<PAGE>
As filed with the Securities and Exchange Commission on August 3, 1999
Registration No. 333-______________
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
LIBERATE TECHNOLOGIES
(Exact name of registrant as specified in its charter)
DELAWARE 7372 94-3245315
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation or organization) Classification Code Number)Identification No.)
1000 BRIDGE PARKWAY
REDWOOD SHORES, CALIFORNIA 94065
(650) 631-4600
(Address of principal executive offices) (Zip Code)
-------------------
NAVIO COMMUNICATIONS, INC. 1996 STOCK OPTION PLAN
NETWORK COMPUTER, INC. 1996 STOCK OPTION PLAN
LIBERATE TECHNOLOGIES 1999 EQUITY INCENTIVE PLAN
LIBERATE TECHNOLOGIES 1999 EMPLOYEE STOCK PURCHASE PLAN
LIBERATE TECHNOLOGIES INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN
NETWORK COMPUTER, INC. STOCK OPTION AGREEMENT WITH MITCHELL E. KERTZMAN
NETWORK COMPUTER, INC. STOCK OPTION AGREEMENT WITH DAVID ROUX
NAVIO COMMUNICATIONS, INC. NONQUALIFIED OPTION PLAN ("VENDOR PLAN")
SHARES ACQUIRED UNDER NETWORK COMPUTER, INC. STOCK OPTION
AGREEMENT WITH DAVID ROUX
(Full title of the Plans)
-------------------
MITCHELL E. KERTZMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LIBERATE TECHNOLOGIES
1000 BRIDGE PARKWAY
REDWOOD SHORES, CALIFORNIA 94065
(Name and address of agent for service)
(650) 631-4600
(Telephone number, including area code, of agent for service)
-------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of Proposed Maximum Proposed Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered (1) per Share Price Fee
---------- -------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
NAVIO COMMUNICATIONS, INC.
1996 STOCK OPTION PLAN
Options 906,056 N/A N/A N/A
Common Stock (par value $0.01) 906,056 $16 (2) $14,496,896 (2) $4,031
NETWORK COMPUTER, INC. 1996
STOCK OPTION PLAN
Options 3,848,432 N/A N/A N/A
Common Stock (par value $0.01) 3,848,432 $16 (2) $61,574,912 (2) $17,118
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
LIBERATE TECHNOLOGIES
1999 EQUITY INCENTIVE PLAN
Options 1,525,749 N/A N/A N/A
Common Stock (par value $0.01) 1,525,749 $16 (2) $24,411,984 (2) $6,787
LIBERATE TECHNOLOGIES 1999
EMPLOYEE STOCK PURCHASE PLAN(3)
Rights to Purchase 833,333 N/A N/A N/A
Common Stock (par value $0.01) 833,333 $16 (2) $13,333,328 (2) $3,707
LIBERATE TECHNOLOGIES INTERNATIONAL
EMPLOYEE STOCK PURCHASE PLAN(3)
Rights to Purchase 833,333 N/A N/A N/A
Common Stock (par value $0.01) 833,333 N/A N/A N/A
NETWORK COMPUTER, INC. STOCK OPTION
AGREEMENT WITH MITCHELL E. KERTZMAN
Options 1,666,666 N/A N/A N/A
Common Stock (par value $0.01) 1,666,666 $16 (2) $26,666,656 (2) $7,414
NETWORK COMPUTER, INC. STOCK OPTION
AGREEMENT WITH DAVID ROUX
Options 538,195 N/A N/A N/A
Common Stock (par value $0.01) 538,195 $16 (2) $ 8,611,120 (2) $2,394
NAVIO COMMUNICATIONS, INC.
NONQUALIFIED OPTION PLAN
(THE "VENDOR PLAN")
Options 27,149 N/A N/A N/A
Common Stock (par value $0.01) 27,149 $16 (2) $ 434,384 (2) $ 121
SHARES ACQUIRED UNDER NETWORK
COMPUTER, INC. STOCK OPTION
AGREEMENT WITH DAVID ROUX
Common Stock (par value $0.01) 295,138 $16 (2) $ 4,722,208 (2) $1,313
</TABLE>
(1) This Registration Statement shall also cover any additional shares
of Common Stock which become issuable under the Navio
Communications, Inc. Nonqualified Option Plan ("Vendor Plan"), the
Navio Communications, Inc. 1996 Stock Option Plan, the Network
Computer, Inc. 1996 Stock Option Plan, the Liberate Technologies
1999 Equity Incentive Plan, the Liberate Technologies 1999 Employee
Stock Purchase Plan, the Liberate Technologies International
Employee Stock Purchase Plan, the Network Computer, Inc. Stock
Option Agreement with Mitchell E. Kertzman and Network Computer,
Inc. Stock Option Agreement with David Roux (including the shares
already acquired under this stock option agreement) by reason of any
stock dividend, stock split, recapitalization or other similar
transaction effected without the receipt of consideration which
results in an increase in the number of the outstanding shares of
Common Stock of Liberate Technologies.
(2) Calculated solely for purposes of this offering under Rule 457(h) of
the Securities Act of 1933, as amended, on the basis of the fair market
value per share of Common Stock of Liberate Technologies on July 27,
1999.
(3) Combined share pool.
EXPLANATORY NOTE
Liberate Technologies ("Liberate" or the "Company") has prepared
this Registration Statement in accordance with the requirements of Form S-8
under the Securities Act of 1933, as amended (the "1933 Act"), to register
shares of its Common Stock, $0.01 par value per share. Under cover of this
Form S-8 is a Reoffer Prospectus that Liberate prepared in accordance with
Part I of Form S-3 under the Securities Act of 1933, as amended. The Reoffer
Prospectus may be utilized for reofferings and resales of up to 295,138
shares of Common Stock acquired by David J. Roux under the Network Computer,
Inc. Stock Option Agreement with David Roux.
<PAGE>
LIBERATE TECHNOLOGIES
FORM S-8 CROSS REFERENCE SHEET SHOWING LOCATION OF INFORMATION
REQUIRED BY PART I OF FORM S-3
<TABLE>
<CAPTION>
Form S-3 Item Number Location/Heading in Prospectus
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<S> <C>
1. Forepart of Registration Statement and Outside Cover page
Front Cover page of Prospectus
2. Inside Front and Outside Back Cover Page of Available Information;
Prospectus Incorporation of Certain
Information by Reference
3. Summary Information, Risk Factors and Ratio of Risk Factors
Earnings to Fixed Charges
4. Use of Proceeds Not applicable
5. Determination of Offering Price Not applicable
6. Dilution Not applicable
7. Selling Security Holder Selling Security Holder
8. Plan of Distribution Plan of Distribution
9. Description of Securities to be Registered Not Applicable
10. Interests of Named Experts and Counsel Not Applicable
11. Material Changes Not Applicable
12. Incorporation of Certain Information Documents Incorporated
by Reference
13. Disclosure of Commission Position on Indemnification
Indemnification for Securities Act Liabilities
</TABLE>
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. INCORPORATION OF DOCUMENTS BY REFERENCE
Liberate Technologies ("Liberate" or the "Company") hereby incorporates
by reference into this Registration Statement the following documents previously
filed with the Securities and Exchange Commission (the "SEC"):
(a) The Company's prospectus filed with the SEC pursuant to Rule
424(b) of the Securities Act of 1933, as amended (the "1933
Act"), in connection with the Registration Statement No.
333-78781 on Form S-1 filed with the SEC on May 19, 1999,
together with any and all amendments thereto, in which there
is set forth audited financial statements for the Company's
fiscal years ended May 31, 1998 and 1999; and
(b) The Company's Registration Statement No. 000-26565 on Form 8-A
filed with the SEC on July 1, 1999, together with all
amendments thereto, pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "1934 Act") in which
there is described the terms, rights and provisions applicable
to the Company's outstanding Common Stock.
All reports and definitive proxy or information statements filed
pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date
of this Registration Statement and prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have been sold
or which deregisters all securities then remaining unsold shall be deemed to
be incorporated by reference into this Registration Statement and to be a
part hereof from the date of filing of such documents.
Item 4. DESCRIPTION OF SECURITIES
Not Applicable.
Item 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
Not Applicable.
Item 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a
court to award or a corporation's board of directors to grant indemnification
to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the 1933 Act. Article VI,
Section 6.1, of the Company's Bylaws provides for mandatory indemnification
of its directors and officers and permissible indemnification of employees
and other agents to the maximum extent permitted by the Delaware General
Corporation Law. The Company's Fifth Amended and Restated Certificate of
Incorporation provides that, pursuant to Delaware law, its directors shall
not be liable for monetary damages for breach of the directors' fiduciary
duty as directors to the Company and its stockholders. This provision in the
Fifth Amended and Restated Certificate of Incorporation does not eliminate
the directors' fiduciary duty, and in appropriate circumstances equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental
laws. The Company has entered into Indemnification Agreements with its
officers and directors. The Indemnification Agreements provide the Company's
officers and directors with further indemnification to the maximum extent
permitted by the Delaware General Corporation Law. The Company maintains
liability insurance for its directors and officers.
II-1
<PAGE>
Item 7. EXEMPTION FROM REGISTRATION CLAIMED
Not Applicable.
Item 8. EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Exhibit
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<S> <C>
4 Instrument Defining Rights of Stockholders. Reference is
made to Company's Registration Statement No. 000-26565 on
Form 8-A, together with all amendments thereto, which is
incorporated herein by reference pursuant to Item 3(b) of
this Registration Statement.
5 Opinion and consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP is contained in Exhibit 5.
24 Power of Attorney. Reference is made to page II-3 of this Registration Statement.
99.1 Network Computer, Inc. Stock Option Agreement with David Roux.
</TABLE>
Item 9. UNDERTAKINGS
A. The undersigned Company hereby undertakes: (1) to file,
during any period in which offers or sales are being made, a post-effective
amendment to this Registration Statement (i) to include any prospectus
required by Section 10(a)(3) of the 1933 Act, (ii) to reflect in the
prospectus any facts or events arising after the effective date of this
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in
the information set forth in this Registration Statement and (iii) to include
any material information with respect to the plan of distribution not
previously disclosed in this Registration Statement or any material change to
such information in this Registration Statement; PROVIDED, however, that
clauses (1)(i) and (1)(ii) shall not apply if the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the SEC by the Company pursuant
to Section 13 or Section 15(d) of the 1934 Act that are incorporated by
reference in this Registration Statement; (2) that for the purpose of
determining any liability under the 1933 Act each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof and (3) to
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
Company's Navio Communications, Inc. Nonqualified Option Plan ("Vendor
Plan"), the Navio Communications, Inc. 1996 Stock Option Plan, the Network
Computer, Inc. 1996 Stock Option Plan, the Liberate Technologies 1999 Equity
Incentive Plan, the Liberate Technologies 1999 Employee Stock Purchase Plan,
the Liberate Technologies International Employee Stock Purchase Plan, the
Network Computer, Inc. Stock Option Agreement with Mitchell E. Kertzman and
the Network Computer, Inc. Stock Option Agreement with David Roux.
