|
0.34
|
||
$
|
0.50
|
504,680
|
4.34
|
$
|
0.50
|
504,680
|
$
|
0.50
|
||
$
|
1.25
|
16,000
|
9.83
|
$
|
1.25
|
500
|
$
|
1.25
|
||
1,357,116
|
6.35
|
$
|
0.37
|
1,098,355
|
$
|
0.37
|
At
December 31, 2004, options to purchase 1,141,797 shares of the Company’s
common stock were exercisable, at a weighted average exercise
price of $0.38. The weighted average fair value of each option
granted during the years ended December 31, 2005 and 2004 was
$0.12 and $0.07, respectively.
|
||
Warrants
|
As
of December 31, 2005 and 2004, a total of 1,165,000 and 1,792,615
shares of common stock were reserved for issuance for the exercise
of warrants at exercise prices of $0.50, $1.25 and $2.29 per share.
|
|
Warrants
(Cont.)
|
In
July 2005, the Company obtained approximately $1,000,000 through
the offering of 200,000 units to an investor affiliated with
a member
of the board of directors. Each unit consisted of three shares of
common stock, as well as a warrant to acquire an additional
five shares
of common stock at a per share price of $1.25. The warrants expire
in December 2008 and may be exercised using net share settlement,
to the extent the value of the Company’s common stock exceeds
the exercise price of the warrants. Under no circumstances is the
Company required to settle the warrants by a payment of cash. Further,
the Company has no obligation to register the shares into which
the warrants are exercisable. The common stock and warrants sold
provide certain anti-dilution rights to the investor.
|
|
In
December 2000 warrants were issued to purchase 165,000 shares
of the
Company’s stock in conjunction with the Company’s acquisition by
merger of Internet Products, Inc. The warrants expire in
August, 2006
and 35,000 of the warrants have an exercise price of $2.29 and 130,000
have an exercise price of $0.50.
|
||
In
June 1997 a warrant to purchase 1,627,615 shares of the
Company’s common
stock at and exercise price of $0.11 was issued in conjunction
with a note payable to a shareholder. In May 2001 the Company
extended the expiration date of 1,627,615 warrants for four years
to June 2005 in exchange for an agreement with the shareholder for
an unsecured loan in the amount of $300,000. Accordingly, the Company
recorded prepaid interest expense in the amount of $135,000,
based on the estimated fair value allocated to the warrants using
the minimum value method and the following assumptions; no volatility,
risk free interest rate of 4.57%, an expected life of four years
and no dividends. The Company amortized approximately $7,000
and $37,000 of the prepaid interest to expense in 2005 and 2004,
respectively. The Company reported no prepaid interest in 2005 and
$7,000 of prepaid interest in other assets on the accompanying consolidated
balance sheets in 2004. In 2005 all of the warrants under this
agreement were exercised.
|
||
8. |
Employee
Benefits
|
The
Company has a qualified 401(k) profit sharing plan (the
“Plan”) which
covers substantially all employees. Company contributions are discretionary
and are generally allocated to Plan participants based on compensation
levels. Benefits vest ratably over three years beginning with
the employees’ first year of service, with 100% vesting immediately
upon death or disability. Vested benefits are paid in the form
of a lump sum or annuity upon retirement, death, disability or termination.
The Company contributed approximately $351,000 and $351,000
to the Plan in 2005 and 2004,
respectively.
|
9. |
Related
Party
Transactions
|
During
2004 the Company purchased 10% of the common stock of one
of its customers for approximately $128,000, which was carried
at cost
and was included in other assets. The purchase was financed through
a reduction of the customer’s accounts receivable balance. As a
result of discussions with the customer, the Company determined
its investment
to be impaired and elected to write off the asset as of December
31, 2005.
|
In
2005, the Company sold a product source code license to this customer.
The revenue earned on the transaction was $1,200,000. Total
sales to the customer were approximately $1,331,000 and $600,000
in 2005 and 2004, respectively. There is no account receivable
balance at December 31, 2005 and approximately $172,000 is
included in accounts receivable from the customer at December
31, 2004.
|
||
An
option-holder and member of the Board of Directors provides
legal services
to the Company in the ordinary course of business. Therefore, amounts
due to this related party's firm exist throughout the
year. Payments
to the related party in 2005 and 2004 were $265,000 and $67,000,
respectively. Amounts due at December 31, 2005 and 2004 were
$193,000 and $27,000,
respectively.
|
10. |
Commitments
and
Contingencies
|
|
Operating
leases
|
The
Company leases its operating facilities and certain equipment under
non-cancelable operating leases with various expiration dates through
December 2010. Future minimum payments under operating leases
are as follows:
|
Year
Ending December 31,
|
||||
2006
|
$
|
1,153,841
|
||
2007
|
1,177,234
|
|||
2008
|
1,156,689
|
|||
2009
|
1,195,887
|
|||
2010
|
1,236,364
|
|||
Total
|
$
|
5,920,015
|
Operating
leases
(Cont.)
|
Future
minimum lease payments include approximately $57,000 per annum
related to
a lease for office space in the United Kingdom, which expires
in September
2007. The terms of this lease include a cancellation clause whereby
the
lessor or the lessee may terminate the agreement upon a minimum
of
six-months written notice. The dollar value of these payments
through
September 2007 was converted using the
value of the British Pound at December 31, 2005. Actual future cash
payments may fluctuate with changes in currency exchange
rates. Facilities
rent expense totaled approximately $1,235,000 and $1,120,000
in 2005 and 2004, respectively. To
the extent the Company’s
operating leases provide for escalating rents during the term
of the lease, the Company recognizes rent expense on a
straight line
basis based upon the average monthly contractual lease
amount.
|
|
Included
in other assets at December 31, 2005 and 2004 are security deposits
related to leased assets of approximately $177,000 in both years.
|
Capital
leases
|
The
Company leases certain equipment under non-cancelable capital leases,
which were included in fixed assets as
follows:
|
December
31,
|
2005
|
2004
|
||||||
Software
|
$
|
85,206
|
$
|
85,206
|
||||
Computer
equipment
|
37,721
|
37,721
|
||||||
122,927
|
122,927
|
|||||||
Less
accumulated
|
||||||||
depreciation
|
(54,062
|
)
|
(28,431
|
)
|
||||
$
|
68,865
|
$
|
94,496
|
|||||
Depreciation expense related to these capitalized lease obligations was approximately $26,000 and $24,000 during 2005 and 2004, respectively. | ||||||||
Future minimum lease payments are as follows: |
Year
Ending December 31,
|
|||||
2006
|
$
|
43,957
|
|||
2007
|
5,003
|
||||
Total
minimum lease payments
|
48,960
|
||||
Amount
representing interest
|
(4,997
|
)
|
|||
Present
value of minimum lease payments
|
43,963
|
||||
Less
current portion
|
(39,089
|
)
|
|||
Long-term
portion
|
$
|
4,874
|
Litigation
|
In
the normal course of business, the Company is occasionally
named as
a defendant in various lawsuits. It is the opinion of
management that
the outcome of any pending lawsuits will not materially affect the
operations, financial position or cash flows of the
Company.
|
Software
license
agreement
|
The
Company has entered into a software license agreement with
a third
party pursuant to which the Company obtained the right to use certain
of the third party's software within one of the Company's products.
