<PAGE>
As filed with the Securities and Exchange Commission on April 13, 2000
Registration No. 333-95833
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3
To
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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iBEAM BROADCASTING CORPORATION
(Exact name of Registrant as specified in its charter)
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Delaware 7389 94-3296895
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
645 Almanor Avenue, Suite 100
Sunnyvale, CA 94086
(408) 523-1600
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
Chris Dier
Chief Financial Officer
iBEAM Broadcasting Corporation
645 Almanor Avenue, Suite 100
Sunnyvale, CA 94086
(408) 523-1600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Barry Taylor, Esq. Bruce Dallas, Esq.
David Dayan, Esq. Davis Polk & Wardwell
Charles Prober, Esq. 1600 El Camino Real
Wilson Sonsini Goodrich Menlo Park, CA 94025
& Rosati (650) 752-2000
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300 ---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission becomes effective. This prospectus is not +
+an offer to sell nor does it seek an offer to buy these securities in any +
+jurisdiction where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued April 13, 2000
11,000,000 Shares
[LOGO OF IBEAM BROADCASTING]
COMMON STOCK
-----------
iBEAM Broadcasting Corporation is offering 11,000,000 shares of its common
stock. This is our initial public offering and no public market currently
exists for our shares. We anticipate that the initial public offering price
will be between $9 and $11 per share.
-----------
We have applied to list the common stock on the Nasdaq National Market under
the symbol "IBEM."
-----------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 7.
-----------
PRICE $ A SHARE
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<TABLE>
<CAPTION>
Price Underwriting
to Discounts and Proceeds
Public Commissions to iBEAM
------ ------------- --------
<S> <C> <C> <C>
Per Share............................. $ $ $
Total................................. $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to an additional
1,650,000 shares of common stock to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares of common stock
to purchasers on , 2000.
-----------
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
J.P. MORGAN & CO.
ROBERTSON STEPHENS
, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 7
Use of Proceeds..................... 23
Dividend Policy..................... 23
Capitalization...................... 24
Dilution............................ 26
Selected Financial Data............. 28
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 30
Business............................ 36
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management......................... 52
Certain Relationships and Related
Transactions...................... 66
Principal Stockholders............. 69
Description of Capital Stock....... 71
Shares Eligible for Future Sale.... 74
Underwriters....................... 76
Legal Matters...................... 79
Experts............................ 79
Where You Can Find More
Information....................... 79
Index to Financial Statements...... F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is not an offer to sell nor is
it seeking an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted. The information contained in this prospectus
is correct only as of the date of this prospectus, regardless of the time of
the delivery of this prospectus or any sale of these securities.
Until , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This delivery
requirement is in addition to the dealers' obligation to deliver a prospectus
when acting as underwriter with respect to their unsold allotments or
subscriptions.
Our logo and certain titles and logos of our services are our trademarks.
Each trademark, trade name or service mark of any other company appearing in
this prospectus belongs to its holder. The terms iBEAM Broadcasting, iBEAM and
MaxCaster are our service marks or trademarks that are registered or otherwise
protected under the laws of various jurisdictions.
----------------
We were incorporated in Delaware in March 1998. Our principal executive
offices are located at 645 Almanor Avenue, Suite 100, Sunnyvale, CA 94086 and
our telephone number is (408) 523-1600. Our website is www.ibeam.com. The
information on the website is not a part of this prospectus.
<PAGE>
[GATEFOLD ARTWORK]
[Narrative description of graphic material that is omitted in electronically
filed document]
The following text is at the top of the page and spans the front cover foldout:
The HIGH-FIDELITY Internet Broadcast Network
The following text appears on the upper right side of the inside front cover:
Key Benefits of Our Network
. Clear Audio-Visual Broadcast
. Ability to Serve Large Audiences
. Low Cost Distribution
. Designed for Global Expansion
The middle of the inside front cover contains a graphic that depicts three
concentric circles superimposed over a map of the United States. Behind the map
looms a partially obscured globe.
The three circles have images superimposed on them which represent Hosting
Servers. The inside circle is labeled "Two Master Hosting Centers", the middle
circle is labeled "Four Regional Hosting Centers" and the outer circle is
labeled "Hosting Services at 65 End-User Access Points." There are five arrows
extending from the Hosting Services on the outer circle to computers which are
labeled "End-User".
The following text appears in the lower left side of the inside front cover:
Our approach of using a combination of land-line networks and satellite
broadcasting to deliver content to the edge of the Internet bypasses much of the
web congestion and improves the delivery of streaming audio-visual media and the
quality of the viewing and listening experience.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that
you should consider before investing in our common stock. You should read this
entire prospectus, including the more detailed information and the financial
statements and related notes appearing elsewhere in this prospectus.
iBEAM BROADCASTING
We provide an Internet broadcast network that delivers streaming media to
large audiences of simultaneous users with viewing and listening quality that
can approach that of television and radio. Streaming is a media distribution
process that allows simultaneous broadcasting and playback of video and audio
content. Our network uses a combination of land-line networks and point-to-
multipoint satellite broadcasting, which is the use of satellite technology to
broadcast streaming content simultaneously to large, geographically dispersed
audiences. Our network is designed to broadcast directly to iBEAM servers
located at the edge of Internet, the Internet access point closest to the end
user. This improves the quality of the broadcast stream by avoiding Internet
congestion. Our network broadcasts to iBEAM servers located in the facilities
of Internet service providers, or ISPs, and other companies that host Internet
applications and services.
We provide a wide range of services to our content provider customers to
facilitate their use of streaming media on the Internet, including event
production and broadcasting services. To expand our service offerings to our
customers, we have acquired and developed software and interface tools that
enable us to broadcast high-fidelity video and audio streams integrated with e-
commerce links and functions. Our investment in servers at the edge of the
Internet will also allow for the development of new value-added services in the
future, such as pay-per-view event programming, advertising to targeted end
users and interactive Internet-based training.
The Internet was not designed to support the traffic load created by
broadcasting full-motion video or high-fidelity audio simultaneously to large
audiences. Users, however, are investing in high-speed Internet connections to
their homes and businesses, such as digital subscriber lines, or DSL, and cable
modems, to improve their viewing and listening quality and are increasing the
traffic load on the Internet causing web congestion and degradation of viewing
and listening quality. Despite these limitations, existing websites,
traditional media companies, new media companies and creators of new
applications, such as online education, are aggressively trying to attract and
retain Internet users by using greater amounts of streaming audio-visual
content. The Gartner Group projects that more than 50% of websites will include
some streaming media by 2001, a five-fold increase from 1998. Our approach of
using a combination of land-line networks and satellite broadcasting to deliver
content directly to the edge of the Internet bypasses much of the web
congestion and improves the delivery of streaming audio-visual media and the
quality of the viewing and listening experience.
In March 2000, we entered into an agreement to acquire webcasts.com to add
business-to-business communications capabilities, such as online training and
interactive trade shows. Our combined technology will allow users to view
streaming content, interactively obtain related data and transact online
purchases. Our technology runs with a variety of streaming media players, which
are software applications designed to run streaming media. Most Internet users
can access our streamed content regardless of their multimedia and browsing
software so they do not need to purchase special equipment. As of March 31,
2000, our network, which we will continue to develop, is sufficient to support
up to 300,000 simultaneous Internet users accessing streams of data from the
Internet at 20 kilobits (20,000 bits) per second. We plan to expand our network
to support 1,000,000 simultaneous Internet users at this rate by the end of
2000.
We commercially introduced our service in October 1999. We currently have
contracts to provide our services to over 100 content providers. We generate
revenue from our broadcasting services based on the volume of content stored or
delivered to end users and from our other services such as encoding and event
production
3
<PAGE>
based on hourly or fixed price billing. As part of the build-out of our
broadcasting network, we have agreements to locate servers with over 90 ISPs,
including America Online, the largest U.S. Internet access provider,
Excite@Home, an Internet cable access provider, and Covad Communications and
Northpoint, high-speed Internet access providers that have developed networks
with national reach. To realize the benefits of these access agreements we will
need to make substantial investments in capital equipment located at ISPs and
pay some ISPs fees based on revenue derived from their networks. In January
2000, we entered into a letter of intent with Pacific Century CyberWorks, or
PCCW, to establish a joint venture, named iBEAM Asia, to expand our
international presence and to access PCCW's network of cable subscribers.
Business Strategy
Our goal is to become the leading provider of high-fidelity Internet
broadcast services by developing the world's largest, premier quality and most
cost efficient distributed streaming network. To this end, we are capitalizing
upon our innovative network architecture, proprietary technology and early
entry into the field of streaming media broadcasting to position ourselves as
the network of choice for reliable, high-fidelity Internet broadcasting. Our
strategy comprises the following initiatives:
. Expand our customer base by increasing our direct sales force and
engaging in business-to-business advertising;
. Offer cost savings to our customers based on the economic benefit of
broadcasting to large audiences;
. Introduce new services such as integrating streaming media with online
chat and purchasing capabilities which we will obtain through our
acquisition of webcasts.com;
. Pursue joint ventures that expand our global presence, such as iBEAM
Asia, and add new capabilities to our network; and
. Offer our streaming distribution technology to other network vendors to
create an industry standard.
Risk Factors
We are in an early stage of development, have a limited operating history
and have generated limited revenue to date. In addition, investors in our
common stock should consider the following:
. We had operating losses of $4.4 million in 1998 and $30.2 million in
1999.
. We anticipate incurring substantial operating losses and negative cash
flow in the foreseeable future.
. Management and affiliates will beneficially own 37.0% of our outstanding
common stock after this offering.
. We had an accumulated deficit of $34.2 million as of December 31, 1999.
. We operate in a highly competitive industry.
. We will need to serve an increasing percentage of Internet users from
the edge of our network for our business strategy to succeed.
4
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THE OFFERING
<TABLE>
<C> <S>
Common stock offered................................ 11,000,000 shares
Common stock to be outstanding after this offering.. 105,944,209 shares
Use of proceeds..................................... For general corporate
purposes, including
working capital and
capital expenditures
Proposed Nasdaq National Market symbol.............. IBEM
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on 94,944,209 shares of common stock outstanding or deemed outstanding as
of March 31, 2000. This includes:
. 8,004,528 shares of common stock issuable upon the conversion of our
series F preferred stock which will be issued in exchange for
outstanding shares of webcasts.com capital stock;
. 1,000,000 shares of common stock issuable upon the conversion of our
series G preferred stock which will be issued to The Walt Disney Company
for $10.0 million at a price equal to the price to the public in this
offering; and
. 537,634 shares of common stock issuable upon the conversion of our
series H preferred stock which will be issued to Excite@Home for $5.0
million at a price equal to the price to the public in this offering,
less underwriting commissions and discounts.
This number excludes:
. 11,912,132 shares of common stock issuable upon the exercise of options
at a weighted average exercise price of $3.43 per share and 3,115,887
shares available for future grant under our stock option plan as of
March 31, 2000;
. 760,845 shares of common stock issuable upon the exercise of
webcasts.com stock options assumed by us in connection with our
acquisition of webcasts.com at a weighted average exercise price of
$3.61 per share and up to additional 1,222,172 shares of common stock
issuable if our webcasts.com division meets revenue targets in the
twelve months after the closing of the acquisition;
. 1,412,353 shares of common stock issuable upon exercise and conversion
of outstanding preferred stock warrants as of March 31, 2000 at a
weighted average exercise price of $1.19 per share; and
. 537,634 shares of common stock issuable upon exercise of a warrant held
by America Online at an exercise price equal to the price to the public
in this offering, less estimated underwriting discounts and commissions.
Unless otherwise indicated, all of the information in this prospectus:
. reflects the conversion of all outstanding shares of preferred stock
into 76,031,689 shares of common stock upon completion of this offering;
. reflects a 3-for-1 stock split of our common stock effected in January
2000 and a 1.377-for-1 stock split of our common stock effected in April
2000;
. assumes no exercise of the underwriters' over-allotment option; and
. has been computed assuming an initial public offering price of $10.00
per share.