B. The undersigned Company hereby undertakes that, for purposes
of determining any liability under the 1933 Act, each filing of the Company's
annual report pursuant to Section 13(a) or Section 15(d) of the 1934 Act that
is incorporated by reference in this Registration Statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the
1933 Act may be permitted to directors, officers or controlling persons of
the Company pursuant to the indemnification provisions summarized in Item 6
or otherwise, the Company has been advised that, in the opinion of the SEC,
such indemnification is against public policy as expressed in the 1933 Act,
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933
Act and will be governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Company certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-8 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Redwood Shores, State of California
on this 30th day of July, 1999.
LIBERATE TECHNOLOGIES
By: /s/ Mitchell E. Kertzman
--------------------------
Mitchell E. Kertzman
President, Chief Executive
Officer and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of Liberate
Technologies, a Delaware corporation, do hereby constitute and appoint
Mitchell E. Kertzman and Nancy J. Hilker, and either of them, the lawful
attorneys-in-fact and agents with full power and authority to do any and all
acts and things and to execute any and all instruments which said attorneys
and agents, and either one of them, determine may be necessary or advisable
or required to enable said corporation to comply with the Securities Act of
1933, as amended, and any rules or regulations or requirements of the
Securities and Exchange Commission in connection with this Registration
Statement. Without limiting the generality of the foregoing power and
authority, the powers granted include the power and authority to sign the
names of the undersigned officers and directors in the capacities indicated
below to this Registration Statement, to any and all amendments, both
pre-effective and post-effective, and supplements to this Registration
Statement, and to any and all instruments or documents filed as part of or in
conjunction with this Registration Statement or amendments or supplements
thereof, and each of the undersigned hereby ratifies and confirms all that
said attorneys and agents, or either one of them, shall do or cause to be
done by virtue hereof. This Power of Attorney may be signed in several
counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power
of Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Mitchell E. Kertzman President, Chief Executive Officer and Director July 24, 1999
- ------------------------------------ (Principal Executive Officer)
Mitchell E. Kertzman
/s/ Nancy J. Hilker Vice President and Chief Financial Officer July 24, 1999
- ------------------------------------ (Principal Financial and Accounting Officer)
Nancy J. Hilker
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C> <C>
/s/ David J. Roux Chairman of the Board of Directors July 30, 1999
- ------------------------------------
David J. Roux
/s/ James L. Barksdale Director July 24, 1999
- ------------------------------------
James L. Barksdale
/s/ Charles Corfield Director July 22, 1999
- ------------------------------------
Charles Corfield
/s/ Lawrence J. Ellison Director July 22, 1999
- ------------------------------------
Lawrence J. Ellison
/s/ Jeffrey O. Henley Director July 22, 1999
- ------------------------------------
Jeffrey O. Henley
</TABLE>
II-4
<PAGE>
REOFFER PROSPECTUS
SHARES OF COMMON STOCK
LIBERATE TECHNOLOGIES
This Reoffer Prospectus relates to 295,138 shares of the common
stock, par value $0.01 (the "Common Stock"), of Liberate Technologies
("Liberate" or the "Company"), which may be offered from time to time by
David J. Roux (the "Registered Stockholder"). It is anticipated that the
Registered Stockholder will offer shares for sale at prevailing prices on the
Nasdaq National Market System on the date of sale. The Company will receive
no part of the proceeds of sale made hereunder. All expenses of registration
incurred in connection with this offering are being borne by the Company, but
all selling and other expenses incurred by the Registered Stockholder will be
borne by such Registered Stockholder.
The Common Stock is traded on the Nasdaq National Market System.
The Registered Stockholder and any broker executing selling orders
on behalf of the Registered Stockholder may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended (the "1933
Act"), in which event commissions received by such broker may be deemed to be
underwriting commissions under the 1933 Act.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE
CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person is authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering described herein, and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Company or any Registered Stockholder. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, nor shall there be any
sale of these securities by any person in any jurisdiction in which it is
unlawful for such person to make such offer, solicitation or sale. Neither
the delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create an implication that the information contained herein is
correct as of any time subsequent to the date hereof.
The date of this Prospectus is August 3, 1999.
<PAGE>
AVAILABLE INFORMATION
The Company will be subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934
Act") upon the first date on which its Common Stock is registered under
Section 12(g) of the 1934 Act and in accordance therewith will file reports,
proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Such reports, proxy statements and other information
can be inspected and copied at the Public Reference Room of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices
at 219 South Dearborn Street, Chicago, IL 60604; 26 Federal Plaza, New York,
NY 10007; and 5757 Wilshire Boulevard, Los Angeles, CA 90036, at prescribed
rates. The Common Stock is quoted on the Nasdaq National Market System.
Reports, proxy statements, informational statements and other information
concerning the Company can be inspected at the offices of the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington,
D.C. 20006.
The Company intends to furnish its stockholders with annual reports
containing additional financial statements and a report thereon by
independent certified public accountants.
A copy of any document incorporated by reference in the Registration
Statement (not including exhibits to the information that is incorporated by
reference unless such exhibits are specifically incorporated by reference
into the information that the Registration Statement incorporates) of which
this Reoffer Prospectus forms a part but which is not delivered with this
Reoffer Prospectus will be provided by the Company without charge to any
person (including any beneficial owner) to whom this Reoffer Prospectus has
been delivered upon the oral or written request of such person. Such request
should be directed to Gordon Yamate, Liberate Technologies, 1000 Bridge
Parkway, Redwood Shores, California 94065. The Company's telephone number at
that location is (650) 631-4600.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE COMPANY.................................................................... 3
RISK FACTORS................................................................... 4
REGISTERED STOCKHOLDER......................................................... 14
PLAN OF DISTRIBUTION........................................................... 14
DOCUMENTS INCORPORATED BY REFERENCE............................................ 15
INDEMNIFICATION................................................................ 15
</TABLE>
2
<PAGE>
THE COMPANY
We are a leading provider of a comprehensive software platform
for delivering Internet-enhanced content and applications to information
appliances, such as television set-top boxes, game consoles, smart phones and
personal digital assistants. Our software allows network operators, such as
telecommunications companies, cable and satellite television operators and
Internet service providers, or ISPs, and information appliance manufacturers
to provide consumers access to Internet-based applications and services from
anywhere at anytime.
Network operators are investing billions of dollars to deliver high
speed Internet access to their customers so that they can deliver new and
enhanced voice, video and data services. As a result, the number of U.S.
households with access to high speed networks is expected to grow
significantly. At the same time, network operators seek to deliver these
services to an increasing number of electronic devices being adopted by
consumers. These "information appliances," a new category of low-cost devices
used for everyday activities that are designed to be connected to the
Internet, are becoming increasingly popular with consumers. In particular,
network operators have identified the television as the most attractive
device for the delivery of these new services because it has powerful sound
and display capabilities and is so broadly owned.
We provide network operators and information appliance manufacturers
with a software platform that manages the delivery of Internet content and
applications to a large number of consumers employing many different
information appliances. Our platform includes server and client software and
adheres to Internet standards. Our server software is designed to allow
network operators to offer these services to millions of subscribers. Using
our client software, information appliance manufacturers can enhance their
products, even those with limited memory and computing resources, by adding
Internet capability. Our open platform also creates a uniform environment for
developers to enhance existing content and create new Internet applications
and services.
As of May 31, 1999, we have licensed our server and client software
to over 30 network operators and information appliance manufacturers. Our
network operator customers include America Online, Cable & Wireless, NTL and
U S WEST. Our information appliance manufacturer customers include Acer,
Fujitsu, General Instrument, Hughes Network Systems, NEC and Philips. In
addition, we have developed strategic alliances with leading technology
vendors such as Cisco Systems, Inktomi, Lucent Technologies, Netscape, Oracle
and Sun Microsystems. We have also recently solidified relationships with
several large network operators, such as Comcast, Cox Communications,
MediaOne, Rogers Communications and Shaw Communications, through a sale of
equity completed in May 1999.
We began operations as a division of Oracle in 1995 and were
incorporated in April 1996. In August 1997, we acquired Navio Communications.
We began shipping our initial products in the last quarter of fiscal 1997.
Accordingly, we have a limited operating history that makes evaluation of our
business and prospects difficult. As of May 31, 1999, we had an accumulated
deficit of $149.7 million. In addition, since our inception, we have not had
a profitable quarter and we may never achieve or sustain profitability. In
order for us to be successful, network operators need to deploy and promote
services that incorporate our technology. To date, only a limited number of
network operators have begun to deploy services incorporating our technology
and we have no ability to control if and when additional network operators
will deploy services incorporating our technology.
Our principal executive offices are located at 1000 Bridge Parkway,
Redwood Shores, California 94065 and our telephone number is (650) 631-4600.
Our World Wide Web address is www.liberate.com. Information on our web site
does not constitute part of this prospectus.
3
<PAGE>
RISK FACTORS
WE HAVE A LIMITED OPERATING HISTORY THAT MAKES AN EVALUATION OF OUR BUSINESS
DIFFICULT
We were incorporated in April 1996 and began shipping our initial
products to customers in the last quarter of fiscal 1997. Our limited
operating history makes evaluation of our business and prospects difficult.
Companies in an early stage of development frequently encounter heightened
risks and unexpected expenses and difficulties. For us, these risks include
the:
- Limited number of network operators that have deployed products and
services incorporating our technology;
- Limited number of information appliance manufacturers that have
incorporated our technology into their products;
- Delays in deployment of high speed networks and Internet-enhanced
services and applications by our network operator customers; and
- Our unproven long-term business model, which depends on generating the
majority of our revenues from royalty fees paid by network operators
and information appliance manufacturers.
These risks, expenses and difficulties apply particularly to us because our
market, the information appliance software market, is new and rapidly
evolving.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE
We incurred net losses of approximately $3.3 million in fiscal 1996,
$19.0 million in fiscal 1997, $94.4 million in fiscal 1998 and $33.1 million
in fiscal 1999. Our net losses of $94.4 million in fiscal 1998 included a
$58.1 million charge related to acquired in-process research and development.