Pursuant to terms of the agreement, the Company was obligated
to pay the third party $100,000 upon commercial release of the
product, which occurred in 2005, as well as eight quarterly payments
of approximately $72,000 and a 10% royalty on sales of the
product in excess of $15,000,000 occurring during the term
of
the agreement. The
Company elected to terminate the contract in January
of 2006 pursuant to the terms of the agreement. The Company
will have no further obligation to the third party.
|
|
Miscellaneous
contingency
|
In
January of 2006, an enterprise wide review of job descriptions
and employee
classifications was conducted by the company. Based upon
current responsibilities, certain exempt /non exempt classifications
were updated. Any changes in classifications will be implemented
going forward.
|
|
As
a result of the update in employee classifications, there could
be potential
assertions from current and former employees that they were
entitled to certain benefits under a non exempt classification pursuant
to the Fair Labor Standards Act and state law.
|
||
In
accordance with SFAS No. 5, “Accounting for Contingencies”,
the Company
has not recorded a provision since there are no pending claims
and it is not probable that a claim will be asserted. The amount
of any potential loss cannot be reasonably estimated.
|
||
Termination
fee
|
See
Note 12.
|
|
11.
|
Concentrations
|
|
Credit
risk
|
Financial
instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and accounts receivable. Credit
risk with respect to accounts receivable is mitigated
by the large number of geographically diverse
customers.
|
|
The
Company maintains cash balances at various financial institutions
primarily located in the United States and Europe. Accounts
at US institutions are secured by the Federal Deposit Insurance
Corporation up to $100,000. At times, balances may exceed
federally insured limits. The Company has not experienced any
losses in such accounts. Management believes that the Company is
not exposed to any significant credit risk with respect to
its
cash and
cash equivalents.
|
Supplier
|
During
2005 the Company had a major vendor that accounted for approximately
$1,900,000 (17.3%) of the Company’s total purchases. At
December 31, 2005 and 2004, the amount payable to this vendor was
approximately $400,000 and $204,000 respectively. During the
year ended
December 31, 2004, the Company purchased approximately
$1,800,000 from this vendor. While the Company believes
other suppliers are available if the vendor unexpectedly stops
supplying the product, the Company could experience an interruption
in its ability to supply its customers.
|
|
Sales
and
revenue
|
The
Company considers itself to operate within one business segment,
Secure Content Management (SCM). For the years ended December
31, 2005 and 2004, approximately 90% of the Company’s billings
were in North America, the remaining 10% were disbursed over
the rest of the world.
|
|
12.
|
Significant
Agreements
|
|
In
October 2005, the Company entered into an agreement pursuant
to which
it agreed to merge with a public “blank check company”. Although
no assurances can be provided that the merger will occur, upon
completion of the transaction the Company will end up with
a controlling
interest in the newly combined entity. Under certain circumstances,
should the merger not occur, the Company may be obligated
to pay a termination fee of $1,750,000 plus additional costs of
up to $300,000 to the public company. As of December 31, 2005 the
merger had not yet occurred.
|
ASSETS
|
December
31, 2005
|
December
31, 2004
(Restated)
|
|||||
Current
assets:
|
|||||||
Cash
|
$
|
73,596
|
$
|
783,133
|
|||
Treasury
bill held in trust
|
21,730,543
|
21,100,510
|
|||||
Prepaid
expenses
|
11,789
|
132,131
|
|||||
Total
current assets
|
21,815,928
|
22,015,774
|
|||||
Total
Assets
|
$
|
21,815,928
|
$
|
22,015,774
|
|||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
Current
Liabilities:
|
|||||||
Accounts
payable and accrued expenses
|
$
|
254,955
|
$
|
15,772
|
|||
Total
Liabilities
|
254,955
|
15,772
|
|||||
Common
stock subject to shareholder’s right to conversion; 821,589
shares at conversion value
|
4,343,935
|
4,217,992
|
|||||
Stockholders’
Equity:
|
|||||||
Preferred
stock, $0.01 par value
Authorized
5,000,000 shares; none issued
|
--
|
--
|
|||||
Common
stock, $0.01 par value
|
|||||||
Authorized
50,000,000 shares
|
|||||||
Issued
and outstanding, 5,110,000 (including the
821,589 subject to conversion)
and 1,000,000 shares, respectively
|
42,884
|
42,884
|
|||||
Additional
paid-in capital
|
17,692,455
|
17,789,033
|
|||||
Deficit
accumulated during the development stage
|
(518,301
|
)
|
(49,907
|
)
|
|||
Total
Stockholders’ Equity
|
17,217,038
|
17,782,010
|
|||||
Total
Liabilities and Stockholders’ Equity
|
$
|
21,815,928
|
$
|
22,015,774
|
Twelve
months ended December
31, 2005
|
Period
from April 15, 2004 (inception) to December
31, 2004
|
Period
from April 15, 2004 (inception) to December
31, 2005
|
||||||||
Professional
Fees
|
$
|
(530,157
|
)
|
$
|
(32,500
|
)
|
$
|
(562,657
|
)
|
|
Facilities
|
(90,000
|
)
|
(37,500
|
)
|
(127,500
|
)
|
||||
Director
and Officer Insurance
|
(123,364
|
)
|
(51,408
|
)
|
(174,772
|
)
|
||||
Travel,
Lodging and Meals
|
(112,692
|
)
|
(34,360
|
)
|
(147,052
|
)
|
||||
State
Franchise Taxes
|
(103,733
|
)
|
--
|
(103,733
|
)
|
|||||
Other
Operating Expense
|
(146,901
|
)
|
(36,178
|
)
|
(183,079
|
)
|
||||
Operating
loss
|
(1,106,847
|
)
|
(191,946
|
)
|
(1,298,793
|
)
|
||||
Interest
income
|
638,453
|
142,039
|
780,492
|
|||||||
Net
loss
|
$
|
(468,394
|
)
|
$
|
(49,907
|
)
|
$
|
(518,301
|
)
|
|
Weighted
Average Shares Outstanding
|
5,110,000
|
3,468,784
|
4,433,893
|
|||||||
Net
Loss Per Share (Basic and Diluted)
|
$
|
(0.09
|
)
|
$
|
(0.01
|
)
|
$
|
(0.12
|
)
|
For
the twelve months ending December 31, 2005
|
Period
from April 15, 2004 (inception) to December 31,
2004
|
Period
from April 15, 2004 (inception) to December 31,
2005
|
||||||||
CASH
FLOW FROM OPERATING ACTIVITIES
|
||||||||||
Net
loss
|
$
|
(468,394
|
)
|
$
|
(49,907
|
)
|
$
|
(518,301
|
)
|
|
Stock
compensation related to issuance of Advisory
Board options
|
29,364
|
2,447
|
31,811
|
|||||||
Accretion
of treasury bill
|
(630,033
|
)
|
(75,510
|
)
|
(705,543
|
)
|
||||
Decrease
(Increase) in prepaid expenses
|
120,343
|
(132,131
|
)
|
(11,788
|
)
|
|||||
Increase
in accounts payable and accrued expenses