5
<PAGE>
SUMMARY FINANCIAL DATA
The pro forma column in the statements of operations data below gives effect
to the acquisition of webcasts.com, Inc. as if the transaction had occurred on
January 1, 1999. As a result of this acquisition, our historical statements of
operations are not representative of the financial results to be expected for
future periods. See Unaudited Pro Forma Combined Financial Information included
elsewhere in this prospectus.
Weighted average shares used in computing the pro forma basic and diluted
net loss per share have been calculated assuming the conversion of all
outstanding shares of convertible preferred stock outstanding into common stock
as if the shares had converted immediately upon issuance.
The pro forma column in the balance sheet data below gives effect to (i) the
conversion of all outstanding shares of our redeemable convertible preferred
stock outstanding as of December 31, 1999 into 62,984,438 shares of common
stock upon the closing of this offering; (ii) the issuance in February 2000 of
2,181,818 shares of series E redeemable convertible preferred stock to Pacific
Century CyberWorks for $30.0 million and 363,636 shares of series E redeemable
convertible preferred stock to America Online for $5.0 million, and the
conversion of all those shares into 3,505,089 shares of common stock; (iii) the
pending acquisition of webcasts.com as if it had occurred on December 31, 1999
and the conversion of the related issuance of 8,004,528 shares of series F
redeemable convertible preferred stock into the same number of shares of common
stock; (iv) 1,000,000 shares of our series G redeemable convertible preferred
stock to be issued to The Walt Disney Company prior to the completion of this
offering for $10.0 million at a per share price equal to the price to the
public in this offering and the conversion of those shares into the same number
of shares of common stock; and (v) the issuance in April 2000 of 537,634 shares
of series H redeemable convertible preferred stock to be issued to Excite@Home
prior to the completion of this offering for $5.0 million at the price to the
public in the offering, less estimated underwriting discounts and commissions,
and the conversion of those shares into the same number of shares of common
stock. The pro forma as adjusted column gives effect to the application of the
estimated net proceeds from the sale of 11,000,000 shares of common stock in
this offering, after deducting estimated underwriting discounts and commissions
and estimated offering expenses.
<TABLE>
<CAPTION>
Period from Year Ended
March 20, 1998 December 31, 1999
(Inception) to ----------------------
December 31, 1998 Actual Pro Forma
----------------- --------- -----------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C>
Statements of Operations Data:
Revenue.............................. $ -- $ 149 $ 5,054
Total operating costs and expenses... 4,352 30,317 70,124
Loss from operations................. (4,352) (30,168) (65,070)
Net loss............................. (4,227) (29,968) (66,757)
Net loss per share--basic and
diluted............................. $ (0.56) $ (3.43) $ (3.99)
Weighted average common shares
outstanding......................... 7,488 8,726 16,731
Pro forma net loss per share--basic
and diluted (unaudited)............. $ (0.63) $ (1.20)
Pro forma weighted average common
shares outstanding (unaudited)...... 47,435 55,440
<CAPTION>
As of December 31, 1999
----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
----------------- --------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
investments......................... $ 29,840 $81,620 $182,170
Working capital...................... 24,751 71,039 171,589
Total assets......................... 44,741 188,559 289,109
Long term obligations, net of current
portion............................. 3,627 4,759 4,759
Redeemable convertible preferred
stock............................... 61,192 -- --
Total stockholders' equity
(deficit)........................... (26,033) 171,292 271,842
</TABLE>
6
<PAGE>
RISK FACTORS
You should consider carefully the following risks before you decide to buy
our common stock. If any of the following risks actually materializes, our
business, financial condition or results of operations would likely suffer. In
such case, the trading price of our common stock could fall, and you could
lose all or part of the money paid to buy our common stock.
Risks Related to Our Business
Because we are a development stage company that has generated limited
revenues and only recently began offering our services in October 1999, our
business and prospects are unproven and difficult to evaluate.
We were founded in March 1998 and began offering our Internet broadcasting
services for streaming video and audio in October 1999. The revenue and income
potential of our services and business and the size of our market are
unproven. We have limited meaningful historical financial data upon which to
base planned operating expenses and upon which investors may evaluate us and
our prospects. In addition, our operating expenses are largely based on
anticipated revenue trends and a high percentage of our expenses are and will
continue to be fixed for the foreseeable future. Accordingly, we are subject
to all of the risks that are associated with companies in an emerging industry
and in an early stage of development, particularly companies in the rapidly
evolving Internet infrastructure market, including:
. Undercapitalization;
. Cash shortages;
. The unproven nature of our business plan;
. The new and unproven nature of the market for our services;
. The need to make significant expenditures and incur significant expenses
as we develop our business and network;
. The lack of sufficient clients and revenues to sustain our operations
and growth without additional financing;
. Difficulties in managing growth including integration of the
webcasts.com business into our business; and
. Limited experience in providing some of the services that we offer or
plan to offer.
If we are unsuccessful in addressing these risks, our business may be
seriously harmed.
We are entirely dependent on our Internet broadcasting services and our
future revenue depends on their commercial success.
Our future revenue growth depends on the commercial success of our Internet
broadcasting services. We have recently begun to commercially introduce our
services for the delivery of streaming video and audio, and our future revenue
growth will depend upon customer demand for these services. Failure of our
current and planned services to operate as expected or the occurrence of any
service interruptions or technical problems with our network could delay or
prevent customer acceptance of our services. If our target customers do not
adopt and purchase our current and planned services, our revenue will not grow
significantly and we may not become profitable as a result.
7
<PAGE>
Our business strategy is based on our ability to build our broadcast
network to the edge of the Internet, which is dependent on our relationship
with Internet service providers.
Our business strategy is dependent on our ability to build our broadcast
network to the edge of the Internet, which is the access point closest to the
end user. Our ability to provide content providers with high quality, low-cost
distribution of streaming video and audio content is dependent on the
development of an edge network. As of March 31, 2000, we had servers at 65
locations on the edge of the Internet and we estimate that as of this date we
were serving less than 5% of traffic delivered through our network from the
edge of the Internet. By the end of 2000, we expect we will be able to serve
up to 40% of the traffic on our network through our servers located at the
edge of the Internet. In order to achieve this deployment we estimate that we
will need to make at least $15.0 million in capital expenditures for edge
servers in 2000. We may choose to accelerate the deployment of our network or
increase expenditures relating to our network.
To accomplish our business strategy, we will need to deploy our edge
servers in the facilities of Internet service providers. Although we provide
Internet service providers with our servers at no cost, Internet service
providers may nevertheless refuse to allow us to install our equipment in
their facilities. If we are unable to further develop our edge network, our
costs may increase and our services may not eliminate packet loss and jitter,
resulting in poor quality service. If the quality of our services suffers we
may lose or fail to obtain customers, which would harm our revenues.
Therefore, our failure to deploy our edge servers close to the end user will
cause our business and results of operations to suffer greatly.
Our agreement with America Online provides that we will deploy our servers
in America Online's facilities in North America. Considering the reach of
America Online's network and market position as the leading provider of
Internet access in the United States, our agreement with America Online is
critical to our strategy of delivering more content to the edge of the
Internet. The agreement will increase the availability of content delivered
through our network on the edge of the Internet. The agreement with America
Online has an initial two year term, but may be terminated by either party for
material breach by the other upon 30 days notice. In addition, in the first
year of the agreement America Online has the right to terminate the agreement
if we do not deliver a required level of Internet content through their
network. A termination of, or adverse change in, our relationship with America
Online would seriously impair our efforts to establish and maintain an
Internet broadcast network that can reach most U.S. Internet users.
Our agreement with Excite@Home provides that we will deploy our servers in
Excite@Home national data centers. Considering Excite@Home's position as a
provider of high-speed Internet access though cable access, our agreement is
important to the development of our network on the edge of the Internet. The
agreement has a three year term. Either party may terminate the agreement with
30 days notice upon a material default by the other. Excite@Home may terminate
the agreement upon 30 days notice upon a change of control of iBEAM. In
addition, Excite@Home may terminate the agreement without cause after two
years. A termination of, or adverse change in, our relationship with
Excite@Home would seriously impair our efforts to establish an Internet
broadcast network that can broadcast to the edge of the Internet.
Our agreement with Covad provides that we will deploy our servers in
Covad's hubs throughout North America. Considering the size of Covad's network
and market position as a provider of broadband access using digital subscriber
line, or DSL, technology, our agreement is important to the deployment of our
edge servers. Within the first year of our agreement with Covad, either party
may terminate the agreement upon 60 days notice. During the second and third
years of the agreement, either party may terminate the agreement upon a
material breach by the other. A termination of, or adverse change in, our
relationship with Covad could harm our efforts to deploy our edge servers and
our ability to develop new technologies that complement our existing service
offerings.
Our agreement with Northpoint provides that we will deploy our services in
Northpoint's network throughout North America. Considering the size of
Northpoint's network and market position as a provider of broadband access,
our agreement is important to the deployment of our edge servers. The
agreement has a three
8
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year term and is terminable by either party upon 60 days notice in the first
year of the agreement. In the second and third years of the agreement, either
party may terminate the agreement due to a material breach by the other. A
termination of, or adverse change in, our relationship with Northpoint could
harm our efforts to deploy our edge servers.
Because our Internet broadcasting network is complex and is deployed in
complex environments, it may have errors or defects that could seriously harm
our business.
Our Internet broadcasting network is highly complex and is deployed in
complex environments. Because of the nature of our services, we can only fully
test it when it is fully deployed in very large networks with high traffic
volumes. Given the current early stage of deployment of our network, we cannot
test it for all possible defects. However, as a result of testing conducted to
date, we and our customers have from time to time discovered errors and
defects in our software. Since we commenced offering our services in October
1999, we have experienced two network outages, one of which was due to failure
of our network software. While we are investing in systems and procedures for
early detection of outages and have invested in redundant servers, we may
continue to experience problems with our software. Outages that have occurred
to date have resulted in between one and five hours of network downtime during
which time we were prevented from delivering our services to our customers.
These downtimes resulted in lost revenues for usage not billed during down
periods.
In the future, there may be additional errors and defects in our software
and servers that may adversely affect our service. If we are unable to
efficiently fix errors or other problems that may be identified, we could
experience:
. Loss of or delay in sales and loss of market share;
. Loss of customers;
. Failure to attract new customers or achieve market acceptance;
. Diversion of development resources;
. Loss of credibility;
. Increased service costs; or
. Legal action by our customers.
Any failure of our network infrastructure or the satellite or land-line
communication services provided to us could lead to significant costs and
disruptions which could harm our reputation and cause us to lose customers,
which would have a negative impact on our revenues.
Our business and reputation are dependent on providing our customers with
high-fidelity and low-cost Internet broadcasting services through our network.
To meet these customer requirements, we must protect our network
infrastructure against damage from:
. Human error;
. Network software errors;
. Physical or electronic security breaches;
. Fire, earthquake, flood and other natural disasters;
. Power loss; and
. Sabotage and vandalism.
Our costs are generally higher and quality of service is generally lower
when we deliver content to end users from our hosting centers rather than our
edge servers. As a result, the occurrence of any of the unanticipated
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problems listed above at one or more of our edge servers could result in
service interruptions or significant damage to equipment, increase our costs
and cause a degradation in the quality of our services. Further, if we are
unable to provide our network services to our customers, we could face legal
action by our customers, which would be costly and divert management's
attention from important business activities. Because our servers are located
in the facilities of others, such as Internet service providers and Internet
hosting companies, we must rely on others to protect our equipment.