As of May 31, 1999, we had an accumulated deficit of approximately $149.7
million. Since our inception, we have not had a profitable quarter and may
never achieve or sustain profitability. Although our revenues increased from
fiscal 1997 to fiscal 1998 and from fiscal 1998 to fiscal 1999, we may not be
able to sustain our historical revenue growth rates. We also expect to
continue to incur increasing research and development, sales and marketing
and general and administrative expenses. If we are to achieve profitability
given our planned expenditure levels, we will need to generate and sustain
substantially increased license and royalty revenues; however, we are
unlikely to be able to do so for the foreseeable future. As a result, we
expect to incur significant and increasing losses and negative cash flows for
the foreseeable future. In addition, approximately 65% of our revenues
through May 31, 1999 have been derived from services provided by us and not
from license and royalty fees paid by network operators and information
appliance manufacturers in conjunction with the deployment of products and
services incorporating our software products. If we are unable to derive a
greater proportion of our revenues from these license and royalty fees, our
losses will likely continue indefinitely.
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE VOLATILE AND MAY CAUSE OUR
STOCK PRICE TO FLUCTUATE
Our quarterly operating results have varied in the past and are
likely to vary significantly from quarter to quarter. As a result, we believe
that period-to-period comparisons of our operating results are not a good
indication of our future performance. Moreover, we expect to derive
substantially all of our revenues for the near-term from license fees and
related consulting and support services. Over the longer term, to the extent
deployments increase, we expect to derive an increasing portion of our
revenues from royalties paid by network operators and information appliance
manufacturers. If deployments do not increase or this transition otherwise
does not occur, we are unlikely to be able to generate or sustain
substantially increased revenue and our operating results will be seriously
harmed.
In the short-term, we expect our quarterly revenues to be
significantly dependent on the sale of a small number of relatively large
orders for our products and services, which generally have a long sales
cycle. As a result,
4
<PAGE>
our quarterly operating results may fluctuate significantly if we are unable
to complete one or more substantial sales in any given quarter. In many
cases, we recognize revenues from services on a percentage of completion
basis. Our ability to recognize these revenues may be delayed if we are
unable to meet service milestones on a timely basis. Moreover, because our
expenses are relatively fixed in the near term, any shortfall from
anticipated revenues could result in losses for the quarter.
Although we have limited historical financial data, we have
experienced and expect to continue to experience seasonality in revenues.
Revenues in our quarter ending August 31 are typically lower relative to our
other quarters. These seasonal trends may continue to affect our
quarter-to-quarter revenues.
THE MARKET FOR INFORMATION APPLIANCES IS NEW AND MAY NOT DEVELOP AS WE
ANTICIPATE
Because the information appliance market is newly emerging, the
potential size of this new market opportunity and the timing of its
development are uncertain. As a result, our profit potential is unproven. We
are dependent upon the commercialization and broad acceptance by consumers
and businesses of a wide variety of information appliances including, among
others, television set-top boxes, game consoles, smart phones and personal
digital assistants. Initial commercialization efforts in this industry have
been primarily focused on television set-top boxes. Broad acceptance of all
information appliances, particularly television set-top boxes, will depend on
many factors. These factors include:
- The willingness of large numbers of consumers to use devices other
than personal computers to access the Internet;
- The development of content and applications for information
appliances; and
- The emergence of industry standards that facilitate the distribution
of content over the Internet to these devices.
If the market for information appliances does not develop or develops more
slowly than we anticipate, our revenues will not grow as fast as anticipated,
if at all.
OUR SUCCESS DEPENDS ON NETWORK OPERATORS INTRODUCING, MARKETING AND PROMOTING
PRODUCTS AND SERVICES FOR INFORMATION APPLIANCES BASED ON OUR TECHNOLOGY
Our success depends on large network operators introducing,
marketing and promoting products and services based on our technology. There
are, however, only a limited number of large network operators worldwide.
Moreover, only a limited number of network operators have introduced or are
in the process of deploying products and services incorporating our
technology and services for information appliances. In addition, none of our
network operator customers is contractually obligated to introduce, market or
promote products and services incorporating our technology, nor are any of
our network operator customers contractually required to achieve any specific
introduction schedule. Accordingly, even if a network operator initiates a
customer trial of products incorporating our technology, that operator is
under no obligation to continue its relationship with us or to launch a
full-scale deployment of these products. Further, our agreements with network
operators are not exclusive, so network operators with whom we have
agreements may enter into similar license agreements with one or more of our
competitors.
Moreover, because the large-scale deployment of products and
services incorporating our technology by network operators is complex,
time-consuming and expensive, each deployment of these products and services
requires our expertise to tailor our technology to the customer's particular
product offering. This customization process requires a lengthy and
significant commitment of resources by our customers and us. This commitment
of resources may slow deployment which could, in turn, delay market
acceptance of these products and services. Unless network operators
introduce, market and promote products and services incorporating our
technology in a successful and timely manner, our software platform will not
achieve widespread acceptance, information appliance manufacturers will not
use our software in their products and our revenues will not grow as fast as
anticipated, if at all.
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IF INFORMATION APPLIANCE MANUFACTURERS DO NOT MANUFACTURE PRODUCTS THAT
INCORPORATE OUR TECHNOLOGY, OR IF THESE PRODUCTS DO NOT ACHIEVE ACCEPTANCE, WE
MAY NOT BE ABLE TO SUSTAIN OR GROW OUR BUSINESS
We do not manufacture hardware components that incorporate our
technology. Rather, we license software technology to information appliance
manufacturers. Accordingly, our success will depend, in part, upon our
ability to convince a number of information appliance manufacturers to
manufacture products incorporating our technology and the successful
introduction and commercial acceptance of these products. Our efforts in this
regard are significantly dependent on network operators deploying services
using our server software.
While we have entered into a number of agreements with information
appliance manufacturers, none of these manufacturers is contractually
obligated to introduce or market information appliances incorporating our
technology, nor is any of them contractually required to achieve any specific
production schedule. Moreover, our agreements with information appliance
manufacturers are not exclusive, so information appliance manufacturers with
whom we have agreements may enter into similar license agreements with one or
more of our competitors. Our failure to convince information appliance
manufacturers to incorporate our software platform into their products, or
the failure of these products to achieve broad acceptance with consumers and
businesses, will result in revenues that do not grow as fast as expected, if
at all.
COMPETITION FROM BIGGER, BETTER CAPITALIZED COMPETITORS COULD RESULT IN PRICE
REDUCTIONS, REDUCED GROSS MARGINS AND LOSS OF MARKET SHARE
Competition in the information appliance software market is intense.
Our principal competitors on the client software side include Microsoft,
OpenTV and Spyglass. On the server side, our primary competitor is Microsoft.
We expect additional competition from other established and emerging
companies. We expect competition to persist and intensify as the information
appliance market develops and competitors focus on additional product and
service offerings. Increased competition could result in price reductions,
fewer customer orders, reduced gross margins, longer sales cycles, reduced
revenues and loss of market share.
Many of our existing and potential competitors, particularly
Microsoft, have longer operating histories, a larger customer base, greater
name recognition and significantly greater financial, technical, sales and
marketing and other resources than we do. This may place us at a disadvantage
in responding to our competitors' pricing strategies, technological advances,
advertising campaigns, strategic partnerships and other initiatives. In
addition, many of our competitors have well-established relationships with
our current and potential customers. Moreover, some of our competitors,
particularly Microsoft, have significant financial resources which have
enabled them in the past and may enable them in the future to make large
strategic investments in our current and potential customers. Such
investments may enable competitors to strengthen existing relationships or
quickly establish new relationships with our current or potential customers.
For example, as a result of a recent investment in AT&T, Microsoft obtained a
non-exclusive licensing agreement under which AT&T will purchase at least 7.5
million licenses of Microsoft software for television set-top boxes.
Investments such as this may discourage our potential or current customers
who receive the investment from deploying our information appliance software,
regardless of their views of the relative merits of our products and services.
ORACLE'S OWNERSHIP OF OUR STOCK AND OTHER RELATIONSHIPS WITH US COULD LIMIT
THE ABILITY OF OTHER STOCKHOLDERS TO INFLUENCE THE OUTCOME OF DIRECTOR
ELECTIONS AND OTHER TRANSACTIONS SUBMITTED FOR A VOTE OF OUR STOCKHOLDERS
Based on 34,016,811 shares outstanding on May 31, 1999, Oracle will
beneficially own approximately 48% of our outstanding capital stock following
our initial public offering and the private placement. In addition, in May
1999, we entered into a voting agreement with Oracle, Comcast, Cox
Communications and MediaOne. Under this agreement, among other things,
Comcast, Cox and MediaOne have agreed to vote the shares of our common stock
held by them in order to elect a representative designated by Oracle to our
board of directors. Currently, two of our six directors are directors and
officers of Oracle. As a result, Oracle, acting both through our board of
directors and through its ownership of our capital stock, will exert
significant influence over us. This concentration of ownership could also
have the effect of delaying or preventing a third party from acquiring
control over us at a premium over the then-current market price of our common
stock.
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In addition, Oracle has significant influence in our day-to-day
business because, among other things, it provides us with a distribution
channel for our products in Asia/Pacific, Europe and the United States and
assists us in providing our customers with support. We have also entered into
several commercial, technological and financial arrangements with Oracle on
which our business depends. If Oracle terminates these arrangements, if
Oracle does not fulfill its obligations under these arrangements, if Oracle
ever acts in a way that is adverse to our interests, or if we are no longer
eligible to receive the benefits of these arrangements, we may need to find
alternative distribution channel partners, seek alternative technologies for
our products and services and find alternative financial resources.
WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON A LIMITED NUMBER OF
CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR REVENUES
We currently derive, and we expect to continue to derive, a
significant portion of our revenues from a limited number of customers. For
fiscal 1998, our five largest customers accounted for approximately 48% of
our total revenues, with Wind River Systems accounting for 16% and Thomson
Multimedia accounting for 10% of our total revenues. For fiscal 1999, our
five largest customers accounted for approximately 54% of our total revenues,
with Wind River Systems accounting for 23% of our total revenues and Cable &
Wireless accounting for 10% of our total revenues. We expect that we will
continue to be dependent upon a limited number of customers for a significant
portion of our revenues in future periods, although the customers may vary
from period to period. As a result, if we fail to successfully sell our
products and services to one or more customers in any particular period, or a
large customer purchases less of our products or services, defers or cancels
orders, or terminates its relationship with us, our revenues could decline
significantly.
OUR LENGTHY SALES CYCLE MAY CAUSE FLUCTUATIONS IN OUR OPERATING RESULTS,
WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE
We believe that the purchase of our products and services involves a
significant commitment of capital and other resources by a customer. In many
cases, the decision for our customers to use our products and services
requires them to change their established business practices and conduct
their business in new ways. As a result, we may need to educate our potential
customers on the use and benefits of our products and services. In addition,
our customers generally must consider a wide range of other issues before
committing to purchase and incorporate our technology into their offerings.
As a result of these and other factors, including the approval at a number of
levels of management within a customer's organization, our sales cycle
averages from six to 12 months and may sometimes be significantly longer.
