The Company excluded potentially dilutive securities for each period presented from its diluted EPS computation because either the exercise price of the securities exceeded the average fair value of the Company’s common stock or the Company had net losses, and, therefore, these securities were anti-dilutive. A summary of the excluded potentially dilutive securities and the related exercise/conversion features follows:

The stock options have per share exercise prices ranging from $0.08 to $33.25, $6.75 to $42.09, and $0.08 to $34.25, at December 31, 1999, 1998 and 1997, respectively.

The warrants to purchase shares of Common Stock of the Company (the “Series B Warrants”) were issued in connection with the conversion of certain shares of the Company’s Series B Preferred into shares of Common Stock of the Company. Upon conversion of the Series B Preferred, the holders are eligible to receive Series B Warrants to purchase that number of shares of the Company’s Common Stock equal to 20% of the shares of the Company’s Common Stock into which the Series B Preferred is convertible. As of December 31, 1999, approximately 1,939,000 Series B Warrants have been issued at a per share exercise price of $7.84. The Series B Warrants are exercisable through November 2002.

Warrants to purchase shares of the Company’s Series A-1 Preferred (the “Series A-1 Warrants”) were exercised into shares of Series A-1 Preferred at a per share price of $250 and converted into 8,125,000 shares of Common Stock during 1998. No Series A-1 Warrants were outstanding as of December 31, 1998 and 1999.

Certain of the outstanding shares of Cloudscape Common Stock held by employees are subject to repurchase upon termination of employment. The number of shares subject to this repurchase right decreases as the shares vest over time, generally for four years. As of December 31, 1999, 1998 and 1997, 212,000, 1,407,000, and 992,000 shares, respectively, were subject to repurchase at a weighted-average exercise price of $0.24, $0.13, and $0.02, respectively.

Option Plans

Under the Company’s 1986 Employee Stock Option Plan, options are granted at fair market value on the date of the grant. Options are generally exercisable in cumulative annual installments over three to five years. Payment for shares purchased upon exercise of options may be by cash or, with Board approval, by full recourse promissory note or by exchange of shares of the Company’s common stock at fair market value on the exercise date. Unissued options under the 1986 Plan expired on July 29, 1996, which was 10 years after adoption of the plan.

Additionally, 1,600,000 shares were authorized for issuance under the 1989 Outside Directors Stock Option Plan, whereby non-employee directors are automatically granted non-qualified stock options upon election or re-election to the Board of Directors. At December 31, 1999, 635,000 shares were available for grant under this Plan.