Our network architecture uses satellite transmission to bypass the
congestion of the Internet backbone by broadcasting directly to our edge
servers. We have entered into a three-year agreement with a satellite service
provider for transmission capacity over a specified satellite. While the
agreement provides for a back-up satellite if difficulties arise with our
designated satellite, if we are required to change the designated satellite we
would be required to readjust our equipment. This adjustment could take
several weeks and would result in a decrease in the quality of our service and
an increase in our cost relating to the more expensive transmission costs of
distributing content from our hosting centers over our land-line network. The
ongoing failure of the satellite service we use could prevent us from
broadcasting content directly to the edge of the Internet. This would
significantly increase our costs and reduce our ability to cost-effectively
broadcast high-fidelity streaming video and audio content.
Since we commenced offering our services in October 1999 we have
experienced two network outages. One was caused by a failure of one of our
servers and the other was caused by a failure in the land-line communication
services provided to us by a third party. Outages that have occurred to date
have resulted in between one and five hours of network downtime during which
time we were prevented from delivering our services to our customers. These
downtimes resulted in lost revenues for usage not billed during down periods.
We may have inaccurately predicted our satellite capacity needs and may
find it difficult to add capacity when needed on reasonable terms.
We may need to add additional satellite capacity as we take on additional
content provider customers that distribute their content over our network.
Increases in the amount of content that is broadcast through our network
decreases our remaining satellite capacity. We believe that we have contracted
for enough satellite capacity to increase the amount of content distributed
through our network by a significant amount and we are currently using only a
small fraction of our contracted for capacity. Nevertheless, we cannot assure
you that we have contracted for sufficient satellite capacity under our
current three-year satellite capacity contract, that we will be able to renew
this contract or that we would be able to increase satellite capacity through
our current or a potential additional provider. Additional capacity may not be
available to us on reasonable terms or at all. Failure to obtain necessary
capacity would limit revenue growth.
The market for Internet broadcasting services is new and our business will
suffer if it does not develop as we expect.
The market for Internet broadcasting services is new and rapidly evolving.
Content providers, such as existing web-based companies and traditional media
and entertainment companies, may not increasingly seek to broadcast streaming
video and audio over the Internet. Therefore, we cannot be certain that a
viable market for our services will emerge or be sustainable. If this market
does not develop, or develops more slowly than we expect, our revenues will
suffer and we may not become profitable.
The markets in which we operate are highly competitive and we may be unable
to compete successfully against new entrants and established companies with
greater resources.
We compete in a market that is new, intensely competitive, highly
fragmented and rapidly changing. We have experienced and expect to continue to
experience increased competition. Many of our current competitors, as well as
a number of our potential competitors, have longer operating histories,
greater name recognition and substantially greater financial, technical and
marketing resources than we do. Some of our current and potential
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competitors have the financial resources to withstand substantial price
competition. Moreover, many of our competitors have more extensive customer
bases, broader customer relationships and broader industry alliances that they
could use to their advantage in competitive situations, including
relationships with many of our current and potential customers. We do not have
exclusive contracts with Internet service providers for the deployment of our
servers within their networks and we expect that many Internet service
providers will allow our competitors to install equipment at their sites. In
addition, our competitors may be able to respond more quickly than we can to
new or emerging technologies and changes in customer requirements.
Some of our current or potential competitors may bundle their services with
other software or hardware to offer a full range of Internet broadcasting
products and services to meet all of the content distribution needs of content
providers. We currently do not offer a full range of products and services.
This may discourage content providers from purchasing services we offer or
Internet service providers from installing our servers in their facilities.
As competition in the Internet broadcasting market continues to intensify,
new solutions will come to market. We are aware of other companies that are
focusing or may in the future focus significant resources on developing and
marketing products and services that will compete with ours. We believe our
competitors primarily come from five market segments:
. Internet content distribution networks which accelerate delivery of web
pages, such as Akamai, Enron Communications and Digital Island;
. Internet webcasting companies that deliver streaming media through land-
line networks, such as InterVu which was acquired by Akamai;
. Internet software vendors that reduce the cost of content distribution
by storing content near the end user, such as Inktomi;
. Internet production and event services companies, such as Broadcast.com
and Network24 Communications which was acquired by Akamai; and
. Satellite companies that deliver streaming video through satellite
networks, such as PanAmSat and Cidera.
Increased competition could result in:
. Price and revenue reductions and lower profit margins;
. Increased cost of service from telecommunications providers and revenue
sharing demands by ISPs;
. Loss of customers; and
. Loss of market share.
Any one of these results would harm our financial results.
We believe that the Internet broadcasting and content delivery industry is
likely to encounter consolidation, such as the recent acquisition of InterVu
by Akamai, both of which compete with us. This consolidation could lead to the
formation of more formidable competitors and could result in increased
pressure on us to decrease our prices. In addition, consolidation among
Internet content providers could reduce the number of potential customers for
our services and may increase the bargaining power of these organizations,
which could force us to lower prices.
Because our Internet content provider customers may terminate the use of
our services at any time without penalty, revenues from these customers may
decrease significantly without notice.
We do not have exclusive contracts with our Internet content provider
customers. These customers may refrain from using our services or shift to use
the services of our competitors at any time without penalty. There
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is a risk that some content providers will determine that it is more cost
effective for them to develop and deploy their own Internet broadcasting or
content delivery systems than it is to outsource these services to companies
such as iBEAM. This competitive threat is particularly acute from content
providers that own content distribution networks. If any of our existing or
future content provider customers make this determination and refrain from
using our services, our revenues will be harmed. A vertically integrated
competitor is more likely to use their internal resources rather than
outsourcing these services to us.
If our commercial relationship with Microsoft terminates, then our business
could be harmed.
We entered into a commercial relationship with Microsoft Corporation in
September 1999. Our agreement with Microsoft provides that Microsoft will
recommend us as a critical service provider for the delivery of broadband
streaming media over the Internet. Considering the widespread acceptance of
Microsoft's Windows technology, we believe Microsoft's recommendation in this
regard will be an important source of customers for us. This agreement may be
terminated by either Microsoft or us if the other party materially breaches
the agreement. A termination of, or significant adverse change in, our
relationship with Microsoft could harm our ability to obtain customers and
develop new technologies that complement our existing service offerings.
We have agreed to provide an aggregate of $200,000 of free services to
Internet content providers chosen by Microsoft.
We have entered into an agreement with Microsoft to provide content
providers chosen by Microsoft with six months of free service provided that
the value of the services to all these participants does not in the aggregate
exceed $200,000. We cannot currently quantify the number of content providers
to whom we expect to provide free services under this arrangement. Microsoft
has not yet requested that we provide these free services. If they do so, our
revenues would be harmed.
Our business will suffer if our network is not able to serve an increasing
number of users as demand increases.
To date, we have deployed a limited number of our edge servers. As of March
31, 2000, we estimate that our network was sufficient to support up to 300,000
simultaneous end users. We estimate that as of that date less than 5% of
traffic delivered through our network was served by our edge servers. We
expect that we will be able to serve up to 40% of the traffic on our network
from the edge of the Internet by the end of 2000 due to our agreements with
ISPs, particularly America Online. However, we cannot be certain that our
network can connect and manage a substantially larger number of end users at
high transmission speeds while maintaining desired performance. In addition,
for a portion of our network, as usage of high-speed Internet access by end
users increases, we will need to make additional investments in our
infrastructure to maintain adequate transmission speed for delivery of content
to the end user. We cannot assure you that we will be able to make these
investments successfully or at a reasonable cost. Upgrading our infrastructure
may cause delays or failures in our network. As a result, in the future our
network may be unable to achieve or maintain a sufficiently high transmission
capacity. Our failure to achieve or maintain high capacity data transmission
could significantly reduce demand for our service, which would reduce our
revenue and cause our business and financial results to suffer.
If more simultaneous users tried to access content off our network than we
have capacity for on the edge, the users representing excess capacity would be
served by our regional or master hosting centers. Supporting end users from
our regional and master hosting centers results in greater cost of services
than serving from the edge of our network but should not reduce the revenue
that we would otherwise generate.
Our business will suffer if we do not respond rapidly to technological
changes or if new technological developments make our services non-competitive
or obsolete.
The market for Internet broadcasting services is characterized by rapid
technological change, frequent new product and service introductions and
changes in customer requirements. We may be unable to respond quickly
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or effectively to these developments. If competitors introduce products,
services or technologies that are better than ours or that gain greater market
acceptance, or if new industry standards emerge, our services may become non-
competitive or obsolete, which would harm our revenues and cause our business
and financial results to suffer. In addition, technological developments could
eventually make Internet infrastructure much faster and more reliable such
that performance enhancing services like those we provide would be less
relevant to content providers.
In developing our service, we have made, and will continue to make,
assumptions about the standards that our customers and competitors may adopt.
If the standards adopted are different from those which we may now or in the
future promote or support, market acceptance of our service may be
significantly reduced or delayed and our business will be seriously harmed. In
addition, the emergence of new industry standards could render our existing
services non-competitive or obsolete.
We had operating losses of $30.2 million for the year ended December 31,
1999 and our accumulated deficit was $34.2 million as of that date.
Considering that operating expenses are expected to increase in future periods
we will need to increase our revenues significantly to achieve profitability.
We have never been profitable. We have incurred significant losses since
inception, including operating losses of $30.2 million for the year ended
December 31, 1999. Our operating losses as a percentage of revenue was 20,247%
in 1999. As of December 31, 1999, we had an accumulated deficit of
$34.2 million. In fiscal 2000, based on the planned deployment of our network,
we expect to have capital expenditures of at least $35.0 million, of which
approximately $28.2 million was spent in the first quarter. We expect to
continue to incur increasing operating losses in the future. We will apply the
proceeds from this offering to pay for our capital expenditures and to fund
these losses.
We cannot be certain that our revenue will grow or that we will achieve
sufficient revenue to achieve profitability. Our failure to significantly
increase our revenue would seriously harm our business and operating results.
We have large fixed expenses, and we expect to continue to incur significant
and increasing sales and marketing, product development, administrative and
other expenses, including fees to obtain access to bandwidth transport of data
over our network, while we build out our network to the edge of the Internet.
As a result, we will need to generate significantly higher revenues to achieve
and maintain profitability. If our revenue grows more slowly than we
anticipate or if our operating expenses increase more than we expect or cannot
be reduced in the event of lower revenue, we may not become profitable.
The uncertainty in the sales and installation cycles for our service
resulting from our limited operating history may cause revenue and operating
results to vary significantly and unexpectedly from quarter to quarter, which
could adversely affect our stock price.
Because of our limited operating history and the nature of our business, we
cannot predict our sales and installation cycles. The uncertain sales and
installation cycles may cause our revenue and results of operations to vary
significantly and unexpectedly from quarter to quarter. If this occurs and our
quarterly operating results fall below the expectations of our investors or
securities analysts, if any are covering our common stock, then the market
price of our common stock could decline.
We expect the rates we can charge for our services to decline over time,
which could reduce our revenue and could cause our business and financial
results to suffer.
We expect the prices we can charge for our Internet broadcasting services
will decline over time as a result of, among other things, the increasing
availability of bandwidth at reduced costs and existing and new competition in
the markets we address. If we fail to accurately predict the decline in costs
of bandwidth or, in any event, if we are unable to sell our service at
acceptable prices relative to our costs, or if we fail to offer additional
services from which we can derive additional revenue, our revenue will
decrease and our business and financial results will suffer.
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We are currently pricing our services at levels that exceed our direct
variable costs but are insufficient to cover indirect costs such as our
network operations center and billing system. There is no assurance that our
revenues will increase to cover our increasing indirect costs, or that we have
accurately estimated indirect costs. If we fail to increase revenues, we may
not be able to achieve or maintain profitability.
Our business will suffer if we do not anticipate and meet specific customer
requirements.