Because of the length of our sales cycle, we have a limited ability to
forecast the timing and amount of specific sales.
In addition, we base our quarterly revenue projections, in part,
upon our expectation that specific sales will occur in a particular quarter.
In the past, our sales have occurred in quarters other than those anticipated
by us. If our expectations, and thus our revenue projections, are not
accurate for a particular quarter, our actual operating results for that
quarter could fall below the expectations of financial analysts and investors.
DEMAND FOR OUR PRODUCTS AND SERVICES WILL DECLINE SIGNIFICANTLY IF OUR
SOFTWARE CANNOT SUPPORT AND MANAGE A SUBSTANTIAL NUMBER OF USERS
Despite frequent testing of our software's scalability in a
laboratory environment, the ability of our software platform to support and
manage a substantial number of users in an actual deployment is uncertain. If
our software platform does not efficiently scale to support and manage a
substantial number of users while maintaining a high level of performance,
demand for our products and services and our ability to sell additional
products to our existing customers will be significantly reduced.
INTERNATIONAL REVENUES ACCOUNT FOR A SIGNIFICANT PORTION OF OUR REVENUES;
ACCORDINGLY, IF WE ARE UNABLE TO EXPAND OUR INTERNATIONAL OPERATIONS IN A
TIMELY MANNER, OUR GROWTH IN INTERNATIONAL REVENUES WILL BE LIMITED
International revenues accounted for approximately 77% of our total
revenues in fiscal 1997, 50% of our total revenues in fiscal 1998 and 51% of
our total revenues in fiscal 1999. We anticipate that a significant portion
of
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our revenues for the foreseeable future will be derived from sources outside
the United States, especially as we increase our sales and marketing
activities with respect to international licensing of our technology.
Accordingly, our success will depend, in part, upon international economic
conditions and upon our ability to manage international sales and marketing
operations. To date, we have relied primarily on Oracle for the international
distribution of our products and services in Asia/ Pacific. To successfully
expand international sales, we must establish additional foreign operations,
hire additional personnel, and increase our foreign direct and indirect sales
forces. This expansion will require significant management attention and
resources, which could divert attention from other aspects of our business.
To the extent we are unable to expand our international operations in a
timely manner, our growth in international sales, if any, will be limited.
Moreover, substantially all of our revenues and costs to date have
been denominated in U.S. dollars. However, expanded international operations
may result in increased foreign currency payables. Although we may from time
to time undertake foreign exchange hedging transactions to cover a portion of
our foreign currency transaction exposure, we do not currently attempt to
cover potential foreign currency exposure. Accordingly, any fluctuation in
the value of foreign currency could seriously harm our ability to increase
international revenues.
WE MAY HAVE TO CEASE OR DELAY PRODUCT SHIPMENTS IF WE ARE UNABLE TO OBTAIN
KEY TECHNOLOGY FROM THIRD PARTIES
We rely on technology licensed from third parties, including
applications that are integrated with internally developed software and used
in our products. Most notably, we license the VxWorks real time operating
system from Wind River Systems, font technology from BitStream and multimedia
architecture from RealNetworks. These third-party technology licenses may not
continue to be available to us on commercially reasonable terms, or at all,
and we may not be able to obtain licenses for other existing or future
technologies that we desire to integrate into our products. If we cannot
maintain existing third-party technology licenses or enter into licenses for
other existing or future technologies needed for our products we would be
required to cease or delay product shipments while we seek to develop
alternative technologies.
WE DO NOT CURRENTLY HAVE LIABILITY INSURANCE TO PROTECT AGAINST THIRD-PARTY
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT COULD BE EXPENSIVE TO DEFEND
We expect that, like other software product developers, we will
increasingly be subject to infringement claims as the number of products and
competitors developing information appliance software grows and the
functionality of products in different industry segments overlaps. From time
to time, we hire or retain employees or consultants who have worked for
independent software vendors or other companies developing products similar
to those offered by us. These prior employers may claim that our products are
based on their products and that we have misappropriated their intellectual
property. We cannot guarantee that:
- An infringement claim will not be asserted against us in the future;
- The assertion of such a claim will not result in litigation;
- We would prevail in such litigation; or
- We would be able to obtain a license for the use of any
infringed intellectual property from a third party on
commercially reasonable terms, or at all.
We currently do not have liability insurance to protect against the
risk that licensed third-party technology infringes the intellectual property
of others. Any claims relating to our intellectual property, regardless of
their merit, could seriously harm our ability to develop and market our
products and manage our day-to-day operations because they could:
- Be time consuming and costly to defend;
- Divert management's attention and resources;
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<PAGE>
- Cause product shipment delays;
- Require us to redesign our products; or
- Require us to enter into royalty or licensing agreements.
WE COULD SUFFER LOSSES AND NEGATIVE PUBLICITY IF OUR TECHNOLOGY CAUSES A FAILURE
OF OUR NETWORK OPERATOR CUSTOMERS' SYSTEMS
Our technology is integrated into the products and services of our
network operator customers. Accordingly, a defect, error or performance
problem with our technology could cause our customers' telecommunication,
cable and satellite television or Internet service systems to fail for a
period of time. Any such failure will cause severe customer service and
public relations problems for our customers. As a result, any failure of our
network operator customers' systems caused by our technology could result m:
- Delayed or lost revenue due to adverse customer reaction;
- Negative publicity regarding us and our products and services; and
- Claims for substantial damages against us, regardless of our
responsibility for such failure.
Any claim could be expensive and require the expenditure of a
significant amount of resources regardless of whether we prevail. We
currently do not have liability insurance to protect against this risk.
OUR SUCCESS DEPENDS ON OUR ABILITY TO KEEP PACE WITH THE LATEST TECHNOLOGICAL
CHANGES BUT WE HAVE EXPERIENCED AND MAY IN THE FUTURE EXPERIENCE DELAYS IN
COMPLETING DEVELOPMENT AND INTRODUCTION OF NEW SOFTWARE PRODUCTS
The market for information appliance software is characterized by
evolving industry standards, rapid technological change and frequent new
product introductions and enhancements. Our technology enables network
operators to deliver content and applications to information appliances over
the Internet. Accordingly, our success will depend in large part upon our
ability to adhere to and adapt our products to evolving Internet protocols
and standards. Therefore, we will need to develop and introduce new products
that meet changing customer requirements and emerging industry standards on a
timely basis. In the past, we have experienced delays in completing the
development and introduction of new software products. We may encounter such
delays in the development and introduction of future products as well. In
addition, we may:
- Fail to design our current or future products to meet customer
requirements;
- Fail to develop and market products and services that
respond to technological changes or evolving industry
standards in a timely or cost-effective manner; and
- Encounter products, capabilities or technologies developed
by others that render our products and services obsolete
or noncompetitive or that shorten the life cycles of our
existing products and services.
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS MAY HARM OUR COMPETITIVENESS
Our ability to compete and continue to provide technological
innovation is substantially dependent upon internally developed technology.
We rely primarily on a combination of trademark laws, copyright laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary technology. In addition, we have 16 patent applications pending
in the United States. Patents may not be issued from these or any future
applications. Even if they are issued, these patents may not survive a legal
challenge to their validity or provide significant protection for us.
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The steps we have taken to protect our proprietary rights may not be
adequate to prevent misappropriation of our proprietary information. Further,
we may not be able to detect unauthorized use of, or take appropriate steps
to enforce, our intellectual property rights. Our competitors may also
independently develop similar technology. In addition, the laws of many
countries do not protect our proprietary rights to as great an extent as do
the laws of the United States. Any failure by us to meaningfully protect our
intellectual property could result in competitors offering products that
incorporate our most technologically advanced features, which could seriously
reduce demand for our products and services.
FAILURE TO MANAGE OUR GROWTH MAY SERIOUSLY HARM OUR ABILITY TO DELIVER
PRODUCTS IN A TIMELY MANNER, FULFILL EXISTING CUSTOMER COMMITMENTS AND
ATTRACT AND RETAIN NEW CUSTOMERS
Our rapid growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational and financial resources,
especially as more network operators and information appliance manufacturers
incorporate our software into their products and services. This potential for
rapid growth is particularly significant in light of the large customer bases
of network operators and information appliance manufacturers and the frequent
need to tailor our products and services to our customers' unique needs. To
the extent we add several customers simultaneously or add customers whose
product needs require extensive customization, we may need to significantly
expand our operations. Moreover, we expect to significantly expand our
domestic and international operations by, among other things, expanding the
number of employees in professional services, research and development and
sales and marketing.
This additional growth will place a significant strain on our
limited personnel, financial and other resources. Our future success will
depend, in part, upon the ability of our senior management to manage growth
effectively. This will require us to implement additional management
information systems, to further develop our operating, administrative,
financial and accounting systems and controls, to hire additional personnel,
to develop additional levels of management within the corporation, to locate
additional office in the United States and internationally and to maintain
close coordination among our development, accounting, finance, sales and
marketing, consulting services and customer service and support
organizations. Failure to accomplish any of these requirements would
seriously harm our ability to deliver products in a timely fashion, fulfill
existing customer commitments and attract and retain new customers.
THE LOSS OF ANY OF OUR KEY PERSONNEL WOULD HARM OUR COMPETITIVENESS
We believe that our success will depend on the continued employment
of our senior management team and key technical personnel, none of whom,
except Mitchell E. Kertzman, our President and Chief Executive Officer, has
an employment agreement with us. If one or more members of our senior
management team or key technical personnel were unable or unwilling to
continue in their present positions, these individuals would be very
difficult to replace and our ability to manage day-to-day operations, develop
and deliver new technologies, attract and retain customers, attract and
retain other employees and generate revenues, would be seriously harmed.
OUR PLANNED EXPANSION OF OUR INDIRECT DISTRIBUTION CHANNELS WILL BE EXPENSIVE
AND MAY NOT SUCCEED
To date, we have sold our products and services principally through
our direct sales force. In the future, we intend to expand the number and
reach of our indirect channel partners, primarily overseas, through
distribution agreements similar to the one we have with Oracle. The
development of these indirect channels will require the investment of
significant company resources, which could seriously harm our business if our
efforts do not generate significant revenues. Moreover, we may not be able to
attract indirect channel partners that will be able to effectively market our
products and services. The failure to recruit indirect channel partners that
are able to successfully market our products and services could seriously
hinder the growth of our business.
WE MAY NEED TO MAKE ACQUISITIONS IN ORDER TO REMAIN COMPETITIVE IN OUR
MARKET, AND POTENTIAL FUTURE ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE,
DISRUPT OUR BUSINESS AND DILUTE STOCKHOLDER VALUE
Although we have no current plans to do so, we may acquire other
businesses in the future in order to remain competitive or to acquire new
technologies. As a result of these acquisitions, we may need to integrate
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product lines, technologies, widely dispersed operations and distinct
corporate cultures. The product lines or technologies of the acquired
companies may need to be altered or redesigned in order to be made compatible
with our software products or the software architecture of our customers.