|
239,183
|
15,772
|
254,955
|
|||||||
Net
cash used in operating activities
|
(709,536
|
)
|
(239,329
|
)
|
(948,866
|
)
|
||||
CASH
FLOW FROM INVESTING ACTIVITIES
|
||||||||||
Purchase
of treasury bill in trust account
|
--
|
(21,025,000
|
)
|
(21,025,000
|
)
|
|||||
Net
cash used in investing activities
|
--
|
(21,025,000
|
)
|
(21,025,000
|
)
|
|||||
CASH
FLOW FROM FINANCING ACTIVITIES
|
||||||||||
Proceeds
from sale of common stock to initial stockholders
|
25,000
|
25,000
|
||||||||
Gross
proceeds from public offering
|
--
|
24,660,000
|
24,660,000
|
|||||||
Costs
of public offering
|
--
|
(2,637,538
|
)
|
(2,637,538
|
)
|
|||||
Proceeds
from stockholder loan
|
--
|
40,000
|
40,000
|
|||||||
Repayment
of stockholder loan
|
--
|
(40,000
|
)
|
(40,000
|
)
|
|||||
Net
cash provided by financing activities
|
--
|
22,047,462
|
22,047,462
|
|||||||
NET
INCREASE (DECREASE) IN CASH
|
(709,537
|
)
|
783,133
|
73,596
|
||||||
CASH
AT BEGINNING OF PERIOD
|
783,133
|
--
|
--
|
|||||||
CASH
AT END OF PERIOD
|
$
|
73,596
|
$
|
783,133
|
$
|
73,596
|
Preferred
Stock
|
Common
Stock
Shares
|
Common
Stock
Amount
|
Additional
Paid-In Capital
|
Deficit
Accumulated during the Development Stage
|
Total
|
||||||||||||||
Balance,
April 15, 2004 (inception)
|
$
|
--
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
||||||||
Sale
of 1,000,000 shares of common stock to initial
stockholders at $0.025 per
share
|
1,000,000
|
$
|
10,000
|
$
|
15,000
|
$
|
25,000
|
||||||||||||
Sale
of 3,600,000 shares of common stock to public
stockholders at $6.00 per
share, net of underwriters’ discount and offering expenses of
$2,637,538
|
3,600,000
|
$
|
36,000
|
$
|
18,926,462
|
$
|
18,962,462
|
||||||||||||
Sale
of 510,000 shares of common stock to underwriters
at $6.00 per
share
|
510,000
|
$
|
5,100
|
$
|
3,054,900
|
$
|
3,060,000
|
||||||||||||
Amortization
of Advisory Board Compensation
|
$
|
2,447
|
$
|
2,447
|
|||||||||||||||
Reduction
of capital related to the common stock subject
to possible conversion
(821,589
shares at
conversion
value)
|
$
|
(8,216
|
)
|
$
|
(4,194,682
|
)
|
$
|
(4,202,898
|
)
|
||||||||||
Increase
in value of shares of common stock subject
to possible conversion
|
$
|
(15,094
|
)
|
$
|
(15,094
|
)
|
|||||||||||||
Net
loss for the period April 15, 2004 (inception)
to December 31, 2004
|
$
|
(49,907
|
)
|
$
|
(49,907
|
)
|
|||||||||||||
Balance,
December 31, 2004
|
$
|
--
|
5,110,000
|
$
|
42,884
|
$
|
17,789,033
|
$
|
(49,907
|
)
|
$
|
17,782,010
|
|||||||
Amortization
of Advisory Board Compensation
|
$
|
29,364
|
$
|
29,364
|
|||||||||||||||
Increase
in value of shares of common stock subject
to possible conversion
|
$
|
(125,942
|
)
|
$
|
(125,942
|
)
|
|||||||||||||
Net
loss for twelve months ending
December 31, 2005
|
$
|
(468,394
|
)
|
$
|
(468,394
|
)
|
|||||||||||||
Balance,
December 31, 2005
|
$
|
--
|
5,110,000
|
$
|
42,884
|
$
|
17,692,455
|
$
|
(518,301
|
)
|
$
|
17,217,038
|
BASIC:
|
2005
|
2004
|
|||||
Numerator:
Net loss
|
$
|
(518,301
|
)
|
$
|
(49,907
|
)
|
|
Denominator:
Average common shares outstanding
|
5,110,000
|
3,468,784
|
|||||
Basic
earnings per share
|
$
|
(0.09
|
)
|
$
|
(0.01
|
)
|
|
DILUTED:
|
|||||||
Numerator:
Net loss
|
$
|
(518,301
|
)
|
$
|
(49,907
|
)
|
|
Denominator:
Average common shares outstanding
|
5,110,000
|
3,468,784
|
|||||
Diluted
earnings per share
|
$
|
(0.09
|
)
|
$
|
(0.01
|
)
|
Shares
|
Weighted
Average
Exercise
Prices
|
Fair
Value
|
||||||||
Stock
options outstanding at April 15, 2004
|
-
|
$
|
-
|
$
|
-
|
|||||
Options
granted
|
60,000
|
4.75
|
0.98
|
|||||||
Options
cancelled
|
-
|
-
|
-
|
|||||||
Stock
options outstanding at December 31, 2004
|
60,000
|
$
|
4.75
|
$
|
0.98
|
|||||
Options
granted
|
-
|
-
|
||||||||
Options
cancelled
|
-
|
-
|
||||||||
Stock options outstanding at December 31, 2005 |
60,000
|
$
|
4.75
|
|||||||
Common
shares authorized under the 2004 Stock Plan
|
100,000
|
|||||||||
Outstanding
options
|
(60,000
|
)
|
||||||||
Outstanding
stock grants
|
-
|
|||||||||
Options
available for grant at December 31, 2004
|
40,000
|
|||||||||
Outstanding
options
|
(60,000
|
)
|
-
|
|||||||
Outstanding
stock grants
|
-
|
-
|
||||||||
Stock options available for grant at December 31, 2005 |
40,000
|
$
|
4.75
|
|||||||
Shares
exercisable at December 31, 2005
|
60,000
|
$
|
4.75
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||
2004
|
(Restated)
|
(Restated)
|
|||||||||||
Professional
Fees
|
-
|
|
$
|
(8,500
|
)
|
$
|
(24,000
|
)
|
|||||
Facilities
|
-
|
(22,500
|
)
|
(15,000
|
)
|
||||||||
Director
and Officer Insurance
|
-
|
(4,224
|
)
|
(47,184
|
)
|
||||||||
Travel,
Lodging and Meals
|
(11,328
|
)
|
(8,157
|
)
|
(14,875
|
)
|
|||||||
State
Franchise Taxes
|
-
|
-
|
-
|
||||||||||
Other
Operating Expenses
|
(1,365
|
)
|
(7,051
|
)
|
(27,762
|
)
|
|||||||
Operating
Loss
|
$
|
(12,692
|
)
|
$
|
(50,432
|
)
|
$
|
(128,822
|
)
|
||||
Interest
income
|
-
|
$
|
46,752
|
$
|
95,287
|
||||||||
Net
income
|
$
|
(12,692
|
)
|
$
|
(3,680
|
)
|
$
|
(33,535
|
)
|
||||
Weighted
Average Shares Outstanding
|
1,000,000
|
3,762,857
|
5,110,000
|
||||||||||
Net
Loss Per Share (Basic and Diluted)
|
$
|
(0.01
|
)
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
||||
2005
|
First
Quarter
|
Second
Quarter
|
Third Quarter
|
Fourth
Quarter
|
|||||||||
|
(Restated)
|
(Restated)
|
|
(Restated)
|
|
||||||||
Professional
Fees
|
$
|
(62,166
|
)
|
$
|
(51,439
|
)
|
$
|
(139,773
|
)
|
$
|
(276,779
|
)
|
|
Facilities
|
(22,500
|
)
|
(30,000
|
)
|
(22,500
|
)
|
(15,000
|
)
|
|||||
Director
and Officer Insurance
|
(30,845
|
)
|
(33,866
|
)
|
(27,818
|
)
|
(30,835
|
)
|
|||||
Travel,
Lodging and Meals
|
(20,144
|
)
|
(32,071
|
)
|
(40,575
|
)
|
(19,903
|
)
|
|||||
State
Franchise Taxes
|
-
|
(70,259
|
)
|
(8,750
|
)
|
(24,723
|
)
|
||||||
Other
Operating Expenses
|
(36,493
|
)
|
(26,933
|
)
|
(46,151
|
)
|
(37,323
|
)
|
|||||
Operating
Loss
|
$
|
(172,148
|
)
|
$
|
(244,569
|
)
|
$
|
(285,567
|
)
|
$
|
(404,564
|
)
|
|
Interest
income
|
$
|
123,898
|
$
|
136,156
|
$
|
178,109
|
$
|
200,290
|
|||||
Net
income
|
$
|
(48,250
|
)
|
$
|
(108,413
|
)
|
$
|
(107,458
|
)
|
$
|
(204,274
|
)
|
|
Weighted
Average Shares Outstanding
|
5,110,000
|
5,110,000
|
5,110,000
|
5,110,000
|
|||||||||
Net
Loss Per Share (Basic and Diluted)
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
$
|
(0.04
|
)
|
|
[TELEPHONE]
|
VOTE BY TELEPHONE OR INTERNET
QUICK *** EASY *** IMMEDIATE
|
[COMPUTER]
|
1.