Our current and prospective customers may require features and capabilities
that our current service offering does not have. To achieve market acceptance
for our service, we must effectively and timely anticipate and adapt to
customer requirements and offer services that meet these customer demands. The
development of new or enhanced services is a complex and uncertain process
that requires the accurate anticipation of technological and market trends. We
may experience design, manufacturing, marketing and other difficulties that
could delay or prevent the development, introduction or marketing of these new
or enhanced services. In addition, the introduction of new or enhanced
services also requires that we manage the transition from older services to
minimize disruption in customer service and ensure that we can deliver
services to meet anticipated customer demand. Our failure to offer services
that satisfy customer requirements would decrease demand for our products and
seriously harm our revenues and financial results.
Our business will suffer if we do not expand our direct and indirect sales
organizations and our customer service and support operations.
We currently have limited sales and marketing experience and limited
trained sales personnel. Our limited experience may restrict our success in
commercializing our services. Our services require a sophisticated sales
effort targeted at a limited number of key people within our prospective
customers' organizations. This sales effort requires the efforts of trained
sales personnel. We need to expand our marketing and sales organization in
order to increase market awareness of our service and generate increased
revenue. We are in the process of building our direct sales force and plan to
hire additional qualified sales personnel. Competition for these individuals
is intense, and we might not be able to hire the kind and number of sales
personnel we need. In addition, we believe that our future success is
dependent upon our ability to establish successful relationships for indirect
sales with a variety of distribution partners. If we are unable to expand our
direct and indirect sales operations, we may not be able to increase market
awareness or sales of our service, which may prevent us from increasing our
revenue and achieving and maintaining profitability.
Hiring customer service and support personnel is very competitive in our
industry because there is a limited number of people available with the
necessary technical skills and understanding of our market. Once we hire these
personnel, they require extensive training. If we are unable to expand our
customer service and support organization or train these personnel as rapidly
as necessary, we may not be able to maintain satisfied existing customers of
our service, which would harm our revenues and our ability to achieve or
maintain profitability.
We will incur significant costs relating to the planned expansion of our
marketing, sales and customer support organization. We are unable to quantify
the expenses associated with expanding our sales organization and customer
service and support operations because these expenses depend on a number of
factors relating to our operations, including the rate of hiring personnel and
the timing and amount of marketing and advertising expenses. We expect that
over the next two years these costs will significantly exceed any revenues
that we receive for our services. We expect to apply the proceeds from this
offering to the payment of these expenses. If our revenues do not grow in the
future, these costs may never be recuperated and we may not become profitable.
We face a number of risks related to our pending acquisition of
webcasts.com, and we may face similar risks in the future if we acquire other
businesses or technologies.
In March 2000, we entered into an agreement to acquire webcasts.com. If we
are unable to effectively integrate webcasts.com's products, personnel and
systems, our business and operating results are likely to suffer. This
integration will be made more difficult because webcasts.com operations are
located in Oklahoma City,
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Oklahoma, where we currently have no operations. We will begin to integrate
webcasts.com with our operations after the completion of the acquisition,
which we expect to occur in April 2000. We expect this integration to place a
significant burden on our management team by diverting management's attention
from the day-to-day operations of iBEAM.
As part of our business strategy, we frequently review acquisition and
strategic investment prospects that would complement our current service
offerings, augment our market coverage or enhance our technical capabilities,
or that may otherwise offer growth opportunities. If we make any future
acquisitions, we could:
. Issue equity securities, which would dilute current stockholders'
percentage ownership;
. Incur substantial debt, the holders of which would have claims to our
assets in preference to the holders of our common stock; or
. Assume contingent liabilities, which could materialize and involve
significant cost.
These actions could materially and adversely affect our operating results
and/or the price of our common stock. Acquisitions and investments may require
us to incur significant amortization and depreciation charges and acquisition
related costs that adversely affect our financial results. Acquisitions and
investment activities also entail numerous risks, including:
. Difficulties in the assimilation of acquired operations, technologies or
services;
. Unanticipated costs associated with the acquisition or investment
transaction;
. Adverse effects on existing business relationships with suppliers and
customers;
. Risks associated with entering markets in which we have no or limited
prior experience; and
. Potential loss of key employees of acquired organizations.
We may not be able to successfully integrate webcasts.com or any business,
products, technologies or personnel that we might acquire in the future, and
our failure to do so could harm our business.
We continue to look for acquisitions and investments. Although we do not
have any other commitments or agreements regarding any material acquisitions
or investments, we may use a portion of the net proceeds of this offering for
future acquisitions or investments.
As a result of the webcasts.com acquisition, we will record $88.9 million
of goodwill and acquired intangibles, the amortization of which will increase
our net loss.
As a result of the webcasts.com acquisition we will record $88.9 million of
goodwill and acquired intangibles which will be amortized over a three year
period. This will increase our net loss by approximately $22.2 million in
2000, $29.6 million in 2001, $29.6 million in 2002, and $7.5 million in 2003.
To the extent we do not generate sufficient cash flow to recover the amount of
the investment recorded, the investment could be considered impaired and could
be subject to earlier write-off. In such event, our net loss in any given
period could be greater than anticipated and the market price of our stock
could decline.
We will require additional capital in the future and may not be able to
secure adequate funds on terms acceptable to us.
The expansion and development of our business will require significant
capital, which we may be unable to obtain, to fund our capital expenditures
and operating expenses, including working capital needs. In fiscal 2000 we
expect to make $35.0 million in capital expenditures, of which $28.2 million
was spent in the first quarter, including investments in edge servers, hosting
centers and our network operations center, and we expect to incur significant
and increasing losses.
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During the next 12 months, we expect to meet our cash requirements with
existing cash, cash equivalents and short-term investments, the net proceeds
from this offering and cash flow from sales of our services. The proceeds of
this offering are necessary in order to build out our network as planned. In
the absence of a public offering, we would attempt to raise capital in the
private equity market and to the extent such capital is not available, or
until available, exercise control of our discretionary expenses such as by
reducing network costs, capital expenditures and other discretionary expenses.
We may fail to generate sufficient cash flow from the sales of our services
to meet our cash requirements. Further, our capital requirements may vary
materially from those currently planned if, for example, our revenues do not
reach expected levels or we have to incur unforseen capital expenditures and
make investments to maintain our competitive position. If this is the case, we
may require additional financing sooner than anticipated or we may have to
delay or abandon some or all of our development and expansion plans or
otherwise forego market opportunities. If we seek to raise additional capital
through the issuance of equity or equity-related securities, the percentage
ownership of existing stockholders will be diluted.
After mid-2001 and possibly sooner we will need to raise additional
capital. We may not be able to obtain future equity or debt financing on
favorable terms, if at all. Future borrowing instruments such as credit
facilities and lease agreements are likely to contain restrictive covenants
and may require us to pledge assets as security for borrowings thereunder. Our
inability to obtain additional capital on satisfactory terms may delay or
prevent the expansion of our business.
We may decide to raise additional equity capital in the next 12 months
through a follow-on public offering. The decision to do a follow-on public
offering will depend on market conditions, including whether our stock price
has increased and whether there is additional demand for our stock, and our
need for additional funds at the time.
Our business will suffer if we fail to manage the expansion of our
operations properly.
We have grown rapidly by hiring new employees and by expanding our offering
of services. Our total number of employees grew from 40 on March 4, 1999 to
266 on March 31, 2000 and several members of our senior management team have
only recently joined us. The acquisition of webcasts.com will add
approximately 95 employees. This growth has placed, and our growth in future
operations, if any, will continue to place, a significant strain on our
management systems and resources. Our ability to offer our services and
implement our business plan in a rapidly evolving market requires an effective
planning and management process. If we fail to:
. Improve our financial and managerial controls, reporting systems and
procedures,
. Hire, train, manage and retain additional qualified personnel, including
additional senior management level personnel to fulfill our current or
future needs,
. Integrate the operations of webcasts.com, and
. Effectively manage and multiply relationships with our customers,
suppliers, and other third parties,
we may be unable to execute our business plan, which would curtail our growth
and harm our results of operations.
In addition, we have recently hired and plan to hire in the near future a
number of key employees and officers. To become integrated into our company,
these individuals must spend a significant amount of time learning our
business model and management system, in addition to performing their regular
duties. Accordingly, the integration of new personnel has resulted and will
continue to result in some disruption to our ongoing operations. If we fail to
integrate new employees in an efficient manner, our business and financial
results will suffer.
The unpredictability of our quarterly results may adversely affect the
trading price of our common stock.
Our revenue and operating results will vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control
and any of which may cause our stock price to fluctuate. The primary factors
that may affect our quarterly results include the following:
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. Fluctuations in the demand for our Internet broadcasting services;
. The timing and size of sales of our services;
. The timing of recognizing revenue and deferred revenue;
. New product and service introductions and enhancements by our
competitors and ourselves;
. Changes in our pricing policies or the pricing policies of our
competitors;
. Increases in the prices of, and availability of, the products, services
or components we purchase, including bandwidth;
. Our ability to attain and maintain quality levels for our services;
. Expenses related to testing our services;
. Costs related to acquisitions of technology or businesses; and
. General economic conditions as well as those specific to the Internet
and related industries.
We plan to increase significantly our operating expenses to fund the build-
out of our broadcast network, accelerate engineering and development, expand
our sales and marketing operations, broaden our customer support capabilities
and continue to develop new distribution channels. We also plan to expand our
general and administrative functions to address the increased reporting and
other administrative demands which will result from this offering and the
increasing size of our business. Our operating expenses are largely based on
anticipated revenue trends and a high percentage of our expenses are, and will
continue to be, fixed in the short term. As a result, a delay in generating or
recognizing revenue for the reasons set forth above, or for any other reason,
could cause significant variations in our operating results from quarter to
quarter and could result in substantially operating losses.
Due to the above factors, we believe that quarter-to-quarter comparisons of
our operating results are not a good indication of our future performance. It
is likely that in some future quarters our operating results may be below the
expectations of investors and security analysts, if any follow our stock. In
this event, the price of our common stock will probably fall.
Our On-Stage service currently represents a substantial portion of our
revenues and if we are unsuccessful in commercially selling our On-Air and On-
Demand services, our revenues will not grow significantly.
We currently offer three primary services: iBEAM On-Stage, iBEAM On-Air and
iBEAM On-Demand. Sales of our On-Stage service accounted for 74% of our
revenue in 1999. Sales of our On-Air services accounted for 6% of our revenue
in 1999. Sales of our On-Demand services accounted for 3% of our revenue in
1999. We expect that sales of our On-Stage services will decline as a
percentage of total revenue in the future. However, we substantially depend on
this service for our near-term revenue. Any decline in the price of, or demand
for, our On-Stage service, or its failure to achieve broad market acceptance,
would seriously harm our business. In addition, we believe that our future
growth and a significant portion of our future revenue will depend on the
commercial success of our On-Air and On-Demand services. If our customers do
not widely adopt, purchase and successfully deploy our services, our revenues
will not grow significantly and our business will be seriously harmed.
We rely on a limited number of customers, and any decrease in revenues
from, or loss of, these customers, without a corresponding increase in
revenues from other customers, would harm our operating results.
Our customer base is limited and highly concentrated. We began recognizing
revenues from sales of our products in the quarter ended December 31, 1999.
Three customers accounted for an aggregate of 68% of our revenue in the
quarter ended December 31, 1999: ProWebCast accounted for 40%, MusicNow, Inc.
accounted
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for 15% and Pixelworld accounted for 13% of our revenue. We expect that the
majority of our revenues will continue to depend on sales of our products to a
small number of customers. If current customers do not continue to place
significant orders, we may not be able to replace these orders. In addition,
any downturn in the business of existing customers could result in
significantly decreased sales to these customers, which could seriously harm
our revenues and results of operations. Sales to any single customer may vary
significantly from quarter to quarter.
Two customers accounted for an aggregate of 20.4% of webcasts.com's revenue
in 1999: Lotus/IBM accounted for 14.6% and America Online accounted for 5.8%
of its revenue. The loss of either of these customers or a significant
reduction in the level of webcasts.com's services used by either customer,
could seriously harm our results of operations.