These integration efforts may not succeed or may distract our management from
operating our existing business. Our failure to successfully manage future
acquisitions could seriously harm our operating results. In addition, our
stockholders would be diluted if we finance the acquisitions by incurring
convertible debt or issuing equity securities.
DEMAND FOR OUR PRODUCTS AND SERVICES WILL NOT INCREASE IF THE INTERNET DOES
NOT CONTINUE TO GROW AND IMPROVE
Acceptance of our software platform depends substantially upon the
widespread adoption of the Internet for commerce, communications and
entertainment. As is typical in the case of an emerging industry
characterized by rapidly changing technology, evolving industry standards and
frequent new product and service introductions, demand for and acceptance of
recently introduced Internet products and services are subject to a high
level of uncertainty. In addition, critical issues concerning the commercial
use of the Internet remain unresolved and may affect the growth of Internet
use, especially in the consumer markets we target. The adoption of the
Internet for commerce, communications and access to content and applications,
particularly by those that have historically relied upon alternative means of
commerce, communications and access to content and applications, generally
requires understanding and acceptance of a new way of conducting business and
exchanging information. Moreover, widespread application of the Internet
outside of the United States will require reductions in the cost of Internet
access to prices affordable to the average consumer.
To the extent that the Internet continues to experience an increase
in users, an increase in frequency of use or an increase in the amount of
data transmitted by users, we cannot guarantee that the Internet
infrastructure will be able to support the demands placed upon it. In
addition, the Internet could lose its viability as a commercial medium due to
delays in development or adoption of new standards or protocols required to
handle increased levels of Internet activity, or due to increased government
regulation. Changes in, or insufficient availability of, telecommunications
or similar services to support the Internet could also result in slower
response times and could adversely impact use of the Internet generally. If
use of the Internet does not continue to grow or grows more slowly than
expected, or if the Internet infrastructure, standards, protocols or
complementary products, services or facilities do not effectively support any
growth that may occur, demand for our products and services will decline
significantly.
INCREASING GOVERNMENT REGULATION COULD CAUSE DEMAND FOR OUR PRODUCTS AND
SERVICES TO DECLINE SIGNIFICANTLY
We are subject not only to regulations applicable to businesses
generally, but also laws and regulations directly applicable to the Internet.
Although there are currently few such laws and regulations, state, federal
and foreign governments may adopt a number of these laws and regulations
governing any of the following issues:
- User privacy;
- Copyrights;
- Consumer protection;
- Taxation of e-commerce;
- The online distribution of specific material or content; and
- The characteristics and quality of online products and services.
We do not engage in e-commerce, nor do we distribute content over
the Internet. However, one or more states or the federal government could
enact regulations aimed at companies, like us, which provide software that
facilitates e-commerce and the distribution of content over the Internet. The
likelihood of such regulation being
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enacted will increase as the Internet becomes more pervasive and extends to
more of people's daily lives. Any such legislation or regulation could dampen
the growth of the Internet and decrease its acceptance as a communications
and commercial medium. If such a reduction in growth occurs, demand for our
products and services will decline significantly.
WE EXPECT OUR OPERATIONS TO CONTINUE TO PRODUCE A NEGATIVE CASH FLOW;
CONSEQUENTLY, IF WE CANNOT RAISE ADDITIONAL CAPITAL, WE MAY NOT BE ABLE TO
FUND OUR CONTINUED OPERATIONS
Since our inception, cash used in our operations has substantially
exceeded cash received from our operations, and we expect this trend to
continue for the foreseeable future. We expect that the net proceeds from our
initial public offering and the private placement will be sufficient to meet
our working capital and capital expenditure needs for at least the next
twelve months. After that, we may need to raise additional funds, and we
cannot be certain that we will be able to obtain additional financing on
favorable terms, or at all. If we need additional capital and cannot raise it
on acceptable terms, we may not be able to, among other things:
- Develop or enhance our products and services;
- Acquire complementary technologies, products or businesses;
- Open new offices, in the United States or internationally;
- Hire, train and retain employees; or
- Respond to competitive pressures or unanticipated requirements.
PROVISIONS OF OUR CORPORATE DOCUMENTS AND DELAWARE LAW COULD DETER TAKEOVERS
AND PREVENT YOU FROM RECEIVING A PREMIUM FOR YOUR SHARES
Provisions of our certificate of incorporation and bylaws as well as
provisions of Delaware law, could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders.
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED
STOCK PRICE VOLATILITY
In the past, securities class action litigation has often been
brought against a company following periods of volatility in the market price
of its securities. This risk is especially acute for us because technology
companies have experienced greater than average stock volatility in recent
years and, as a result, have been subject to, on average, a greater number of
securities class action claims than companies in other industries. Due to the
potential volatility of our stock price, we may in the future be the target
of similar litigation. Securities litigation could result in substantial
costs and divert management's attention and resources.
WE MAY INCUR NET LOSSES OR INCREASED NET LOSSES IF WE ARE REQUIRED TO RECORD
A SIGNIFICANT ACCOUNTING EXPENSE RELATED TO THE ISSUANCE OF WARRANTS
Under the terms of letter agreements with particular network
operators entered into in April and May 1999, we agreed to issue warrants to
purchase up to an aggregate of 2,299,996 shares of our common stock if these
network operators satisfy commercial milestones. In the event the milestones
are met, we will be required to record a significant non-cash accounting
expense based upon the value of the warrants at the time the milestones are
satisfied. If we are required to record non-cash accounting expenses related
to these warrants, we could incur net losses or increased net losses for a
given period and this could seriously harm our operating results and stock
price. As of May 31, 1999, we had issued warrants to purchase up to 208,333
shares of our common stock to two network operators for satisfying commercial
milestones. In connection with the issuance of these warrants, approximately
$18,000 was recorded as a charge to operations during fiscal 1999.
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PURCHASERS IN THE OFFERING WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price of our common stock is
substantially higher than the book value per share of the outstanding common
stock. Accordingly, if an investor purchases common stock in the initial
public offering or this offering, the investor will experience immediate
dilution of approximately $13.41 in the book value per share of the common
stock from the price the investor pays for the common stock. To the extent
that outstanding options or warrants to purchase our common stock are
exercised, or options or warrants reserved for issuance are issued and
exercised, each stockholder purchasing in the initial public offering or this
offering will experience further substantial dilution.
OUR STOCK PRICE COULD BE AFFECTED BY SHARES BECOMING AVAILABLE FOR SALE IN
THE FUTURE
In the initial public offering, we sold only 6,250,000 shares of
common stock, which represented approximately 15.2% of the total outstanding
shares of our stock. Consequently, if new investors or our current
stockholders sell substantial amounts of our common stock, including shares
issued upon the exercise of outstanding options and warrants, in the public
market following the initial public offering, the market price of our common
stock could fall. The negative effect of such sales on our common stock
market price could be more pronounced given the relatively small number of
shares offered to the public in the initial public offering relative to the
total number of shares of our common stock to be outstanding following the
initial public offering. In addition, such sales could create the perception
to the public of difficulties or problems with our products and services. As
a result, these sales may make it more difficult us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate.
Based on the shares outstanding as of May 31, 1999 and upon
completion of the initial public offering and the private placement, we will
have outstanding 41,080,613 shares of common stock, assuming no exercise of
the underwriters' over-allotment option and no exercise of outstanding
options or warrants. In addition, options to purchase 7,000,906 shares of our
common stock and warrants to purchase 208,333 shares of our common stock will
remain outstanding upon the completion of the initial public offering and the
private placement. All options and warrants outstanding upon the completion
of the initial public offering and the private placement will have exercise
prices below the offering price. The shares sold in the initial public
offering are freely tradable. The remaining 34,830,613 outstanding shares, or
approximately 84.8% of our stock, will become eligible for sale in the public
market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- -------------------------------------------------------------------------------
<S> <C>
-- At the date of the prospectus for our initial public offering
("Prospectus")
27,612,298 180 days after the date of this Prospectus, if the sales
meet certain restrictions under the federal securities laws
1,196,187 More than 180 days after the date of this Prospectus but
before May 12, 2000, if the sales meet certain restrictions
under the federal securities laws
5,208,326 May 12, 2000, if the sales of shares purchased in our Series
E preferred stock financing meet certain restrictions under
the federal securities laws
813,802 One year after the date of this Prospectus, if the sales of
shares purchased in our private placement meet certain
restrictions under the federal securities laws
</TABLE>
The above table gives effect to certain lock-up arrangements with the
underwriters under which our directors, officers and stockholders have agreed
not to sell or otherwise dispose of their shares of common stock. The
underwriters may remove these lock-up restrictions prior to 180 days after
the initial public offering without prior notice.
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REGISTERED STOCKHOLDER
The Reoffer Prospectus relates to shares of Common Stock which have
been acquired by David J. Roux (the "Registered Stockholder"). The Registered
Stockholder acquired shares of Common Stock to be offered hereunder pursuant
to the exercise of an option granted under the Network Computer, Inc. Stock
Option Agreement with David Roux.
The following table sets forth certain information with respect to
the Registered Stockholder as of August 3, 1999:
<TABLE>
<CAPTION>
Number of Number of Number of
Position with Shares Owned Shares to be Shares Owned
Registered Stockholder the Company Before Offering Offered Hereby After Offering
- ---------------------- ------------------------------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
David J. Roux......... Chairman of the Board of Directors 295,138 295,138 0
</TABLE>
PLAN OF DISTRIBUTION
The shares of Common Stock covered by this Reoffer Prospectus are
being registered by the Company for the account of the Registered
Stockholder. The Company understands that none of such shares will be offered
through underwriters.
Shares of Common Stock covered by this Reoffer Prospectus may be
offered and sold from time to time by the Registered Stockholder through
brokers through the Nasdaq National Market System or otherwise, at the prices
prevailing at the time of such sales. To the Company's knowledge, no specific
brokers or dealers have been designated by the Registered Stockholder nor has
any agreement been entered into in respect of brokerage commissions or for
the exclusive or coordinated sale of any securities which may be offered
pursuant to this Reoffer Prospectus. The Company will pay all expenses of
preparing and reproducing this Reoffer Prospectus, but will not receive the
proceeds from sales by the Registered Stockholder. Sales will be made at
prices prevailing at the time of such sales.
The Company will not receive any of the proceeds from the offering
hereunder. All expenses of registration incurred in connection with this
offering are being borne by the Company, but all selling and other expenses
incurred by the Registered Stockholder will be borne by such Registered
Stockholder.