|
To
adopt the Agreement and Plan of Merger dated as of October 26, 2005,
among Sand Hill, Sand Hill Merger Corp., a wholly-owned subsidiary
of Sand
Hill, and St. Bernard, Inc., and the transactions contemplated by
the
merger agreement.
|
|
FOR
o
|
|
AGAINST
o
|
|
ABSTAIN
o
|
Only
if you voted “AGAINST” Proposal Number 1 and you hold shares of Sand
Hill common stock issued in the Sand Hill initial public offering,
you may
exercise your conversion rights and demand that Sand Hill convert
your
shares of common stock into cash by marking the “Exercise Conversion
Rights” box below. If you exercise your conversion rights, then you will
be exchanging your shares of Sand Hill common stock for cash and
will no
longer own these shares. You will only be entitled to receive cash
for
these shares if the merger is completed and you continue to hold
these
shares through the effective time of the merger and you tender of
your
stock certificate to the combined company.
|
|||||||
|
|
|
|
|
|
|
|
EXERCISE
CONVERSION RIGHTS o
|
|||||||
|
|
|
|
|
|
|
|
2.
|
To
adopt the amended and restated certificate of incorporation of Sand
Hill.
|
|
FOR
o
|
|
AGAINST
o
|
|
ABSTAIN
o
|
|
|
|
|
|
|
|
|
3.
|
To
adopt the St. Bernard, Inc. 1992 Stock Option Plan, the
St. Bernard, Inc. 2000 Stock Option Plan and the St. Bernard
2005 Stock Option Plan.
|
|
FOR
o
|
|
AGAINST
o
|
|
ABSTAIN
o
|
|
|
|
|
|
|
|
|
4.
|
To
consider and vote upon a proposal to adjourn the special meeting
to a
later date or dates, if necessary, to permit further solicitation
and vote
of proxies in the event there are not sufficient votes at the time
of the
special meeting to adopt the merger proposal, the amendment proposal
or
the stock option plans proposal.
|
|
FOR
o
|
|
AGAINST
o
|
|
ABSTAIN
o
|
1.
|
To
adopt the Agreement and Plan of Merger dated as of October 26, 2005,
among Sand Hill, Sand Hill Merger Corp., a wholly-owned subsidiary
of Sand
Hill, and St. Bernard, Inc., and the transactions contemplated by
the
merger agreement.
|
|
FOR
o
|
|
AGAINST
o
|
|
ABSTAIN
o
|
|
|
|
|
|
|
|
|
2.
|
To
consider and vote upon a proposal to adjourn the special meeting
to a
later date or dates, if necessary, to permit further solicitation
and vote
of proxies in the event there are not sufficient votes at the time
of the
special meeting to adopt the merger proposal, the amendment proposal
or
the stock option plans proposal.
|
|
FOR
o
|
|
AGAINST
o
|
|
ABSTAIN
o
|
Exhibit No.
|
|
Description
|
|
Incorporated
by Reference from Document
|
|
No.
in Document
|
|
|
|
|
|
|
|
2.1
|
|
Agreement
and Plan of Merger dated October 26, 2005 by and among Sand Hill
IT
Security Acquisition Corp., Sand Hill Merger Corp. and St. Bernard
Software, Inc. (Attached as Annex A to the joint proxy
statement/prospectus which forms a part of this registration statement
and
incorporated herein by reference.)
|
|
__
|
|
__
|
2.2
|
|
Amendment
to Agreement and Plan of Merger by and among Sand Hill IT Security
Acquisition Corp., Sand Hill Merger Corp. and St. Bernard Software,
Inc.
(Attached as Annex A to the joint proxy statement/prospectus which
forms a
part of this registration statement and incorporated herein by
reference.)
|
|
__
|
|
__
|
3.1
|
|
Certificate
of Incorporation of Sand Hill IT Security Acquisition
Corp.
|
|
A
|
|
3.1
|
3.1.1
|
|
Form
of Amended and Restated Certificate of Incorporation of Sand Hill
IT
Security Acquisition Corp. (Attached as Annex B to the joint proxy
statement/prospectus which forms a part of this registration statement
and
incorporated herein by reference.)
|
|
__
|
|
__
|
3.2
|
|
Bylaws
of Sand Hill IT Security Acquisition Corp.
|
|
A
|
|
3.2
|
4.1
|
|
Specimen
Unit Certificate of Registrant.
|
|
B
|
|
4.1
|
Exhibit No.
|
|
Description
|
|
Incorporated
by Reference from Document
|
|
No.
in Document
|
|
|
|
|
|
|
|
4.2
|
|
Specimen
Common Stock Certificate of Registrant.
|
|
B
|
|
4.2
|
4.3
|
|
Specimen
Warrant Certificate of Registrant.
|
|
B
|
|
4.3
|
4.4.1
|
|
Unit
Purchase Option No. UPO-2 dated July 30, 2004, granted to Newbridge
Securities Corporation.
|
|
C
|
|
4.4.1
|
4.4.2
|
|
Unit
Purchase Option No. UPO-3 dated July 30, 2004, granted to James
E.