We expect to amortize stock-based compensation expense of $16.1 million in
2000, $8.8 million in 2001, $4.4 million in 2002, and $1.8 million in 2003,
which will decrease our net earnings during these periods.
In connection with the grant of stock options to employees and consultants
in 1998 and 1999, we recorded unearned stock-based compensation of $19.0
million, of which $5.4 million was amortized during 1999. For the period from
January 1, 2000 to March 31, 2000, we issued options to purchase 4,025,712
shares and will record an additional $11.3 million of unearned stock-based
compensation. In addition, in January 2000, we issued to a consultant 908,820
shares of common stock subject to a right of repurchase which lapses over four
years. Based on the fair market value of our common stock at March 31, 2000,
this grant will result in an additional $6.9 million of unearned stock-based
compensation, assuming no change in the underlying value of our common stock.
If our stock price increases, the amount of stock-based compensation we may be
required to record would increase. These expenses will increase our losses
during each of these periods and delay our ability to achieve profitability.
We depend on our executive officers to manage our business effectively in a
rapidly changing market and, if we are unable to retain our executive
officers, our ability to compete could be harmed.
Our future success depends upon the continued services of our executive
officers who have critical industry experience and relationships that we rely
on in implementing our business plan. We do not have "key person" life
insurance covering any of our executive officers. The loss of services of any
of our executive officers could delay the development and introduction of and
negatively impact our ability to sell our services.
We face risks associated with international operations that could harm our
business.
To be successful, we believe we must expand our international operations.
Therefore, we expect to commit significant resources to expand our
international sales and marketing activities. We are currently targeting the
United Kingdom, Germany, France, Hong Kong, Singapore, Indonesia, Malaysia and
India for expansion. The expenses we will incur in expanding our international
operations will depend on the arrangements into which we will enter to provide
our services in such markets. These factors have yet to be determined. We
recently entered into a letter of intent with Pacific Century CyberWorks to
establish a joint venture to introduce our services to Asia. In order to bring
our services to Asia under this joint venture we will need to deploy our
network of servers in Asia which will involve large capital expenditures and
operating expenses for the joint venture. While the details of the joint
venture have yet to be determined, we expect to incur approximately 50% of the
capital expenditures and operating expenses of the joint venture. In addition,
in connection with our expansion into Asia, Europe, Latin America, Africa and
the Middle East pursuant to our agreement with InterPacket, we will incur
capital expenditures in connection with our deployment of servers in
InterPacket's network. InterPacket's network serves developing countries and
there can be no assurance that these markets will develop sufficiently to
justify our investments. We are establishing a test center for our systems in
Hong Kong. We currently plan to begin placing servers in up to 20 locations in
InterPacket's network in the second half of 2000.
We may be unable to maintain or increase market demand for our service
internationally, which may harm our business. As we expand internationally, we
will be increasingly subject to a number of risks associated with
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international business activities that could increase our costs, lengthen our
sales cycle and require significant management attention. These risks include:
. Potential difficulty in enforcing intellectual property rights in
foreign countries;
. Compliance with and unexpected changes in regulatory requirements
resulting in unanticipated costs and delays;
. Lack of availability of trained personnel in international locations;
. Tariffs, export controls and other trade barriers;
. Longer accounts receivable payment cycles than in the United States;
. Potential difficulty in obtaining access to additional satellite and
telecommunication transmission capacity;
. Potential difficulty of enforcing agreements and collecting receivables
in some foreign legal systems;
. Potentially adverse tax consequences, including restrictions on the
repatriation and earnings;
. General economic conditions in international markets; and
. Currency exchange rate fluctuations.
Risks Related to Legal Uncertainty
Any inability to adequately protect our intellectual property could harm
our competitive position.
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property
rights. Our future growth, if any, will depend on our ability to continue to
seek patents and otherwise protect the intellectual property rights in our
network technology. However, these legal protections afford only limited
protection; competitors may gain access to our network technology, including
our software and server technology, which may result in the loss of our
customers. Other companies, including our competitors, may obtain patents or
other proprietary rights that would prevent, limit or interfere with our
ability to make, use or sell our service. This would cause our revenues to
decline and seriously harm our results of operations.
We may in the future initiate claims or litigation against third parties
for infringement of our proprietary rights or to determine the scope and
validity of our proprietary rights or the proprietary rights of competitors.
These claims could result in costly litigation and the diversion of our
technical and management personnel. As a result, our operating results could
suffer and our financial condition could be harmed.
We could incur substantial costs defending our intellectual property from
infringement or a claim of infringement.
Any litigation or claims, whether or not valid, could result in substantial
costs and diversion of resources. Companies in the Internet industry are
increasingly bringing suits alleging infringement of their proprietary rights,
particularly patent rights. Our patent applications to date cover our
streaming platform standard, content management, distribution capabilities and
subscriber management. If a company brings a claim against us, we may be found
to infringe their proprietary rights. In the event of a successful claim of
infringement against us and our failure or inability to license the infringed
technology, our business and operating results would be significantly harmed.
In January 2000, we received a letter from a competitor, which suggested
that we review patents to which this competitor claims rights. These patents
purport to cover "a system and method for delivery of video and data over a
computer network." We believe that we do not infringe any claims of these
patents. However, there can be no assurance that this competitor will agree
with our conclusion or not pursue a claim or litigation against us. To date,
no complaint has been filed or served.
19
<PAGE>
Intellectual property litigation or claims could force us to do one or more
of the following:
. Cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
. Obtain a license from the holder of the infringed intellectual property
right, which license may not be available on reasonable terms if at all;
and
. Redesign products or services that incorporate the disputed technology.
If we are forced to take any of the foregoing actions, we could face
substantial costs and our business may be seriously harmed. Although we carry
general liability insurance, our insurance may not cover potential claims of
this type or be adequate to indemnify us for all liability that may be
imposed.
Internet-related laws could cause us to change the manner in which we
operate our network, which could be disruptive, time consuming and expensive.
Our Internet broadcast network is designed to deliver streaming media to
large audiences of simultaneous users. Currently our network and the media we
broadcast is largely unregulated, even though traditional television and radio
are highly regulated by the Federal Communications Commission. If laws and
regulations that apply to communications over the Internet are enacted that
require us to change the manner in which we operate our network, our business
could be disrupted with time consuming and expensive modifications of our
technology. In addition, our business could be harmed to the extent that our
content provider customers are adversely affected. Laws and regulations that
apply to communications over the Internet are becoming more prevalent. Several
bills are currently being considered by the U.S. Congress. Recently the U.S.
Congress enacted Internet laws regarding children's privacy, copyrights,
taxation and the transmission of sexually explicit material. The European
Union recently enacted its own privacy regulations, and is currently
considering copyright legislation that may extend the right of reproduction
held by copyright holders to include the right to make temporary copies for
any reason. The adoption or modification of laws or regulations relating to
the Internet, or interpretations of existing law, could harm our business
directly or indirectly due to effects on our customers.
Risks Related To The Securities Markets And This Offering
Our stock price may be volatile which could result in litigation against us
and substantial losses for investors purchasing shares in this offering.
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering. The market for technology stocks has been
extremely volatile. The following factors could cause the market price of our
common stock in the public market to fluctuate significantly from the price
paid by investors in this offering:
. Announcements by us or our competitors of significant contracts, new
products or services offerings or enhancements, acquisitions,
distribution partnerships, joint ventures or capital commitments;
. Variations in our quarter-to-quarter operating results including our
failure to meet estimates of financial analysts;
. Changes in financial estimates by securities analysts, if any analysts
elect to follow our stock;
. Our sales of common stock or other securities in the future;
. Changes in market valuations of networking, Internet and
telecommunications companies;
. The addition or departure of our personnel; and
. Fluctuations in stock market prices and volumes.
Volatility in the market price of our common stock may prevent investors
from being able to sell their common stock at or above our initial public
offering price.
20
<PAGE>
In the past, class action litigation has often been brought against
companies following periods of volatility in the market price of those
companies' common stock. We may become involved in this type of litigation in
the future. Litigation is often expensive and diverts management's attention
and resources, which could materially and adversely affect our business and
results of operations.
Insiders will beneficially own approximately 37.0% of our outstanding
common stock after this offering and could limit investors' ability to
influence the outcome of key transactions, including changes of control.
We anticipate that our executive officers and directors, together with
Accel Partners and Crosspoint Venture Partners, each of which is an entity
affiliated with one of our directors, will in the aggregate, own approximately
37.0% of our outstanding common stock following the completion of this
offering. These stockholders, if acting together, would be able to influence
significantly all matters requiring approval by our stockholders, including
the election of directors and the approval of mergers or other business
combination transactions.
Provisions of our charter documents and agreements with some of our large
stockholders may have anti-takeover effects that could prevent a change in
control even if the change in control would be beneficial to our stockholders.
Our board of directors will be divided into three classes, with each class
serving staggered three-year terms. This may discourage a third party from
making a tender offer or otherwise attempting to obtain control of us because
it generally makes it more difficult for stockholders to replace a majority of
the directors. We have in place procedures which prevent stockholders from
acting without holding a meeting and which limit the ease with which a
stockholder meeting can be called. We are subject to the "interested
stockholder" provisions of Delaware law which impose restrictions on mergers
and other business combinations between us and any holder of 15% or more of
our outstanding common stock. These provisions of our amended and restated
certificate of incorporation, by-laws, and Delaware law could make it more
difficult for a third party to acquire us, even if doing so would be
beneficial to our stockholders.
In addition, each of Microsoft, Sony, Pacific Century CyberWorks, America
Online, Covad and Liberty Media, which in the aggregate will own 15.9% of our
common stock upon the closing of this offering, have agreed to vote their
securities as directed by our board of directors in any merger in which more
than 50% of our voting power is transferred or in a sale of substantially all
of our assets. This obligation lapses for each of these companies if and when
it owns less than 5% of our voting power. Microsoft, Sony, Pacific Century
CyberWorks, America Online and Covad have each also agreed not to acquire more
than 15.0% of our voting stock at any time before October 2004 without our
permission. Our agreement with these stockholders could make it more difficult
for a third party or one of these entities to acquire us, even if doing so
would be beneficial to our stockholders.
The sale of a substantial number of shares of common stock could cause the
market price of our common stock to decline.
After this offering, we will have a total of 105,944,209 shares of common
stock outstanding, or 107,594,209 shares if the underwriters exercise their
entire over-allotment option. The sale by us or the resale by stockholders of
shares of our common stock in the public market after the offering could cause
the market price of the common stock to decline. The federal securities laws
impose restrictions on the ability of substantially all stockholders to resell
their shares of common stock. In addition, we, our executive officers,
directors and certain other stockholders have agreed with Morgan Stanley & Co.
Incorporated, one of the representatives of the underwriters, not to sell
their shares for a period ending 180 days from the date of the prospectus for
the offering. Accordingly, the 105,944,209 shares of common stock outstanding
after this offering will be available for resale in the public market as
follows:
<TABLE>
<CAPTION>
Number of Shares Date Available for Resale
---------------- -------------------------
<S> <C>
11,000,000 Immediately
81,317,719 180 days from the date of the prospectus
for the offering
13,047,251 Various dates thereafter
</TABLE>
21
<PAGE>
After this offering and expiration or release of the lock-up agreements,
holders of 76,031,689 shares of the common stock and the holders of warrants
to purchase approximately 1,438,687 shares of common stock may require us to
register their shares for resale under the federal securities laws.
We intend to file a registration statement following this offering to
permit the sale of shares of common stock under our stock plans. As of March
31, 2000, options to purchase 11,912,132 shares of common stock with a
weighted average exercise price per share of $3.43 were outstanding,
substantially all of which are subject to agreements with Morgan Stanley & Co.
Incorporated not to sell such shares for 180 days from the date of the
prospectus for the offering. Registration of such shares would result in these
stockholders being able to immediately resell their shares in the public
market after expiration or release of the lock-up agreements. Any such sales
or anticipation thereof could cause the market price of the common stock to
decline.