14
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Liberate Technologies ("Liberate" or the "Company") hereby
incorporates by reference into this Registration Statement the following
documents previously filed with the Securities and Exchange Commission (the
"SEC"):
(a) The Company's prospectus filed with the SEC pursuant to Rule
424(b) of the Securities Act of 1933, as amended (the "1933
Act"), in connection with the Registration Statement No.
333-78781 on Form S-1 filed with the SEC on May 19, 1999,
together with any and all amendments thereto, in which there
is set forth audited financial statements for the Company's
fiscal years ended May 31, 1998 and 1999; and
(b) The Company's Registration Statement No. 000-26565 on Form 8-A
filed with the SEC on July 1, 1999, together with all
amendments thereto, pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "1934 Act") in which
there is described the terms, rights and provisions applicable
to the Company's outstanding Common Stock.
All reports and definitive proxy or information statements filed
pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date
of this Registration Statement and prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have been sold
or which deregisters all securities then remaining unsold shall be deemed to
be incorporated by reference into this Registration Statement and to be a
part hereof from the date of filing of such documents.
INDEMNIFICATION
Section 145 of the Delaware General Corporation Law authorizes a
court to award or a corporation's board of directors to grant indemnification
to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the 1933 Act. Article VI,
Section 6.1, of the Company's Bylaws provides for mandatory indemnification
of its directors and officers and permissible indemnification of employees
and other agents to the maximum extent permitted by the Delaware General
Corporation Law. The Company's Fifth Amended and Restated Certificate of
Incorporation provides that, pursuant to Delaware law, its directors shall
not be liable for monetary damages for breach of the directors' fiduciary
duty as directors to the Company and its stockholders. This provision in the
Fifth Amended and Restated Certificate of Incorporation does not eliminate
the directors' fiduciary duty, and in appropriate circumstances equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental
laws. The Company has entered into Indemnification Agreements with its
officers and directors. The Indemnification Agreements provide the Company's
officers and directors with further indemnification to the maximum extent
permitted by the Delaware General Corporation Law. The Company maintains
liability insurance for its directors and officers.
15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Exhibit
- -------------- -------
<S> <C>
4 Instrument Defining Rights of Stockholders. Reference is
made to Company's Registration Statement No. 000-26565 on
Form 8-A, together with all amendments thereto, which is
incorporated herein by reference pursuant to Item 3(b) of
this Registration Statement.
5 Opinion and consent of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP is contained in Exhibit 5.
24 Power of Attorney. Reference is made to page II-3 of this
Registration Statement.
99.1 Network Computer, Inc. Stock Option Agreement with David Roux
</TABLE>
<PAGE>
EXHIBIT 5
August 3, 1999
Liberate Technologies
1000 Bridge Parkway
Redwood Shores, California 94065
Re: Liberate Technologies (the "Company")
Registration Statement for
an aggregate of 9,640,718 Shares of Common Stock
Ladies and Gentlemen:
We refer to your registration on Form S-8 (the "Registration
Statement") under the Securities Act of 1933, as amended, of (i) 27,149
shares of Common Stock available for issuance under the Company's Navio
Communications, Inc. Nonqualified Option Plan ("Vendor Plan"), (ii) 906,056
shares of Common Stock available for issuance under the Navio Communications,
Inc. 1996 Stock Option Plan, (iii) 3,848,432 shares of Common Stock available
for issuance under the Network Computer, Inc. 1996 Stock Option Plan, (iv)
1,525,749 shares of Common Stock available for issuance under the Liberate
Technologies 1999 Equity Incentive Plan, (v) 833,333 shares of Common Stock
available for issuance under the Liberate Technologies 1999 Employee Stock
Purchase Plan and International Employee Stock Purchase Plan, (vi) 1,666,666
shares of Common Stock available for issuance to Mitchell E. Kertzman under
the Network Computer, Inc. Stock Option Agreement with Mitchell E. Kertzman,
and (vii) 538,195 shares of Common Stock available for issuance to David Roux
under the Network Computer, Inc. Stock Option Agreement with David Roux and
295,138 shares issued under this stock option agreement (collectively, the
"Plans"). We advise you that, in our opinion, when such shares have been
issued and sold pursuant to the applicable provisions of the Plans and in
accordance with the Registration Statement, such shares will be validly
issued, fully paid and nonassessable shares of the Company's Common Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP
--------------------------------------------------
Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated June 24, 1999
included in Liberate Technologies' Form S-1 Registration Statement No.
333-78781.
San Jose, California
July 30, 1999
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
<PAGE>
Exhibit 99.1
NETWORK COMPUTER, INC.
NOTICE OF STOCK OPTION GRANT
David J. Roux
[Address]
You have been granted an option to purchase Common Stock of Network
Computer, Inc. (the "COMPANY") as follows:
Date of Grant: October 15, 1998
Vesting Commencement Date: February 16, 1998
Exercise Price per Share: $0.85
Total Number of Shares Granted: 5,000,000
Total Exercise Price: $4,250,000
Type of Option: Nonqualified Stock Option
Term/Expiration Date: October 15, 2008
Vesting Schedule: This Option may be
exercised, in whole or in
part, in accordance with
the following schedule:
One-fourth (1/4) of the
Option shall vest on the
one-year anniversary of
the Vesting Commencement
Date; and one thirty-sixth
(1/36) of the remaining
total number of Shares of
the Option shall vest upon
the completion of each
month of service as an
Employee or Consultant
thereafter.
Termination Period: This Option may be
exercised for three (3)
months after termination
of the Optionee's
employment or consulting
relationship except as set
out in Sections 7 and 8 of
the Stock Option Agreement
(but in no event later
than the Expiration Date).
By your signature and the signature of the Company's representative
below, you and the Company agree that this option is granted under and
governed by the terms and conditions of the Stock Option Agreement, which is
attached and made a part of this document.
DAVID J. ROUX: NETWORK COMPUTER, INC.
_______________________________ By:_______________________________
Signature
_______________________________ Title:____________________________
Print Name
<PAGE>
NETWORK COMPUTER, INC.
STOCK OPTION AGREEMENT
1. GRANT OF OPTION. Network Computer, Inc., a Delaware
corporation (the "COMPANY"), hereby grants to Optionee named in the Notice of
Stock Option Grant (the "OPTIONEE"), an option (the "OPTION") to purchase a
total number of shares of Common Stock (the "SHARES") set forth in the Notice
of Stock Option Grant, at the exercise price per share set forth in the
Notice of Stock Option Grant (the "EXERCISE PRICE").
2. EXERCISE OF OPTION. This Option shall be exercisable during
its Term in accordance with the Exercise Schedule set out in the Notice of
Stock Option Grant as follows:
(a) RIGHT TO EXERCISE.
(i) This Option may not be exercised for a
fraction of a share.
(ii) In the event of Optionee's death, disability
or other termination of employment or consulting service, the exercisability
of the Option is governed by Sections 6, 7 and 8 below, subject to the
limitation contained in Section 2(a)(i).
(iii) In no event may this Option be exercised
after the date of expiration of the Term of this Option as set forth in the
Notice of Stock Option Grant.
(b) METHOD OF EXERCISE. This Option shall be exercisable
by written notice (in the form attached as EXHIBIT A), the terms of which are
hereby incorporated by reference into the terms of this Option. The notice
shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised, and such other
representations and agreements as to the holder's investment intent with
respect to such shares of Common Stock as may be required by the Company.
Such written notice shall be signed by Optionee and shall be delivered in
person or by certified mail to the Secretary of the Company. The written
notice shall be accompanied by payment of the Exercise Price. This Option
shall be deemed to be exercised upon receipt by the Company of such written
notice accompanied by the Exercise Price.
(c) COMPLIANCE WITH LAW. No Shares will be issued
pursuant to the exercise of an Option unless such issuance and such exercise
shall comply with all relevant provisions of applicable law and the
requirements of any stock exchange upon which the Shares may then be listed.
Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to Optionee on the date on which the Option is
exercised with respect to such Shares.
<PAGE>
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares
purchasable pursuant to the exercise of this Option have not been registered
under the Securities Act at the time this Option is exercised, Optionee
shall, if required by the Company, concurrently with the exercise of all or
any portion of this Option, deliver to the Company Optionee's Investment
Representation Statement in the form attached hereto as EXHIBIT B.
4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by
any of the following, or a combination thereof, at the election of Optionee:
(a) cash;
(b) check;
(c) surrender of other shares of Common Stock of the
Company which (i) in the case of Shares acquired pursuant to the exercise of
a Company option, have been owned by Optionee for more than six (6) months on
the date of surrender, and (ii) have a fair market value on the date of
surrender equal to the Exercise Price of the Shares as to which the Option is
being exercised;
(d) if there is a public market for the Shares and they
are registered under the Securities Act, delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to deliver
promptly to the Company the amount of sale or loan proceeds required to pay
the exercise price; or
(e) such other consideration, including promissory notes,
as may be determined by the Board in its absolute discretion to the extent
permitted under Sections 408 and 409 of the California General Corporation
Law.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised
until the issuance of such Shares upon such exercise or the method of payment
of consideration for such shares would not constitute a violation of any
applicable federal or state securities or other law or regulation, including
any rule under Part 207 of Title 12 of the Code of Federal Regulations as
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or
regulation.
6. TERMINATION OF RELATIONSHIP. In the event of termination of
Optionee's Continuous Status as an Employee or Consultant, Optionee may, to
the extent otherwise so entitled at the date of such termination (the
"TERMINATION DATE"), exercise this Option during the Termination Period set
out in the Notice of Stock Option Grant but in no event may Optionee exercise
this Option following the Expiration Date set out in the Notice of Stock
Option Grant. To the extent that Optionee was not entitled to exercise this
Option at such Termination Date, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
-2-
<PAGE>
7. DISABILITY OF OPTIONEE.
(a) Notwithstanding the provisions of Section 6 above, in
the event of termination of Continuous Status as an Employee or Consultant as
a result of Optionee's total and permanent disability (as defined in Section
22(e)(3) of the Code), Optionee may, but only within twelve (12) months from
the Termination Date (but in no event later than the date of expiration of
the Term of this Option as set forth in the Notice of Stock Option Grant and
in Section 10 below), exercise this Option to the extent Optionee was
entitled to exercise it as of such Termination Date. To the extent that
Optionee was not entitled to exercise the Option as of the Termination Date,
or if Optionee does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
(b) Notwithstanding the provisions of Section 6 above, in
the event of termination of Optionee's Continuous Status as an Employee or
Consultant as a result of any disability not constituting a total and
permanent disability (as defined in Section 22(e)(3) of the Code), Optionee
may, but only within six (6) months from the Termination Date (but in no
event later than the date of expiration of the Term of this Option as set
forth in the Notice of Stock Option Grant and in Section 10 below), exercise
this Option to the extent Optionee was entitled to exercise it as of such
Termination Date. To the extent that Optionee was not entitled to exercise
the Option at the Termination Date, or if Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate.