Hosch.
|
|
C
|
|
4.4.2
|
4.4.3
|
|
Unit
Purchase Option No. UPO-4 dated July 30, 2004, granted to Maxim
Group,
LLC.
|
|
C
|
|
4.4.3
|
4.4.4
|
|
Unit
Purchase Option No. UPO-5 dated July 30, 2004, granted to Broadband
Capital Management, LLC.
|
|
C
|
|
4.4.4
|
4.4.5
|
|
Unit
Purchase Option No. UPO-6 dated July 30, 2004, granted to I-Bankers
Securities Incorporated.
|
|
|
|
4.4.5
|
5.1
|
|
Opinion
of Jenkens & Gilchrist regarding the legality of
securities.
|
|
|
|
Previously
filed
|
8.1
|
|
Opinion
of Duane Morris LLP regarding tax matters.
|
|
|
|
Filed
herewith
|
10.1
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Humphrey P. Polanen.
|
|
C
|
|
10.1
|
10.2
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Cary M. Grossman.
|
|
C
|
|
10.2
|
10.3
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Daniel J. Johnson.
|
|
C
|
|
10.3
|
10.4
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Keith A. Walz.
|
|
C
|
|
10.4
|
10.5
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Scott Broomfield.
|
|
C
|
|
10.5
|
10.5
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Alberto Micalizzi.
|
|
C
|
|
10.6
|
10.7
|
|
Investment
Management Trust Agreement between American Stock Transfer & Trust
Company and the Registrant.
|
|
C
|
|
10.8
|
10.8
|
|
Stock
Escrow Agreement between the Registrant, American Stock Transfer
&
Trust Company and the Initial Stockholders.
|
|
C
|
|
10.9
|
10.10
|
|
Registration
Rights Agreement among the Registrant and the Initial Stockholders
Letter
Agreement between Sand Hill LLC and Registrant regarding administrative
support.
|
|
C
|
|
10.10
|
Exhibit No.
|
|
Description
|
|
Incorporated
by Reference from Document
|
|
No.
in Document
|
|
|
|
|
|
|
|
10.11
|
|
Letter
Agreement between Sand Hill LLC and Registrant regarding administrative
support.
|
|
C
|
|
10.11
|
10.12
|
|
Revolving
Credit Agreement in the principle amount of $60,000 between the
Registrant
and Sand Hill Security, LLC.
|
|
C
|
|
10.12
|
10.13
|
|
Warrant
Purchase Agreement among Humphrey P. Polanen and Newbridge Securities
Corporation and I-Bankers Securities Incorporated.
|
|
A
|
|
10.13
|
10.14
|
|
Form
of Escrow Agreement by and among St. Bernard Software, Inc., a
Delaware
corporation, Sand Hill IT Security Acquisition Corp., the Stockholders’
Representative and the Parent Indemnified Parties’ Representative.
(Attached as Exhibit E of Exhibit 2.1 and incorporated herein by
reference.)
|
|
|
2.1
|
|
10.21
|
|
St.
Bernard Software, Inc. 1992 Stock Option Plan. (Attached as Annex
C to the
joint proxy statement/prospectus which forms a part of this registration
statement and incorporated herein by reference.)
|
|
|
|
|
10.22
|
|
St.
Bernard Software, Inc. 2000 Stock Option Plan. (Attached as Exhibit
D to
the joint proxy statement/prospectus which forms a part of this
registration statement and incorporated herein by
reference.)
|
|
|
|
|
10.23
|
|
St.
Bernard Software, Inc. 2005 Stock Option Plan. (Attached as Exhibit
E to
the joint proxy statement/prospectus which forms a part of this
registration statement and incorporated herein by
reference.)
|
|
|
|
|
10.24
|
|
Loan
and Security Agreement, by and between St. Bernard Software, Inc.
and
Camel Financial, Inc.
|
|
|
|
|
16.1
|
|
Anton
Collins Mitchell LLP Letter Regarding change in Independent Accounting
Firm
|
|
|
|
Filed
herewith
|
16.2
|
|
Mayer
Hoffman McCann P.C. Letter Regarding change in Independent Accounting
Firm
|
|
|
|
Filed
herewith
|
21
|
Subsidiaries
of the Registrant
|
Filed
herewith
|
||||
23.1
|
|
Consent
of Jenkens & Gilchrist (included in Exhibit 5.1).
|
|
|
|
Previously
filed
|
23.2
|
|
Consent
of Duane Morris LLP (included in Exhibit 8.1)
|
|
|
|
Filed
herewith
|
23.3
|
|
Consent
of Anton Collins Mitchell LLP.
|
|
|
|
Filed
herewith
|
23.4
|
|
Consent
of Mayer Hoffman McCann P.C.
|
|
|
|
Filed
herewith
|
23.5
|
|
Consent
of Hein & Associates, LLP.
|
|
|
|
Filed
herewith
|
A.
|
Incorporated
by reference from the Registration Statement 333-114861 on Form S-1
filed
with the Securities and Exchange Commission on April 26,
2004.
|
B. |
Incorporated
by reference from Amendment No. 2 to the Registration Statement
333-114861 on Form S-1 filed with the Securities and Exchange Commission
on June 23, 2004.
|
C. |
Incorporated
by reference from Form 10-KSB for the fiscal year ended December 31,
2004, filed with the Securities and Exchange Commission on March 31,
2005.
|
(b) Financial
Statements
|
|
|
|
|
SAND
HILL IT SECURITY ACQUISITION CORP.
|
|
|
|
|
|
|
By:
/s/ Humphrey
P. Polanen
|
|
Humphrey
P. Polanen
|
Signature
|
Title
|
Date
|
||
/s/
Humphrey P. Polanen
Humphrey
P. Polanen
|
Chief
Executive Officer and Director (Principal Executive
Officer)
|
April
25, 2006
|
||
Keith
Waltz*
|
President,
Chief Financial Officer (Principal Financial and Accounting
Officer)
|
April
25, 2006
|
||
Scott
Broomfield*
|
Executive
Vice President of Corporate Development and Director
|
April
25, 2006
|
||
Cary
M. Grossman*
|
Director
|
April
25, 2006
|
||
Daniel
Johnson, Jr.*
|
Director
|
April
25, 2006
|
||
Alberto
Micalizzi*
|
Director
|
April
25, 2006
|
||
/s/
Humphrey P. Polanen*
by power of attorney |
|
|
ARTICLE
I The Merger
|
1
|
|
Section
1.01
|
The
Merger.
|
1
|
Section
1.02
|
Closing.
|
2
|
Section
1.03
|
Effective
Time.
|
2
|
Section
1.04
|
Effects.
|
2
|
Section
1.05
|
Certificate
of Incorporation and Bylaws.
|
2
|
Section
1.06
|
Directors
and Officers.
|
2
|
Section
1.07
|
Parent
Charter and Bylaws.
|
3
|
ARTICLE
II Effect of the Merger; Exchange of Certificates
|
3
|
|
Section
2.01
|
Conversion
of Shares and Options.
|
3
|
Section
2.02
|
Exchange
of Certificates.
|
5
|
Section
2.03
|
Stock
Escrow Agreement.
|
7
|
Section
2.04
|
Working
Capital Adjustment.
|
7
|
ARTICLE
III Representations and Warranties of the Company
|
8
|
|
Section
3.01
|
Organization,
Standing and Power.
|
8
|
Section
3.02
|
Company
Subsidiaries; Equity Interests.
|
9
|
Section
3.03
|
Capital
Structure.
|
9
|
Section
3.04
|
Authority;
Execution and Delivery; Enforceability.
|
10
|
Section
3.05
|
No
Conflicts; Consents.
|
11
|
Section
3.06
|
Financial
Statements; Undisclosed Liabilities.
|
12
|
Section
3.07
|
Information
Supplied.
|
12
|
Section
3.08
|
Absence
of Certain Changes or Events.
|
12
|
Section
3.09
|
Taxes.
|
14
|
Section
3.10
|
Benefit
Plans.
|
15
|
Section
3.11
|
Litigation.
|
16
|
Section
3.12
|
Compliance
with Applicable Laws.
|
17
|
Section
3.13
|
Contracts;
Debt Instruments
|
17
|
Section
3.14
|
Brokers;
Schedule of Fees and Expenses.
|
18
|
Section
3.15
|
Real
Property.
|
18
|
Section
3.16
|
Related
Party Transactions.
|
19
|
Section
3.17
|
Permits.