We have no agreement or understanding with Morgan Stanley & Co.
Incorporated for a waiver of these lock-up restrictions. However, Morgan
Stanley & Co. Incorporated may, in its discretion, release us or any of our
stockholders at any time, without notice, prior to the expiration of the lock-
up period. In some cases underwriters have agreed to waive lock-up
restrictions when a company's stock has performed well for a sustained period
of time, in order to allow a follow-on offering of common stock. Any decision
by Morgan Stanley & Co. Incorporated to waive the lock-up restrictions would
depend on a number of factors, including market conditions, the performance of
our common stock in the market and our financial condition at that time. If
Morgan Stanley & Co. Incorporated were to waive the lock-up restrictions prior
to the expiration of the lock-up period, and our stockholders were to sell
additional shares of common stock to the public, the market price of our
common stock could decline.
You will experience immediate and significant dilution of book value per
share.
The initial public offering price of our common stock will be substantially
higher than the net tangible book value per share of the outstanding common
stock immediately after this offering. Therefore, based upon an assumed
initial public offering price of $10.00 per share, if you purchase our common
stock in this offering, you will incur immediate dilution of $8.24 per share.
If additional shares are sold by the underwriters following exercise of their
over-allotment option there will be further dilution.
In addition, as of March 31, 2000, we had outstanding options to purchase
11,912,132 shares of common stock at a weighted average exercise price of
$3.43 per share and, on an as converted basis, warrants to purchase 1,949,987
shares of common stock at a weighted average exercise price of $3.42 per
share. If these outstanding options or warrants are exercised there will be
further dilution.
22
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of 11,000,000 shares of common stock
in this offering at an assumed public offering price of $10.00 per share are
estimated to be approximately $100.6 million, or approximately $115.9 million
if the underwriters' over-allotment option is exercised in full, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
The principal purposes of this offering are to obtain additional working
capital, to establish a public market for our common stock, to increase our
visibility in the marketplace and to facilitate future access to public
capital markets.
We expect to use the net proceeds for general corporate purposes, including
working capital and capital expenditures, and to fund operating losses. We
anticipate spending at least $15.0 million of the proceeds of this offering on
capital expenditures primarily for the purpose of expanding our network
operations. Our management will retain broad discretion in the allocation of
the remaining net proceeds of this offering. Although we may use a portion of
the proceeds to acquire other businesses, products or technologies that are
complementary to our business, we have no specific acquisitions planned.
Pending such uses, we intend to invest the net proceeds of this offering in
short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently intend
to retain all of our future earnings to finance the growth and development of
our business. We do not intend to pay cash dividends on our common stock in
the foreseeable future.
23
<PAGE>
CAPITALIZATION
The following table sets forth our cash, cash equivalents and investments
and capitalization at December 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect (i) the conversion of all outstanding
shares of our redeemable convertible preferred stock outstanding as of
December 31, 1999 into 62,984,438 shares of common stock upon the
closing of this offering; (ii) the issuance in February 2000 of
2,181,818 shares of series E redeemable convertible preferred stock to
Pacific Century CyberWorks for $30.0 million and 363,636 shares of
series E redeemable convertible preferred stock to America Online for
$5.0 million, and the conversion of those shares into 3,505,089 shares
of common stock; (iii) the pending acquisition of webcasts.com as if it
had occurred on December 31, 1999 and the conversion of the related
issuance of 8,004,528 shares of series F redeemable convertible
preferred stock into the same number of shares of common stock; (iv)
1,000,000 shares of our series G redeemable convertible preferred stock
to be issued to The Walt Disney Company prior to the completion of the
offering for $10.0 million at a price equal to the public in the
offering and the conversion of those shares into the same number of
shares of common stock; and (v) 537,634 shares of our series H
redeemable convertible preferred stock to be issued to Excite@Home prior
to the completion of the offering for $5.0 million at a price equal to
the public in the offering, less estimated underwriting discounts and
commissions, and the conversion of those shares into the same number of
shares of common stock; and
. on a pro forma basis as adjusted for the sale by us of 11,000,000 shares
of common stock in this offering and the receipt of the estimated net
proceeds therefrom, after deducting the estimated underwriting discounts
and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands, except per
share data)
<S> <C> <C> <C>
Cash, cash equivalents, and investments......... $29,840 $ 81,620 $182,170
======= ======== ========
Long term obligations, net of current portion... $ 3,627 $ 4,759 $ 4,759
------- -------- --------
Redeemable convertible preferred stock, $0.0001
par value; actual--20,000 shares authorized;
15,247 shares issued and outstanding; pro
forma--32,000 shares authorized, no shares
issued and outstanding; pro forma as adjusted--
10,000 shares authorized; no shares issued or
outstanding.................................... 61,192 -- --
------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.0001 par value; actual--
120,000 shares authorized; 17,132 shares
issued and outstanding; pro forma--120,000
shares authorized; 94,944 shares issued and
outstanding; pro forma as adjusted--413,100
shares authorized; 105,944 shares issued and
outstanding................................... 2 9 11
Additional paid-in capital..................... 21,773 219,091 319,639
Unearned stock-based compensation.............. (13,613) (13,613) (13,613)
Deficit accumulated during development stage... (34,195) (34,195) (34,195)
------- -------- --------
Total stockholders' equity (deficit)........ (26,033) 171,292 271,842
------- -------- --------
Total capitalization........................ $38,786 $176,051 $276,601
======= ======== ========
</TABLE>
This capitalization table excludes the following shares as of December 31,
1999:
. 9,437,018 shares at a weighted average exercise price of $0.87 per
share that were subject to outstanding options as of December 31, 1999;
24
<PAGE>
. 1,412,353 shares of common stock issuable upon exercise and conversion
of outstanding convertible preferred stock warrants as of December 31,
1999 at a weighted average exercise price of $1.19 per share and 537,634
shares of common stock issuable upon exercise of a warrant issued to
America Online in February 2000 at an exercise price equal to the price
to the public in the offering, less estimated underwriting discounts and
commissions; and
. 760,845 shares of common stock issuable upon the exercise of
webcasts.com stock options assumed by us in connection with our
acquisition of webcasts.com at a weighted average exercise price of
$3.61 per share and up to additional 1,222,172 shares of common stock
issuable if our webcasts.com division meets revenue targets in the next
twelve months after the closing of the acquisition.
For the period from January 1, 2000 to March 31, 2000, we issued options to
purchase 4,025,712 shares of our common stock to employees and consultants at
a weighted average exercise price of $8.80 per share. We also issued 908,820
shares of common stock issued to a consultant, subject to a right of
repurchase, at $4.84 per share in January 2000. We expect to continue to issue
additional shares as we increase our hiring.
25
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999, was $82.4
million or $0.88 per share of common stock. Our pro forma net tangible book
value per share as of December 31, 1999 represents the amount of our total
tangible assets reduced by the amount of our total liabilities and divided by
the total number of shares of our common stock outstanding assuming (i) the
conversion of all outstanding shares of our redeemable convertible preferred
stock as of December 31, 1999 into 62,984,438 shares of common stock upon the
closing of this offering; (ii) the issuance in February 2000 of 2,181,818
shares of series E redeemable convertible preferred stock to Pacific Century
CyberWorks for $30.0 million and 363,636 shares of series E redeemable
convertible preferred stock for $5.0 million to America Online, and the
conversion of those shares into 3,505,089 shares of common stock; (iii) the
pending acquisition of webcasts.com as if it occurred on December 31, 1999 and
the conversion of the related issuance of 8,004,528 shares of series F
redeemable convertible preferred stock into the same number of shares of
common stock; (iv) 1,000,000 shares of our series G redeemable convertible
preferred stock to be issued to The Walt Disney Company prior to the
completion of the offering for $10.0 million at the price to the public in the
offering and the conversion of those shares into the same number of shares of
common stock; and (v) 537,634 of our series H redeemable convertible preferred
stock to be issued to Excite@Home prior to the completion of the offering for
$5.0 million at a price equal to the public in the offering, less estimated
underwriting discounts and commissions, and the conversion of those shares
into the same number of shares of common stock. After giving effect to the
sale by us of the 11,000,000 shares of common stock offered hereby at an
assumed initial public offering price of $10.00 per share, after deduction of
estimated underwriting discounts and commissions and estimated offering
expenses, our pro forma as adjusted net tangible book value at December 31,
1999 would have been $183.0 million or $1.76 per share. This represents an
immediate increase in net tangible book value to existing stockholders of
$0.86 per share and an immediate dilution to new investors of $11.99 per
share. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $10.00
Pro forma net tangible book value per share as of December
31, 1999.................................................... $0.88
Increase in pro forma net tangible book value per share
attributable to new investors............................... 0.88
-----
Pro forma as adjusted net tangible book value per share after
the offering................................................. 1.76
------
Dilution per share to new investors........................... $ 8.24
======
</TABLE>
The following table sets forth on a pro forma basis as of December 31,
1999, the difference between the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
(1) the existing stockholders giving effect to the issuance in February 2000
of 2,181,818 shares of series E redeemable convertible preferred stock to PCCW
for $30.0 million and 363,636 shares of series E redeemable convertible
preferred stock to America Online for $5.0 million; (2) the investors in the
private placements of preferred stock that will convert into common stock at
the public offering price, which includes 8,004,528 shares of series F
redeemable convertible preferred stock issued in the pending acquisition of
webcasts.com, the issuance of 1,000,000 shares of our series G redeemable
convertible preferred stock to The Walt Disney Company for $10.0 million at
the price to the public in the offering and the issuance of 537,634 shares of
our series H redeemable convertible preferred stock to Excite@Home for $5.0
million at the price to the public in the offering, less underwriting
discounts and commissions; and (3) the new investors in this offering (before
deduction of estimated underwriting discounts and commissions and estimated
offering expenses):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------- -------------------- Price
Number Percent Amount Percent Per Share
----------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 83,621,626 80% $ 97,334,602 32% $ 1.16
Private investors at the
initial public offering
price..................... 9,542,162 9 95,421,620 32 10.00
New investors in this
offering.................. 11,000,000 11 110,000,000 36 10.00
----------- --- ------------ ---
Total.................... 104,163,788 100% $302,756,222 100%
=========== === ============ ===
</TABLE>
26
<PAGE>
The table assumes no exercise of the underwriters over-allotment option and
no exercise of stock options or warrants outstanding at December 31, 1999. As
of December 31, 1999, there were options outstanding to purchase a total of
9,437,018 shares at a weighted average exercise price of $0.87 per share,
while 3,260,520 shares were reserved for future grants under our 1998 Stock
Plan. As of December 31, 1999, there were warrants outstanding to purchase
1,412,353 shares of common stock issuable upon exercise and conversion of
outstanding convertible preferred stock warrants at a weighted average
exercise price of $1.19 per share. In February 2000, we granted a warrant to
America Online to acquire 537,634 shares of common stock at per share exercise
price equal to price to the public in the offering, less estimated
underwriting discounts and commissions. From January 1, 2000 to March 31,
2000, we granted options to purchase an additional 4,025,712 shares of common
stock at a weighted average exercise price of $8.80 per share and will assume
all outstanding options granted under webcasts.com's 1999 Stock Option Plan,
which will convert into options to purchase 760,845 shares of series F
redeemable convertible preferred stock at a weighted average exercise price of
$3.61 per share. In January 2000, we issued 908,820 shares of common stock,
subject to a right of repurchase, at $4.84 per share to a consultant. To the
extent there are exercises of any of these options, there will be further
dilution to new investors. See "Capitalization," "Management--Compensation of
Directors" and "--Executive Compensation."
27
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with,
and are qualified by reference to, our audited financial statements and notes
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations" appearing elsewhere in this prospectus. The statements of
operations data for the period from March 20, 1998 (Inception) to December 31,
1998 and for the year ended December 31, 1999, and the balance sheet data as
of December 31, 1998 and 1999 are derived from, and are qualified by reference
to, our audited financial statements.