8. DEATH OF OPTIONEE. In the event of the death of Optionee (a)
during the Term of this Option and while an Employee or Consultant of the
Company and having been in Continuous Status as an Employee or Consultant
since the date of grant of the Option, or (b) within thirty (30) days after
Optionee's Termination Date, the Option may be exercised at any time within
six (6) months following the date of death (but in no event later than the
date of expiration of the Term of this Option as set forth in the Notice of
Stock Option Grant and in Section 10 below), by Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had accrued
at the Termination Date.
9. NON-TRANSFERABILITY OF OPTION. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by him
or her. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of Optionee.
10. TERM OF OPTION. This Option may be exercised only within the
Term set out in the Notice of Stock Option Grant, and may be exercised during
such Term only in accordance with the terms of this Option.
11. TAX CONSEQUENCES. Set forth below is a brief summary as of
the date of this Option of certain of the federal and California tax
consequences of exercise of this Option and disposition of the Shares under
the laws in effect as of the Date of Grant. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND
-3-
<PAGE>
REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER
BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISE OF NONQUALIFIED STOCK OPTION. If this Option
is a Nonqualified Stock Option and, thus, does not qualify as an Incentive
Stock Option, there may be a regular federal income tax liability and a
California income tax liability upon the exercise of the Option. The Optionee
will be treated as having received compensation income (taxable at ordinary
income tax rates) equal to the excess, if any, of the fair market value of
the Shares on the date of exercise over the Exercise Price. If Optionee is an
employee, the Company will be required to file applicable reports with the
taxing authorities and withhold from Optionee's compensation or collect from
Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income at the time of exercise.
(b) DISPOSITION OF SHARES. In the case of a Nonqualified
Stock Option, if the Shares are held for more than one year, any gain
realized on disposition of the Shares will be treated as long-term capital
gain for federal and California income tax purposes.
12. WITHHOLDING TAX OBLIGATIONS. Optionee understands that, upon
exercising a Nonqualified Stock Option, he or she will recognize income for
tax purposes in an amount equal to the excess of the then fair market value
of the Shares over the Exercise Price. However, the timing of this income
recognition may be deferred for up to six months if Optionee is subject to
Section 16 of the Exchange Act. If Optionee is an employee, the Company will
be required to withhold from Optionee's compensation, or collect from
Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income. The Optionee shall satisfy his or her
tax withholding obligation arising upon the exercise of this Option by one or
some combination of the following methods: (a) by cash payment, (b) out of
Optionee's current compensation, (c) if permitted by the Administrator, in
its discretion, by surrendering to the Company Shares which (i) in the case
of Shares previously acquired from the Company, have been owned by Optionee
for more than six months on the date of surrender, and (ii) have a fair
market value on the date of surrender equal to or greater than Optionee's
marginal tax rate times the ordinary income recognized, or (d) by electing to
have the Company withhold from the Shares to be issued upon exercise of the
Option that number of Shares having a fair market value equal to the amount
required to be withheld. For this purpose, the fair market value of the
Shares to be withheld shall be determined on the date that the amount of tax
to be withheld is to be determined (the "TAX DATE").
If Optionee is subject to Section 16 of the Exchange Act (an
"INSIDER"), any surrender of previously owned Shares to satisfy tax
withholding obligations arising upon exercise of this Option must comply with
the applicable provisions of Rule 16b-3 promulgated under the Exchange Act
("RULE 16b-3") and shall be subject to such additional conditions or
restrictions as may be required thereunder to qualify for the maximum
exemption from Section 16 of the Exchange Act.
-4-
<PAGE>
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the
applicable Tax Date;
(b) once made, the election shall be irrevocable as to
the particular Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or
disapproval of the Administrator; and
(d) if Optionee is an Insider, the election must comply
with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act.
13. MARKET STANDOFF AGREEMENT. In connection with the initial
public offering of the Company's securities and upon request of the Company
or the underwriters managing any underwritten offering of the Company's
securities, Optionee hereby agrees not to sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of any Shares
(other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such
period of time (not to exceed 180 days) from the effective date of such
registration as may be requested by the Company or such managing underwriters
and to execute an agreement reflecting the foregoing as may be requested by
the underwriters at the time of the public offering.
14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN
OTHER TRANSACTIONS.
(a) CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of shares of Common
Stock covered by this Option and the price per share of Common Stock covered
by this Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination,
recapitalization or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment
shall be made by the Board, whose determination in that respect shall be
final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option.
-5-
<PAGE>
(b) DISSOLUTION OR LIQUIDATION. In the event of the
proposed dissolution or liquidation of the Company, the Board shall notify
the Optionee at least fifteen (15) days prior to such proposed action. To the
extent it has not been previously exercised, the Option will terminate
immediately prior to the consummation of such proposed action.
(c) MERGER OR SALE OF ASSETS. In the event of a proposed
sale of all or substantially all of the Company's assets or the consummation
of a merger or consolidation of the Company with or into another entity where
the successor corporation issues its securities to the Company's
stockholders, this Option shall be assumed or an equivalent option or right
shall be substituted by such successor corporation or a parent or subsidiary
of such successor corporation, unless the successor corporation does not
agree to assume the Option or to substitute an equivalent option or right, in
which case such Option shall terminate upon the consummation of the merger or
sale of assets.
(d) CERTAIN DISTRIBUTIONS. In the event of any
distribution to the Company's stockholders of securities of any other entity
or other assets (other than dividends payable in cash or stock of the
Company) without receipt of consideration by the Company, the Administrator
may, in its discretion, appropriately adjust the price per share of Common
Stock covered by this outstanding Option to reflect the effect of such
distribution.
15. DEFINITIONS.
(a) "ADMINISTRATOR" means the Board.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMON STOCK" means the Common Stock of the Company.
(e) "COMPANY" means Network Computer, Inc., a Delaware corporation.
(f) "CONSULTANT" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not, provided that if and in the event the
Company registers any class of any equity security pursuant to the Exchange
Act, the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the
Company.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company, its Subsidiaries or their respective successors. A
change in status from an Employee to a Consultant or from a Consultant to an
Employee will not constitute an interruption of Continuous Status as an
Employee or Consultant.
-6-
<PAGE>
(h) "EMPLOYEE" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the
Company, with the status of employment determined based upon such minimum
number of hours or periods worked as shall be determined by the Administrator
in its discretion, subject to any requirements of the Code. The payment by
the Company of a director's fee to a Director shall not be sufficient to
constitute "employment" of such Director by the Company.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(j) "FAIR MARKET VALUE" means, as of any date, the fair market
value of Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national
market system including without limitation
the National Market of the National
Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its
Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if
no sales were reported), as quoted on such
system or exchange, or the exchange with the
greatest volume of trading in Common Stock
for the last market trading day prior to the
time of determination, as reported in The
Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq
System (but not on the National Market
thereof) or regularly quoted by a recognized
securities dealer but selling prices are not
reported, its Fair Market Value shall be the
mean between the high bid and low asked
prices for the Common Stock for the last
market trading day prior to the time of
determination, as reported in The Wall Street
Journal or such other source as the
Administrator deems reliable; or
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value
thereof shall be determined in good faith by
the Administrator at the Administrator's
discretion. In making any such determination,
the Administrator may elect, but shall not be
obligated, to engage an appraiser or
investment banking firm to make the
determination of Fair Market Value and such
determination shall be conclusive and binding.
(k) "INCENTIVE STOCK OPTION" or "ISO" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(l) "NONQUALIFIED STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
(m) "OPTION" means a stock option granted pursuant to this Option
Agreement.
(n) "OPTION AGREEMENT" means this Stock Option Agreement.
(o) "OPTIONED STOCK" means the Common Stock subject to an Option.
(p) "OPTIONEE" means an Employee or Consultant who receives an
Option.
(q) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code, or any
successor provision.
-7-
<PAGE>
(r) "REPORTING PERSON" means an officer, director, or greater
than ten percent stockholder of the Company within the meaning of Rule 16a-2
under the Exchange Act, who is required to file reports pursuant to Rule
16a-3 under the Exchange Act.
(s) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange
Act, as the same may be amended from time to time, or any successor
provision.
(t) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(u) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 14.
(v) "STOCK EXCHANGE" means any stock exchange or consolidated
stock price reporting system on which prices for the Common Stock are quoted
at any given time.
(w) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code, or any
successor provision.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
-8-
<PAGE>
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute
one document.
NETWORK COMPUTER, INC.
By:________________________________
Title:_____________________________
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT
TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY
AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED
THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND
AGREES THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON OPTIONEE ANY RIGHT
WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR
SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee has reviewed this Stock Option Agreement in its entirety,
has had an opportunity to obtain the advice of counsel prior to executing
this Option and fully understands all provisions of the Option. Optionee
hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions arising under this
Option.
Dated: ________________________ __________________________
DAVID J. ROUX
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<PAGE>
EXHIBIT A
NETWORK COMPUTER, INC.
EXERCISE NOTICE
Network Computer, Inc.
1000 Bridge Parkway
Redwood Shores, CA 94065
1. EXERCISE OF OPTION. Effective as of today, _______________,
199__, the undersigned ("OPTIONEE") hereby elects to exercise Optionee's
option to purchase _____________ shares of the Common Stock (the "SHARES") of
Network Computer, Inc. (the "COMPANY") under the Stock Option Agreement dated
October 15, 1998 (the "OPTION AGREEMENT").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that
Optionee has received, read and understood the Option Agreement and the
Investment Representation Statement attached as EXHIBIT B to the Option
Agreement, and agrees to abide by and be bound by their terms and conditions.
If applicable, Optionee has executed and delivered the Investment
Representation Statement to the Company. Optionee further represents that
Optionee is purchasing the Shares for Optionee's own account for investment
and not with a view to, or for sale in connection with, a "distribution" of
any of such Shares for purposes of the Securities Act of 1933, as amended
(the "SECURITIES ACT").
3. COMPLIANCE WITH SECURITIES LAWS. Optionee understands and
acknowledges that the Shares have not been registered under the Securities
Act and, notwithstanding any other provision of the Option Agreement to the
contrary, the exercise of any rights to purchase any Shares is expressly
conditioned upon compliance with the Securities Act, all applicable state
securities laws and all applicable requirements of any stock exchange or over
the counter market on which the Company's Common Stock may be listed or
traded at the time of exercise and transfer. Optionee agrees to cooperate
with the Company to ensure compliance with such laws.