|
20
|
Section
3.18
|
Labor
Relations.
|
20
|
Section
3.19
|
Insurance.
|
21
|
Section
3.20
|
Intellectual
Property.
|
21
|
Section
3.21
|
Environmental
Liability.
|
24
|
Section
3.22
|
Customers
and Suppliers.
|
24
|
Section
3.23
|
Product
Warranties.
|
25
|
Section
3.24
|
Complete
Disclosure.
|
25
|
ARTICLE
IV Representations and Warranties of Parent and
MERGER Sub
|
25
|
|
Section
4.01
|
Organization,
Standing and Power.
|
26
|
Section
4.02
|
Parent
Subsidiaries; Equity Interests.
|
26
|
Section
4.03
|
Capital
Structure.
|
26
|
Section
4.04
|
Authority;
Execution and Delivery; Enforceability.
|
27
|
Section
4.05
|
No
Conflicts; Consents.
|
28
|
Section
4.06
|
SEC
Documents; Financial Statements; Undisclosed Liabilities.
|
29
|
Section
4.07
|
Information
Supplied.
|
30
|
Section
4.08
|
Absence
of Certain Changes or Events.
|
31
|
Section
4.09
|
Taxes.
|
33
|
Section
4.10
|
Employees.
|
34
|
Section
4.11
|
Benefit
Plans.
|
34
|
Section
4.12
|
Litigation.
|
35
|
Section
4.13
|
Compliance
with Applicable Laws.
|
35
|
Section
4.14
|
Contracts;
Debt Instruments.
|
35
|
Section
4.15
|
Brokers;
Schedule of Fees and Expenses.
|
36
|
Section
4.16
|
Intellectual
Property.
|
36
|
Section
4.17
|
Trust
Funds; Liquidation.
|
36
|
Section
4.18
|
Real
Property.
|
37
|
Section
4.19
|
Related
Party Transactions.
|
37
|
Section
4.20
|
Investment
Company Act.
|
37
|
Section
4.21
|
Permits.
|
37
|
Section
4.22
|
Insurance.
|
37
|
Section
4.23
|
Complete
Disclosure.
|
38
|
ARTICLE
V Covenants Relating to Conduct of Business
|
38
|
|
Section
5.01
|
Conduct
of Business.
|
38
|
Section
5.02
|
No
Solicitation by the Company.
|
42
|
Section
5.03
|
Company
Stockholders’ Meeting.
|
44
|
ARTICLE
VI Additional Agreements
|
45
|
|
Section
6.01
|
Preparation
of the Proxy Statement; Parent Stockholders Meeting;
Company Stockholders
Meeting.
|
45
|
Section
6.02
|
No
Shopping.
|
46
|
Section
6.03
|
Access
to Information; Confidentiality.
|
47
|
Section
6.04
|
Reasonable
Efforts; Notification.
|
48
|
Section
6.05
|
Fees
and Expenses.
|
49
|
Section
6.06
|
Public
Announcements.
|
49
|
Section
6.07
|
Affiliates.
|
49
|
Section
6.08
|
Quotation
of Listing.
|
49
|
Section
6.09
|
Tax
Treatment.
|
49
|
Section
6.10
|
Lock-Up
Agreements.
|
49
|
Section
6.11
|
Pre-Closing
Confirmation.
|
49
|
Section
6.12
|
Stock
Symbol.
|
50
|
Section
6.13
|
Preliminary
Disclosure Letters.
|
50
|
Section
6.14
|
Supplemental
Disclosure Letters.
|
50
|
ARTICLE
VII Conditions Precedent
|
51
|
|
Section
7.01
|
Conditions
to Each Party’s Obligation to Effect the Merger.
|
51
|
Section
7.02
|
Conditions
to Obligations of Parent and Merger Sub to Effect
the
Merger.
|
52
|
Section
7.03
|
Conditions
to Obligation of the Company to Effect the Merger.
|
53
|
ARTICLE
VIII Termination, Amendment and Waiver
|
54
|
|
Section
8.01
|
Termination.
|
54
|
Section
8.02
|
Effect
of Termination.
|
55
|
Section
8.03
|
Fees,
Expenses and Other Payments.
|
56
|
Section
8.04
|
Amendment.
|
56
|
Section
8.05
|
Extension;
Waiver.
|
56
|
Section
8.06
|
Procedure
for Termination, Amendment, Extension or Waiver.
|
57
|
ARTICLE
IX INDEMNIFICATION
|
57
|
|
Section
9.01
|
Survival.
|
57
|
Section
9.02
|
Indemnification
and Payment of Damages by the Company.
|
57
|
Section
9.03
|
Indemnification
Process.
|
57
|
Section
9.04
|
Limitation
on Indemnity Payments.
|
59
|
Section
9.05
|
Calculations
of Amounts; Other Limitations.
|
59
|
Section
9.06
|
Effect
on Liability.
|
60
|
Section
9.07
|
Exclusive
Remedy.
|
60
|
Section
9.08
|
Waivers.
|
60
|
ARTICLE
X General Provisions
|
61
|
|
Section
10.01
|
Notices.
|
61
|
Section
10.02
|
Definitions.
|
62
|
Section
10.03
|
Interpretation;
Disclosure Letters.
|
63
|
Section
10.04
|
Severability.
|
63
|
Section
10.05
|
Counterparts.
|
63
|
Section
10.06
|
Entire
Agreement; No Third-Party Beneficiaries.
|
63
|
Section
10.07
|
Governing
Law.
|
64
|
Section
10.08
|
Assignment.
|
64
|
Section
10.09
|
Enforcement.
|
64
|
Section
10.10
|
Stockholders’
Representative
|
64
|
Section
10.11
|
Parent
Indemnified Parties’ Representative.
|
65
|
Exhibit
A
|
-
|
Board
of Directors and Officers
|
Exhibit
B
|
-
|
Form
of Amended and Restated Certificate of Incorporation
of
Parent
|
Exhibit
C
|
-
|
Form
of Amended and Restated Bylaws of Parent
|
Exhibit
D
|
-
|
Form
of Letter of Transmittal
|
Exhibit
E
|
-
|
Form
of Stock Escrow Agreement
|
Exhibit
F
|
-
|
Form
of Affiliate Letter
|
Exhibit
G
|
-
|
Form
of Lock-Up Agreement
|
Exhibit
H
|
-
|
Form
of Company Counsel
Opinion
|
(i)
|
all
management agreements, employment agreements, consulting
agreements, and
independent contractor agreements to which the Company
or any Company
Subsidiary is a party (other than any agreement which
(A) provides
for future payments of less than $50,000 annually and
less than $150,000
in the aggregate, or (B) which is terminable by the Company or such
Company Subsidiary without breach or penalty on less
than thirty (30)
days’ prior written notice);
|
(ii)
|
all
guarantees, mortgages, deeds of trust, indentures and
loan agreements, to
which the Company or any Company Subsidiary is a party,
which involve an
amount in excess of $50,000;
|
(iii)
|
all
Contracts (other than those described in or excepted
from clauses
(i) or (ii) of this Section 3.13(a)) to which the
Company or any Company Subsidiary is a party (other than
any agreement
(A) in which the aggregate amount to be received or paid
thereunder
does not exceed $50,000 annually and $150,000 in the
aggregate, or (B) which can be performed in the normal course within
six months after the Effective Time without breach or
penalty and involves
the future payment of less than $100,000 in the aggregate);
and
|
(iv)
|
(A)
all Contracts with stockholders, directors or officers
of the Company or
any Company Subsidiary, (B) all Contracts containing covenants by the
Company or any Company Subsidiary not to compete in any
lines of business
or commerce, (C) all Contracts for the acquisition, sale or lease of
material properties or assets of the Company or any Company
Subsidiary (by
merger, purchase or sales of assets or stock or otherwise)
and
(D) all investment, joint venture, and operating Contracts
or
partnership agreements of the Company or any Company
Subsidiary.