The unaudited pro forma statement of operations gives effect to the
webcasts.com acquisition as if it had occurred on January 1, 1999 and presents
the results of operations of iBEAM for the year ended December 31, 1999
combined with the unaudited pro forma statement of operations of webcasts.com
for the year ended December 31, 1999. The unaudited pro forma statement of
operations of webcasts.com includes the results of operations of webcasts.com
for the year ended December 31, 1999 combined with the results of operations
of The Rock Island Group, Inc., or RIG, for the period from January 1, 1999 to
October 14, 1999 as if the RIG acquisition occurred on January 1, 1999. The
unaudited pro forma combined balance sheet gives effect to the acquisition of
webcasts.com as if it occurred on December 31, 1999 and combines the balance
sheet of iBEAM as of December 31, 1999 and the consolidated balance sheet of
webcasts.com as of December 31, 1999. On October 15, 1999, webcasts.com
completed its acquisition of all the outstanding capital stock of RIG. The RIG
acquisition was accounted for using the purchase method of accounting and,
accordingly, the net assets and results of operations of RIG have been
included in the consolidated financial statements of webcasts.com since the
acquisition date.
The pro forma financial information should also be read in conjunction with
the historical financial statements and notes to webcasts.com, which are
included elsewhere in this prospectus, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The unaudited pro
forma combined information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the transactions had been consummated at the dates
indicated, nor is it necessarily indicative of the future operating results or
the financial position of the combined companies.
<TABLE>
<CAPTION>
Period from
March 20, 1998 Year Ended
(Inception) to December 31, 1999
December 31, ---------------------------
1998 Actual Pro Forma
---------------- ------------ -------------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C>
Statements of Operations Data:
Revenue......................... $ -- $ 149 $ 5,054
----------- ------------ ------------
Operating costs and expenses:
Cost of services (direct and
indirect).................... -- 8,249 11,788
Engineering and development... 1,468 4,531 4,801
Sales and marketing........... 1,788 10,363 11,438
General and administrative.... 1,096 7,174 12,468
Amortization of goodwill and
acquired intangibles......... -- -- 29,629
----------- ------------ ------------
Total operating costs and
expenses................... 4,352 30,317 70,124
----------- ------------ ------------
Loss from operations............ (4,352) (30,168) (65,070)
Other income and expense, net... 125 200 110
Dividends and accretion related
to preferred stock and
warrants....................... -- -- (1,797)
----------- ------------ ------------
Net loss........................ $ (4,227) $ (29,968) $ 164,960
=========== ============ ============
Net loss per share--basic and
diluted........................ $ (0.56) $ (3.43) $ (3.99)
=========== ============ ============
Weighted average common shares
outstanding.................... 7,488 8,726 16,731
=========== ============ ============
Pro forma net loss per share--
basic and diluted (unaudited).. $ (0.63) $ (1.20)
============ ============
Pro forma weighted average
common shares outstanding
(unaudited) ................... 47,435 55,440
============ ============
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------------------
1999
1998 --------------------
Actual Actual Pro Forma
------ ------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and investments............ $2,198 $29,840 $31,620
Working capital................................... 1,071 24,751 21,039
Total assets...................................... 4,207 44,741 138,559
Long term obligations, net of current portion..... -- 3,627 4,759
Redeemable convertible preferred stock............ 6,905 61,192 147,325
Total stockholders' deficit....................... (3,950) (26,033) (26,033)
</TABLE>
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the financial statements and
notes included elsewhere in this prospectus. This prospectus contains forward-
looking statements that involve risks and uncertainties. Our actual results
could differ significantly from those discussed in these forward-looking
statements as a result of certain factors, including those set forth under
"Risk Factors" and elsewhere in this prospectus.
Overview
We provide a global Internet broadcast network that delivers streaming
media to large audiences of simultaneous users with viewing and listening
quality that approaches that of television and radio. We offer our services to
content providers seeking to enhance the quality of their delivery and reach
larger audiences at lower costs. In order to offer our customers a broader set
of services, in March 2000 we entered into an agreement to acquire
webcasts.com, Inc., a provider of production consulting services and tools.
Webcasts.com services assist content providers with integrating streaming
media and e-commerce functions such as chat, e-commerce data base links and
pay-per-view.
iBEAM commenced operations in March 1998 and began offering streaming media
delivery service in October 1999. Since our inception, we have incurred
significant losses and as of December 31, 1999, we had an accumulated deficit
of $34.2 million. We have not achieved profitability on a quarterly basis, and
anticipate that we will continue to incur substantial and increasing net
losses. We expect to incur significant and increasing engineering and
development and sales, general and administrative expenses and, as a result,
we will need to generate significant revenues to achieve profitability.
Acquisition of webcasts.com
We entered into a definitive merger agreement to acquire privately-held
webcasts.com, a provider of interactive broadcasting services and proprietary
Internet tools on March 21, 2000. We intend to account for the transaction as
a purchase business combination. The acquisition is intended to qualify as a
tax-free reorganization.
We will issue 8,004,528 shares of our series F preferred stock to
webcasts.com's security holders in connection with the acquisition and will
assume webcasts.com's outstanding options which will convert into 760,845
shares of our series F preferred stock. We will also issue a $3.0 million note
to webcasts.com's redeemable preferred shareholders. In addition, the former
security holders of webcasts.com may receive an additional 1,222,172 shares of
stock if our webcasts.com division meets certain revenue targets in the twelve
months after the closing of the acquisition. The expected purchase price will
be approximately $90.8 million.
As result of the acquisition, we expect to expect to incur merger-related
costs of up to $1.7 million and to record approximately $88.9 million of
intangible assets and goodwill on our balance sheet, which will result in
amortization expense of approximately $22.2 million in 2000, $29.6 million in
2001 and 2002 and $7.5 million in 2003. These charges will increase our
expenses and losses during each of these periods and delay our ability to
achieve profitability.
Revenue
We derive our revenue from charging content providers for services that
include encoding, production and event management, custom web integration with
chat and e-commerce tools, and broadcasting content to Internet users. We
expect broadcasting services to provide the largest and fastest growing
revenue element of our services.
Our broadcasting services are typically charged based on the volume of
content delivered to end-users as measured in megabytes or megabits consumed
and therefore varies with the number of users, the access speeds of the users
and time users spend viewing content broadcast by us. On-Air services are
typically priced based on the peak capacity purchased, which is expressed as
the maximum volume of megabits that can be delivered per second, for which we
typically charge $500 to $1,000 per month. On-Demand services are typically
priced based on actual usage, which is measured by the volume of megabits
transferred during the month, for which we
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typically charge $.005 to $.01 per megabyte per month. In addition, for On-
Demand customers there is a fee for content stored, measured in gigabytes per
month. On-Stage services can be priced on either a peak capacity or actual
usage basis. For example, for an event broadcast through our On-stage service,
the content provider would be charged for either an estimate of the number of
megabytes transferred during the event, or the actual number of megabytes
transferred during the event. The fee would range from $.005 to $.01 per
megabyte transferred. Other services such as production, event management,
encoding and acquisition services, are generally provided on a consulting
basis on either an hourly or fixed price billing.
Cost of Services (Direct and Indirect)
Cost of broadcasting Internet content includes both direct costs that vary
with the volume of content delivered and relatively fixed indirect costs, such
as staffing for a 24 hour network operations center. The cost of other
services, such as production, event management, encoding and acquisition
services, are primarily related to manpower costs for delivery of those
services.
Direct broadcasting costs include depreciation of network servers,
satellite transmission charges and charges for using land-line networks. In
proportion, the largest direct cost is the cost of using land-line networks.
For ISPs to which we deliver content into their end-user distribution system
via satellite broadcast, that is the "edge" of the Internet, we avoid the
land-line costs. Therefore it is our goal to increase the amount of content we
deliver to the edge of the Internet from less than 5% of traffic delivered
through our network as of March 31, 2000 to 40% by the end of 2000. Because of
our broadcast economics, we deliver content to ISPs at no charge, thereby
relieving them of charges they ordinarily would be required to pay to receive
content. As of March 31, 2000 we have agreements with over 90 ISPs that will
allow us to deliver content through their networks to the edge of the
Internet. Although some of the ISPs to which we deliver content have
negotiated access fees, these fees have represented lower costs to iBEAM than
paying for land-lines. The fees we pay to some ISPs are based on a percentage
of the revenue we derive from content delivered through their network, ranging
from 15 to 20%. As of March 31, 2000, we pay fees to less than 50% of the ISPs
with which we have contracts. Because the ISPs that we pay fees to tend to be
the ISPs with larger networks, we believe that as we expand our network, we
will pay fees with respect to more than 50% of the Internet traffic delivered
through our network.
Indirect broadcasting costs are primarily the cost of equipment, operations
management software and personnel related to operating a 24 hour network
operations center. As such these costs are relatively fixed and independent of
volume of content delivered. We expect these indirect costs to be
approximately $23.0 million in fiscal 2000.
Engineering and Development
Engineering and development expenses consist primarily of salaries and
personnel costs related to the design, development and enhancement of our
service and the development of new applications that may be added to our
network. We believe that engineering and development is critical to our
strategic business development objectives and intend to enhance our technology
to meet the changing requirements of market demand. We expect our engineering
and development expenses to increase significantly in the future. The amount
that we will actually spend on engineering and development expenses is highly
uncertain and will depend on various factors that are difficult to predict
including the rate at which we believe it is in our business interests to
introduce new services and the availability for hire of qualified personnel.
Sales and Marketing
Sales and marketing expenses consist primarily of salaries, advertising,
promotions and related costs of sales and marketing personnel. We expect that
sales and marketing expenses will increase in the future as we hire additional
personnel, expand our operations domestically and internationally, initiate
additional marketing programs and establish sales offices in new locations.
General and Administrative
General and administrative expenses consist primarily of salaries and
related costs, operations and finance personnel, recruiting expenses,
professional fees and legal and accounting services. We expect that general
and
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administrative expenses will increase in the future as we hire additional
personnel, expand our operations domestically and internationally and incur
additional costs related to the growth of our operations as a public company.
Amortization of Stock-based Compensation
In connection with the grant of stock options to employees and consultants
in 1998 and 1999, we recorded unearned stock-based compensation of $19.0
million, representing the difference between the deemed fair value of our
common stock at the date of grant and the exercise price of such options. Such
an amount, net of amortization, is presented as a reduction of stockholders'
equity and amortized over the vesting period of the applicable option. We
expect to amortize unearned stock-based compensation of $7.7 million in 2000,
$3.7 million in 2001, $1.6 million in 2002 and $0.6 million 2003.
For the period from January 1, 2000 to March 31, 2000, we issued options to
purchase 4,025,712 shares to employees at a weighted average exercise price of
$8.06 per share. In connection with such grants, we will record an additional
$11.3 million of unearned stock-based compensation. In addition, in January
2000, we issued 908,820 shares of common stock subject to a right of
repurchase, to a consultant, which lapses over four years. Based on the fair
market value of our common stock at March 31, 2000, this grant will result in
an additional $6.9 million of unearned stock-based compensation, assuming no
change in the underlying value of our common stock. We expect to amortize
additional stock-based compensation expense related to these grants and
issuances of $8.4 million in 2000, $5.1 million in 2001, $2.8 million in 2002,
and $1.2 million in 2003.
Stock-based compensation expense related to stock options granted to
consultants is recognized as the stock options are earned. At each reporting
date, we re-value the stock-based compensation using the Black-Scholes option
pricing model. As a result, the stock-based compensation expense will
fluctuate as the fair market value of our common stock fluctuates.
iBEAM's Results of Operations for Period from March 20, 1998 (Inception) to
December 31, 1998 and the Year Ended December 31, 1999
Revenue. We began generating revenue in August 1999 after we commercially
introduced our content delivery service and have recognized $149,000 through
December 1999. Fees for On-Stage, On-Air and On-Demand services accounted for
74%, 6% and 3%, respectively, of total revenue for the year ended December 31,
1999. As we continue to expand our network and as more companies distribute
content over our network, we expect our revenue will increase in future
periods. We also expect our On-Air and On-Demand services will increase as a
percentage of total revenue, while On-Stage and other services will decrease
as a percentage of total revenue.