4. FEDERAL RESTRICTIONS ON TRANSFER. Optionee understands that
the Shares have not been registered under the Securities Act and therefore
cannot be resold and must be held indefinitely unless they are registered
under the Securities Act or unless an exemption from such registration is
available and that the certificate(s) representing the Shares may bear a
legend to that effect. Optionee understands that the Company is under no
obligation to register the Shares and that an exemption may not be available
or may not permit Optionee to transfer Shares in the amounts or at the times
proposed by Optionee. Specifically, Optionee has been advised that Rule 144
promulgated under the Securities Act, which permits certain resales of
unregistered securities, is not presently available with respect to the
Shares and, in any event requires that the Shares be fully paid for by means
other than a promissory note
<PAGE>
secured by the Shares themselves and then be held for at least one year (and
in some cases two years) before they may be resold under Rule 144.
5. RIGHTS AS STOCKHOLDER. Until the stock certificate
evidencing such Shares is issued (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the optioned Shares, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued)
such stock certificate promptly after the Option is exercised. No adjustment
will be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 14
of the Option Agreement.
Optionee shall enjoy rights as a stockholder until such time
as Optionee disposes of the Shares.
6. ESCROW OF SHARES. For purposes of facilitating the
enforcement of the provisions of this Exercise Notice, the Optionee agrees,
immediately upon receipt of the certificate(s) for any Shares, to deliver
such certificate(s), together with an Assignment Separate from Certificate in
the form attached to this Exercise Notice as EXHIBIT A executed by Optionee
and by Optionee's spouse (if required for transfer), in blank, to the
Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and Assignment Separate from Certificate in escrow and to take
all such actions and to effectuate all such transfers and/or releases as are
in accordance with the terms of this Exercise Notice. The Optionee hereby
acknowledges that the Secretary of the Company, or the Secretary's designee,
is so appointed as the escrow holder with the foregoing authorities as a
material inducement to make this agreement and that said appointment is
coupled with an interest and is accordingly irrevocable. The Optionee agrees
that said escrow holder shall not be liable to any party hereof (or to any
other party). The escrow holder may rely upon any letter, notice or other
document executed by any signature purported to be genuine and may resign at
any time. The Optionee agrees that if the Secretary of the Company, or the
Secretary's designee, resigns as escrow holder for any or no reason, the
Board of Directors of the Company shall have the power to appoint a successor
to serve as escrow holder pursuant to the terms of this Exercise Notice.
7. RESTRICTIONS BINDING ON TRANSFEREES. All transferees of
Shares or any interest therein will receive and hold such Shares or interest
subject to the provisions of this Exercise Notice and the Option Agreement.
Any sale or transfer of the Company's Shares shall be void unless the
provisions of this Agreement are met.
8. TAX CONSULTATION. Optionee understands that Optionee may
suffer adverse tax consequences as a result of Optionee's purchase or
disposition of the Shares. Optionee represents that Optionee has consulted
with any tax consultants Optionee deems advisable in connection with the
purchase or disposition of the Shares and that Optionee is not relying on the
Company for any tax advice.
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<PAGE>
9. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. Optionee understands and agrees that the
Company shall cause the legends set forth below or legends substantially
equivalent thereto, to be placed upon any certificate(s) evidencing ownership
of the Shares together with any other legends that may be required by state
or federal securities laws:
(i) THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER THE ACT OR, IN THE OPINION OF COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE
OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCK OPTION
AGREEMENT AND THE EXERCISE NOTICE BETWEEN
THE ISSUER AND THE ORIGINAL HOLDER OF THESE
SHARES, A COPY OF WHICH MAY BE OBTAINED AT
THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS ARE BINDING ON
TRANSFEREES OF THESE SHARES.
(b) STOP-TRANSFER NOTICES. Optionee agrees that, in order
to ensure compliance with the restrictions referred to herein, the Company
may issue appropriate "stop transfer" instructions to its transfer agent, if
any, and that, if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be
required (i) to transfer on its books any Shares that have been sold or
otherwise transferred in violation of any of the provisions of this Agreement
or (ii) to treat as owner of such Shares or to accord the right to vote or
pay dividends to any purchaser or other transferee to whom such Shares shall
have been so transferred.
10. MARKET STANDOFF AGREEMENT. In connection with the initial
public offering of the Company's securities and upon request of the Company
or the underwriters managing any underwritten offering of the Company's
securities, Optionee hereby agrees not to sell,
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<PAGE>
make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Shares (other than those included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting
the foregoing as may be requested by the underwriters at the time of the
public offering.
11. SUCCESSORS AND ASSIGNS. The Company may assign any of its
rights under this Agreement to single or multiple assignees, and this
Agreement shall inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer herein set forth, this
Agreement shall be binding upon Optionee and his or her heirs, executors,
administrators, successors and assigns.
12. INTERPRETATION. Any dispute regarding the interpretation of
this Agreement shall be submitted by Optionee or by the Company forthwith to
the Company's Board of Directors, which shall review such dispute at its next
regular meeting. The resolution of such a dispute by the Board or committee
shall be final and binding on the Company and on Optionee.
13. GOVERNING LAW; SEVERABILITY. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California excluding that body of law pertaining to conflicts of law. Should
any provision of this Agreement be determined by a court of law to be illegal
or unenforceable, the other provisions shall nevertheless remain effective
and shall remain enforceable.
14. NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery
or upon deposit in the United States mail by certified mail, with postage and
fees prepaid, addressed to the other party at its address as shown below
beneath its signature, or to such other address as such party may designate
in writing from time to time to the other party.
15. FURTHER INSTRUMENTS. The parties agree to execute such
further instruments and to take such further action as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
16. DELIVERY OF PAYMENT. Optionee herewith delivers to the
Company the full Exercise Price for the Shares.
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<PAGE>
17. ENTIRE AGREEMENT. The Notice of Stock Option Grant/Option
Agreement are incorporated herein by reference. This Agreement and the Notice
of Stock Option Grant/Option Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements
of the Company and Optionee with respect to the subject matter hereof, and is
governed by California law except for that body of law pertaining to conflict
of laws.
Submitted by: Accepted by:
OPTIONEE: NETWORK COMPUTER, INC.
_________________________________ By:_________________________________
Optionee
Title:______________________________
Address: OptioneeAddress1 Address: 1000 Bridge Parkway
OptioneeAddress2 Redwood Shores, CA 94065
I, _____________________________, spouse of Optionee, have read and
hereby approve the foregoing Exercise Notice. In consideration of the
Company's granting my spouse the right to purchase the Shares as set forth in
the Exercise Notice, I hereby agree to be irrevocably bound by the Exercise
Notice and Option Agreement and further agree that any community property or
other such interest shall be similarly bound by the terms of the Exercise
Notice. I hereby appoint my spouse as my attorney-in-fact with respect to any
amendment or exercise of any rights under the Exercise Notice and Option
Agreement.
_________________________________
Spouse of Optionee
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<PAGE>
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Exercise Notice
between the undersigned and Network Computer, Inc., dated
____________________, 199__ (the "AGREEMENT") Optionee hereby sells, assigns
and transfers unto ______________________ (__________) shares of the Common
Stock of Network Computer, Inc., standing in Optionee's name on the books of
said corporation represented by Certificate No. ______ herewith and does
hereby irrevocably constitute and appoint ___________________________________
to transfer said stock on the books of the within-named corporation with full
power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS
AUTHORIZED BY THE EXERCISE NOTICE AND THE EXHIBITS THERETO.
Date: _____________, 19__.
Signature:
___________________________________
Optionee
___________________________________
Spouse of Optionee (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
repurchase rights set forth in the Exercise Notice without requiring
additional signatures on the part of Optionee.
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE : Optionee
COMPANY : Network Computer, Inc.
SECURITY : Common Stock
AMOUNT : ___________________ Shares
DATE : ___________________, 199__
In connection with the purchase of the above-listed Securities, I, Optionee,
represent to the Company the following:
(a) I am aware of the Company's business affairs and
financial condition, and have acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the
Securities. I am purchasing these Securities for my own account for
investment purposes only and not with a view to, or for the resale in
connection with, any "DISTRIBUTION" thereof for purposes of the Securities
Act of 1933, as amended (the "SECURITIES ACT").
(b) I understand that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of my investment intent as expressed herein.
(c) I further understand that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or
unless an exemption from registration is otherwise available. Moreover, I
understand that the Company is under no obligation to register the
Securities. In addition, I understand that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of
the Securities unless they are registered or such registration is not
required in the opinion of counsel for the Company.
(d) I am familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance,
permit limited public resale of "restricted securities" acquired, directly or
indirectly, from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of issuance of the Securities, such
issuance will be exempt from registration under the Securities Act. In the
event the Company later becomes subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days
thereafter the securities exempt under Rule 701 may be resold, subject to the
satisfaction of certain of the conditions specified by Rule 144, including
among other things: (1) the sale being made through a broker in an
unsolicited "broker's transaction" or in
<PAGE>
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the
availability of certain public information about the Company, and the amount
of securities being sold during any three month period not exceeding the
limitations specified in Rule 144(e), if applicable. Notwithstanding this
paragraph (d), I acknowledge and agree to the restrictions set forth in
paragraph (f) below.
In the event that the Company does not qualify under Rule 701
at the time of issuance of the Securities, then the Securities may be resold
in certain limited circumstances subject to the provisions of Rule 144, which
requires among other things: (1) the availability of certain public
information about the Company; (2) the resale occurring not less than one
year after the party has purchased, and made full payment for, within the
meaning of Rule 144, the securities to be sold; and, in the case of an
affiliate, or of a non-affiliate who has held the securities less than two
years, (3) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934), and (4) the amount of
securities being sold during any three month period not exceeding the
specified limitations stated therein, if applicable. I UNDERSTAND THAT
PAYMENT FOR THE SHARES WITH A PROMISSORY NOTE IS NOT DEEMED TO BE FULL
PAYMENT UNDER RULE 144 UNLESS THE NOTE IS SECURED BY ASSETS OTHER THAN THE
SHARES.
(e) I understand that at such time in the future that I
might wish to sell the Securities, there may be no public market upon which
to make such a sale, and that, even if such a public market then exists, the
Company may not be satisfying the current public information requirements of
Rule 144, and that, in such event, I will be precluded from selling the
Securities under Rule 144 even if I have satisfied the one-year minimum
holding period.
(f) I further understand that in the event all of the
applicable requirements of Rule 144 or Rule 701 are not satisfied,
registration under the Securities Act, compliance with Regulation A, or some
other registration exemption will be required; and that, notwithstanding the
fact that Rule 144 and Rule 701 are not exclusive, the Staff of the
Securities and Exchange Commission has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and otherwise than pursuant to Rule 144 or Rule 701 will have a
substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
their respective brokers who participate in such transactions do so at their
own risk.
Optionee:
_________________________________
Optionee
Date: ________________, 199_