|
(i)
|
the
lease or sublease is legal, valid, binding, enforceable,
and in full force
and effect, except as may be limited by (1) applicable bankruptcy,
insolvency, reorganization or other similar laws of general
application
relating to or affecting the enforcement of creditor
rights, (2) laws
and judicial decisions regarding indemnification for
violations of
securities laws, and (3) the availability of specific performance or
other equitable remedies;
|
(ii)
|
the
lease or sublease will continue to be legal, valid, binding,
enforceable,
and in full force and effect on identical terms following
the consummation
of the transactions contemplated hereby, except as may
be limited by
(1) applicable bankruptcy, insolvency, reorganization or
other
similar laws of general application relating to or affecting
the
enforcement of creditor rights, (2) laws and judicial decisions
regarding indemnification for violations of securities
laws, and
(3) the availability of specific performance or other equitable
remedies;
|
(iii)
|
to
the Company’s knowledge, no party to the lease or sublease is in
breach or
default, and no event has occurred which, with notice
or lapse of time,
would constitute a breach or default or permit termination,
modification,
or acceleration thereunder;
|
(iv)
|
no
party to the lease or sublease has repudiated any provision
thereof;
|
(v)
|
there
are no disputes, oral agreements, or forbearance programs
in effect as to
the lease or sublease;
|
(vi)
|
with
respect to each sublease, the representations and warranties
set forth in
subsections (i) through (v) above are true and correct with respect
to the underlying lease;
|
(vii)
|
neither
the Company nor any of the Company Subsidiaries has assigned,
transferred,
conveyed, mortgaged, deeded in trust, or encumbered any
interest in the
leasehold or subleasehold;
|
(viii)
|
all
facilities leased or subleased thereunder have received
all material
approvals of governmental authorities (including licenses
and permits)
required by the Company and the Company Subsidiaries
in connection with
the operation thereof and have been operated and maintained
by the Company
and the Company Subsidiaries in accordance with applicable
laws, rules,
and regulations, except where such failure would not
have a Company
Material Adverse Effect; and
|
(ix)
|
all
facilities leased or subleased thereunder are supplied
with utilities and
other services necessary for the operation of the Company’s business as
currently conducted at such
facilities.
|
(i)
|
any
event, change, effect or development that, individually
or in the
aggregate, has had or could reasonably be expected to
have a Parent
Material Adverse Effect. The term “Parent Material Adverse
Effect” shall mean any material adverse effect
on the
business, financial condition, or results of operations
of Parent and
Merger Sub, taken as a whole; provided, however, that Parent
Material Adverse Effect shall not be deemed to include
(i) any
adverse effect on Parent occurring either prior to or
after the Effective
Time resulting from any change in general economic conditions
relating to
the market in which Parent operates, (ii) any effect directly
resulting from the public announcement of the pendency
of the transactions
contemplated hereby, or (iii) terrorist attack, act of war or natural
disaster;
|
(ii)
|
any
declaration, setting aside or payment of any dividend
or other
distribution (whether in cash, stock or property) with
respect to any
Parent Capital Stock or any repurchase for value by Parent
of any Parent
Capital Stock;
|
(iii)
|
any
split, combination or reclassification of any Parent
Capital Stock or any
issuance or the authorization of any issuance of any
other securities in
respect of, in lieu of or in substitution for shares
of Parent Capital
Stock; (A) any granting by Parent to any present or former
director or
executive officer, officer or employee of Parent or Merger
Sub or of any
increase in compensation or bonus, except in the ordinary
course of
business consistent with prior practice or as was required
under
employment agreements described in Section 4.08(a) of the Parent
Disclosure Letter, (B) any granting by Parent to any such present
or former director or executive officer, officer or employee
of any
increase in severance or termination pay, except as was
required under any
employment, severance or termination agreements described
in Section
4.08(a) of the Parent Disclosure Letter, or (C) any entry
by Parent into, or any amendment of, any employment,
severance or
termination agreement with any such director or executive
officer, officer
or employee;
|
(iv)
|
any
change in accounting methods, principles or practices
by Parent or Merger
Sub materially affecting the consolidated assets, liabilities
or results
of operations of Parent, except insofar as may have been
required by a
change in GAAP;
|
(v)
|
any
material elections with respect to Taxes by Parent or
settlement or
compromise by Parent or of any material Tax liability
or refund;
|
(vi)
|
a
sale, lease, license, sublicense or other disposition
of any material
portion of the assets, tangible or intangible, of Parent
or Merger Sub;
|
(vii)
|
a
waiver of any material rights or cancellation of material
debts owed to or
material claims of Parent or Merger Sub; or
|
(viii)
|
any
Contract executed or delivered by Parent or Merger Sub,
relating to the
use or application of the funds in the Trust Account
(as defined herein).
|
(i)
|
all
management agreements, employment agreements, consulting
agreements, and
independent contractor agreements to which Parent or
Merger Sub is a party
(other than any agreement which (A) provides for future
payments of less
than $50,000 annually and less than $150,000 in the aggregate,
or (B)
which is terminable by Parent or Merger Sub without breach
or penalty on
less than thirty (30) days’ prior written notice);
|
(ii)
|
all
guarantees, mortgages, deeds of trust, indentures and
loan agreements, to
which Parent or Merger Sub is a party, which involve
an amount in excess
of $50,000;
|
(iii)
|
all
Parent Contracts (as defined below) (other than those
described in or
excepted from clauses (i) or (ii) of this
Section 4.14(a)) (other than any agreement (A) in which the
aggregate amount to be received or paid thereunder does
not exceed $50,000
annually and $150,000 in the aggregate, or (B) which
can be performed in
the normal course within six months after the Effective
Time without
breach or penalty and involves the future payment of
less than $100,000 in
the aggregate); and
|
(iv)
|
(A)
all Parent Contracts with stockholders, directors or
officers of Parent or
Merger Sub, (B) all Parent Contracts containing covenants
by Parent or
Merger sub not to compete in any lines of business or
commerce, (C) all
Parent Contracts for the acquisition, sale or lease of
material properties
or assets of Parent or Merger Sub (by merger, purchase
or sales of assets
or stock or otherwise) and (D) all investment, joint
venture, and
operating Parent Contracts or partnership agreements
of Parent or Merger
Sub.
|
(i)
|
if
the Merger is not consummated on or before June 30, 2006
(the
“Outside Date”);
|
(ii)
|
if
any Governmental Entity issues an order, decree or ruling
or takes any
other action permanently enjoining, restraining or otherwise
prohibiting
the Merger and such order, decree, ruling or other action
shall have
become final and nonappealable;
|
(iii)
|
if
any condition to the obligation of such party to consummate
the Merger set
forth in Section 7.01 becomes incapable of satisfaction prior
to the Outside Date; provided, however, that the
terminating party is not then in material breach of any
representation,
warranty or covenant contained in this Agreement; or
|
(iv)
|
if,
upon a vote at a duly held meeting to obtain Parent Stockholder
Approval,
either (A) Parent Stockholder Approval is not obtained or
(B) the holders of 20% or more of the IPO Shares shall have
demanded
that Parent convert their IPO Shares into cash pursuant
to the terms of
the Parent Charter;
|
(a) |
if
to Parent or Merger Sub, to
|
(b) |
if
to the Company, to
|
SAND
HILL IT SECURITY ACQUISITION
CORP.
By:
/s/ Humphrey P. Polanen
Name:
Humphrey P. Polanen
Title:
Chief Executive Officer
SAND
HILL MERGER CORP.
By: /s/
Humphrey P. Polanen
Name:
Humphrey P. Polanen
Title:
Chief Executive Officer
ST.
BERNARD SOFTWARE, INC.
By: /s/
John E. Jones
Name:
John E. Jones
Title:
Chief Executive Officer and
President
|
Name
and Address of Registered
Shareholders
as now shown on
Records
of the Company
(Type
or Print)
|
Certificate
Numbers
(Attach
rider if necessary)
|
Numbers
of
Shares
|
SPECIAL
ISSUANCE INSTRUCTIONS
|
SPECIAL
MAILING INSTRUCTIONS
|
|
(See
“Endorsement of the Company Common
Stock
Certificates” Below)
Issue
To:
Name:
________________________________________
(Type
or Print)
Address
______________________________________
_____________________________________________
(Zip
Code)
_____________________________________________
Taxpayer
Identification No.
(Social
Security Number)
|
Mail
To:
Name:
________________________________________
(Type
or Print)
Address
______________________________________
_____________________________________________
(Zip
Code)
_____________________________________________
|
|
Date:
________________________________________
Phone:
Area Code __ Number______________________
|
________________________________________
________________________________________
Please
Sign |
ST.
BERNARD SOFTWARE, INC.
By:
Name:
Title:
SAND
HILL SECURITY ACQUISITION CORP.
By:
Name:
Title:
as Parent Indemnified Parties’ Representative By:
Name:
Title:
as
Stockholders’ Representative
By:
Name:
Title:
as
Escrow Agent
By:
Name:
Title:
|
FOR
ENTITY:
By:
_________________________________
Its:
_________________________________
|
Very
truly yours,
FOR INDIVIDUAL:
_________________________________
Signature
_________________________________
Printed
Name
|
Re: |
Lock-Up
of Shares of Common Stock
|
FOR
ENTITY:
By:
_________________________________
Its:
_________________________________
|
Very
truly yours,
FOR INDIVIDUAL:
_________________________________
Signature
_________________________________
Printed
Name
|
ADDITIONAL
SIGNATURE:
_________________________________
(If held jointly) _________________________________
Printed
Name
|
Re: |
Lock-Up
of Shares of Common Stock
|
FOR
ENTITY:
By:
_________________________________
Its:
_________________________________
|
Very
truly yours,
FOR INDIVIDUAL:
_________________________________
Signature
_________________________________
Printed
Name
|
ADDITIONAL
SIGNATURE:
_________________________________
(If held jointly) _________________________________
Printed
Name
|
1.
|
The
Company is a corporation duly organized, validly existing
and in good
standing under the laws of its jurisdiction of incorporation.
|
2.
|
Each
Company Subsidiary is a corporation (or other entity)
duly organized,
validly existing and in good standing under the laws
of the jurisdiction
of its incorporation or organization.
|
3.
|
The
Company is duly qualified or licensed to do business
and is in good
standing as a foreign corporation in all jurisdictions
where the nature or
conduct of its business as now conducted requires such
qualification,
except where the failure to be so qualified would not
have a Material
Adverse Effect on the Company.
|
4.
|
The
Company has all requisite organizational power and authority
necessary to
enter into and to perform its obligations under the Merger
Agreement and
the other documents related thereto to which it is a
party.
|
5.
|
The
Merger Agreement and the other documents related thereto
to which it is a
party have been duly executed and delivered by, and constitute
valid and
binding obligations of the Company, enforceable in accordance
with their
terms.
|
6.
|
The
Merger has been approved by the Board of Directors of
the Company. The
Merger has been approved by the holders of at least a
majority of the
shares of Company Common Stock entitled to vote on the
Merger. Based on
the foregoing, the Merger has been approved by the vote
of the
stockholders required by the Delaware General Corporation
Law.
|
7.
|
The
execution and delivery by the Company of the Merger Agreement
and the
other documents related thereto to which it is a party
and the performance
of its obligations thereunder and the consummation of
the transactions
contemplated by the Merger Agreement do not and will
not (a) conflict with
or result in any breach or violation of any provision
of the charter,
by-laws, or other organizational documents of the Company
or any of the
Company Subsidiaries, (b) conflict with, or constitute
a default under,
any Material Contract, (c) violate any law, statute,
rule, or regulation
applicable to the Company or any of the Company Subsidiaries,
or (d)
violate any order or other restriction of any governmental
agency or court
applicable to the Company or any of the Company Subsidiaries
of which we
are aware.
|
8.
|
To
the best of our knowledge and except as set forth on
the Schedule attached
hereto, there are no actions, suits, proceedings (including
any
arbitration proceedings), orders, investigations or claims
pending or
threatened against or affecting the Company or any Company
Subsidiary.
|
9.
|
The
Company’s authorized capitalization consists of (i) __________
shares of
Company Common Stock and (ii) ___________ shares of Company
Preferred
Stock. As of the date hereof, (a) _________ shares of
Company Common Stock
are issued and outstanding (treating any treasury shares
as not
outstanding); (b) ________ shares of Company Preferred
Stock are issued
and outstanding, (c) ________ shares of Company Common
Stock are reserved for issuance upon exercise of warrants;
and (d) _______
shares of Company Common Stock in the aggregate are issuable
as of the
date hereof pursuant to options that have been granted
under the Option
Plans that have not been exercised and that remain in
effect. No other
shares of capital stock of the Company are authorized,
issued or
outstanding. All of the outstanding shares of capital
stock of the Company
are validly issued, fully paid and nonassessable and
were not issued in
violation of any preemptive rights. To our knowledge,
there are no other
options, calls, warrants or other securities or rights
outstanding that
are convertible into or exercisable for any shares of
the capital stock of
the Company.
|
I.
|
PURPOSES
OF THE PLAN
|
II.
|
ADMINISTRATION
OF THE PLAN
|
III.
|
ELIGIBILITY
FOR OPTION GRANTS
|
IV.
|
STOCK
SUBJECT TO THE PLAN
|
V.
|
TERMS
AND CONDITIONS OF OPTIONS
|
VI.
|
INCENTIVE
OPTIONS
|
VII.
|
CORPORATE
TRANSACTIONS
|
VIII.
|
CANCELLATION
AND REGRANT OF OPTIONS
|
IX.
|
CASH-OUT
OF OPTIONS
|
X.
|
LOANS
|
XI.
|
NO
EMPLOYMENT OR SERVICE
RIGHTS
|
XII.
|
AMENDMENT
OF THE PLAN
|
XIII.
|
EFFECTIVE
DATE AND TERM OF PLAN
|
XIV.
|
USE
OF PROCEEDS
|
XV.
|
REGULATORY
APPROVALS
|
ST.
BERNARD SOFTWARE, INC., a Delaware
corporation
By:
__________________________________
|
OPTIONEE:
______________________________
|
OPTIONEE:
______________________________
|
ST.
BERNARD SOFTWARE, INC., a
Delaware
corporation
By:
John
Jones, CEO
|
____________________________________ |
____________________________________ |