The following table summarizes operating costs and expenses, excluding the
non-cash amortization of stock-based compensation of $39,000 in 1998 and $5.4
million in 1999:
<TABLE>
<CAPTION>
Period from March
20, 1998
(Inception) to Year Ended
December 31, 1998 December 31, 1999
----------------- -----------------
(in thousands)
<S> <C> <C>
Operating costs and expenses:
Cost of services (direct and indirect)
(exclusive of stock-based compensation
of $0 and $761, respectively)........... $ -- $ 7,488
Engineering and development (exclusive of
stock-based compensation of $19 and
$329, respectively)..................... 1,449 4,202
Sales and marketing (exclusive of stock-
based compensation of $8 and $604,
respectively)........................... 1,780 9,759
General and administrative (exclusive of
stock-based compensation of $12 and
$3,699, respectively)................... 1,084 3,475
Stock-based compensation................. 39 5,393
------ -------
Total operating costs and expenses..... $4,313 $30,317
====== =======
</TABLE>
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Cost of Services (Direct and Indirect). Cost of services increased from
zero in 1998 to $7.5 million in 1999. This increase was primarily due to
network bandwidth, satellite transmission, co-location and content acquisition
expenses of $1.4 million, network server and software depreciation of $0.8
million, consulting expenses of $0.7 million and salaries, bonuses and related
taxes of $2.4 million as we began to deploy and manage our network in 1999.
Headcount included in cost of services rose from zero at December 31, 1998 to
73 at December 31, 1999.
Engineering and Development. Engineering and development expenses increased
by $2.8 million, or 190%, from $1.4 million in 1998 to $4.2 million in 1999.
This increase was primarily due to an increase in salaries and related taxes
of $1.0 million as additional engineers were hired in 1999. Headcount included
in engineering and development rose from 23 at December 31, 1998 to 45 at
December 31, 1999.
Sales and Marketing. Sales and marketing expenses increased by $8.0
million, or 448%, from $1.8 million in 1998 to $9.8 million in 1999. This
increase was primarily due to salaries, bonuses and related taxes of
$2.9 million and advertising and promotional expenses of $4.5 million,
resulting from the development of a sales and marketing organization and the
marketing of our network and corporate brand, which was publicly launched in
October 1999. Headcount included in sales and marketing rose from 13 at
December 31, 1998 to 36 at December 31, 1999.
General and Administrative. General and administrative expenses increased
by $2.4 million, or 221%, from $1.1 million in 1998 to $3.5 million in 1999.
This increase was primarily due to salaries and related taxes of $1.0 million
as we began to provide infrastructure to support our growing operations.
Headcount included in general and administrative rose from six at December 31,
1998 to 21 at December 31, 1999.
Amortization of Stock-Based Compensation. Amortization of employee stock-
based compensation increased by $4.9 million from $31,000 in 1998 to $5.0
million in 1999 due primarily to the grant of stock options to newly hired
employees. In connection with the grant of stock options to consultants, we
recorded stock-based compensation of $8,000 in 1998 and $0.4 million in 1999.
Other Income and Expense, Net. Other income and expense, net increased from
$125,000 in 1998 to $200,000 primarily due to an increase in interest income
based on higher cash balances.
Income Taxes. We have incurred operating losses for all periods. As of
December 31, 1999, we had net operating loss carryforwards for federal and
state tax purposes of approximately $25.8 million. These federal and state tax
loss carryforwards are available to reduce future taxable income and expire in
varying amounts beginning in 2004. Under the provisions of the Internal
Revenue Code, some substantial changes in our ownership may limit the amount
of net operating loss carryforwards that could be utilized annually in the
future to offset taxable income.
Net loss. Net loss increased by $25.8 million from $4.2 million in 1998 to
$30.0 million in 1999. The increase in net loss is primarily attributable to
increases in operating costs and expenses of $26.0 million, which includes an
increase in amortization of stock-based compensation of $5.4 million.
Webcasts.com Results of Operations for Years Ended December 31, 1998 and
December 31, 1999
Webcasts.com was incorporated in 1995 and commenced its current web
production services business in 1997. Webcasts.com had total revenue of $2.0
million in 1998 and $2.4 million in 1999. Webcasts.com costs of revenues
increased from $1.3 million in 1998 to $1.8 million in 1999, and its operating
expenses increased from $0.9 million to $4.3 million primarily due to
increased selling expenses partially as a result of its acquisition of the
Rock Island Group, Inc. and stock-based compensation. As of December 31, 1999,
webcasts.com had an accumulated deficit of $4.1 million.
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Liquidity and Capital Resources
Since inception, we have funded our operations primarily through capital
lease obligations and the sale of our capital stock. We have raised an
aggregate of $96.0 million from the sale of our preferred stock through
March 31, 2000.
Net cash used in operating activities was $3.2 million in 1998 and $19.2
million in 1999, resulting primarily from our net loss partially offset by an
increase in accounts payable and accrued liabilities of $2.2 million,
amortization of stock-based composition of $5.4 million, depreciation and
amortization of $1.7 million and the issuance of a warrant for $1.0 million.
Net cash used in investing activities was $1.5 million in 1998, resulting
from the purchase of property and equipment. Net cash used in investing
activities was $12.5 million in 1999 and consisted of $7.5 million in
purchases of computers, equipment for network infrastructure and software and
$5.0 million of investments of surplus funds received from the issuance of our
preferred stock.
Net cash provided by financing activities was $6.9 million in 1998 and
$54.3 million in 1999. Cash provided by financing activities was the result of
net proceeds from the sales of our preferred stock and, to a lesser extent,
our common stock, partially offset by payments on our capital lease
obligations in 1999.
As of March 31, 2000, we had approximately $21.0 million in cash, cash
equivalents, and investments. We expect the build-out of a global network and
the funding of operations to develop and to market our services will require
substantial investment. As of March 2000 we had raised $96.0 million from the
sale of preferred stock and $10.0 million from equipment lease lines that are
repayable over three years. We expect to make at least $35.0 million in
capital investments in 2000, of which $28.2 million was spent in the first
quarter to date, and will require significant capital to fund other operating
expenses. We expect to raise enough proceeds from our initial public offering
to fund our operations for at least 12 to 18 months. In the absence of a
public offering, we would attempt to raise capital in the private equity
market and to the extent such capital is not available, or until available,
exercise control of our discretionary expenses such as by reducing network
costs, capital expenditures and other discretionary expenses. Thereafter, we
will need to raise additional capital in 2001 and we may seek to raise
additional capital sooner. Since our expenditure levels will depend on
discretionary factors within our control and competitive factors outside our
control we are not able to determine the amount of future capital we will need
to raise with a high degree of certainty.
Qualitative and Quantitative Disclosures About Market Risk
We offer our services in the United States and anticipate distributing
U.S.-based content in Asia and Europe in 2000. As a result, our financial
results could be affected by factors including weak economic conditions in
foreign markets. Our interest income is sensitive to changes in the general
level of U.S. interest rates. Due to the short-term nature of our investments,
we believe that there is no material risk exposure; therefore, no quantitative
tabular disclosures are required.
Year 2000 Readiness Disclosure
The year 2000 issue is the potential for system and processing failures of
date-related data and is the result of the computer-controlled systems using
two digits rather than four to define the applicable year. For example,
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
We have designed our network and our service for use in the year 2000 and
beyond. To date, our service and our networks have not revealed any
significant year 2000 problems. Our network generally integrates sophisticated
hardware and software products incorporating the latest technologies at the
time of purchase.
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As of March 31, 2000 we have not experienced any significant costs as a
result of year 2000 problems and do not anticipate incurring material
incremental costs in future periods due to such issues.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value. To date, we have not engaged in derivative and
hedging activities, and accordingly, do not believe that the adoption of SFAS
No. 133 will have a material impact on our financial statements and related
disclosures. We will adopt SFAS No. 133 as required by SFAS No. 137, "Deferral
of the Effective Date of the FASB Statement No. 133," in our fiscal quarter
beginning July 1, 2000.
In December 1999, the Securities and Exchange Commission issued SAB No.
101, "Revenue Recognition in Financial Statements," which provides guidance on
the recognition, presentation, and disclosure of revenue in financial
statements filed with the SEC. SAB No. 101 outlines the basic criteria that
must be met to recognize revenue and provides guidance for disclosures related
to revenue recognition policies. We have complied with the guidance in SAB No.
101 for all periods presented.
You Should Not Rely On Forward-Looking Statements
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" "may," "will," "should," "estimates,"
"predicts," "potential," "continue" and similar expressions to identify such
forward-looking statements. This prospectus also contains forward-looking
statements attributed to certain third parties relating to their estimates
regarding the growth of certain markets. You should not rely on forward-
looking statements in this prospectus. Forward-looking statements are subject
to known and unknown risks, uncertainties and other factors that may cause our
actual results to differ materially from expectations. These risks,
uncertainties and other factors include, among others, those identified under
"Risk Factors" and elsewhere in this prospectus.
Some of the forward-looking statements included in this prospectus involve
our indirect broadcasting costs, our unearned stock-based compensation and our
capital expenditures over the next twelve months. As to our revenue, we have
made forward-looking statements as to changes in the amount of our revenues
and the percentages of revenue attributable to each of our On-Air, On-Demand
and On-Stage services. In addition, we have made forward-looking statements
regarding the build-out and reach of our network.
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BUSINESS
Overview
We provide an Internet broadcast network that delivers streaming media to
large audiences of simultaneous users with viewing and listening quality that
can approach that of television and radio. Our network uses a combination of
land-line networks and point-to-multipoint satellite broadcasting of Internet
content to iBEAM servers located at the edge of the Internet, which is the
Internet access point closest to the end user. Our network broadcasts to iBEAM
servers located in the facilities of Internet service providers, or ISPs, and
other companies that host Internet applications and services. Our approach of
using a combination of land-line networks and satellite broadcasting to
deliver content directly to the edge of the Internet bypasses much of the web
congestion and improves the delivery of streaming audio-visual media and the
quality of the viewing and listening experience.
We provide a wide range of services to our customers to facilitate their
use of streaming media on the Internet, including event production and
broadcasting services. To expand our service offerings to our customers, we
have acquired and developed software and interface tools that enable us to
broadcast high-fidelity video and audio streams integrated with e-commerce
links and functions. Our investment in servers at the edge of the Internet
also allow for the development of new value-added services in the future such
as pay-per-view event programming, advertising to targeted end users and
interactive Internet-based training.
In March 2000, we entered into an agreement to acquire webcasts.com to add
business-to-business communications capabilities, such as online training and
interactive trade shows. Our combined technology will allow users to view
streaming content, interactively obtain related data and transact online
purchases. Our technology runs with a variety of streaming media players. Most
Internet users can access our streamed content regardless of the users'
multimedia and browsing software and end users do not need to purchase special
equipment. As of March 31, 2000, our network, which we will continue to
develop, is sufficient to support up to 300,000 simultaneous Internet users
accessing streams of data from the Internet at 20 kilobits (20,000 bits) per
second. We plan to expand our network to support 1,000,000 simultaneous
Internet users at this rate by the end of 2000.
We commercially introduced our service in October 1999. We currently have
contracts to provide our services to over 100 content providers. We generate
revenue from our broadcasting services based on the volume of content stored
or delivered to end-users and from our other services such as event production
based on hourly or fixed price billing. As part of the build-out of our
broadcasting network, we have agreements to locate our servers with over 90
ISPs including America Online, the largest U.S. Internet access provider,
Excite@Home, an Internet cable access provider, and Covad Communications and
Northpoint, high-speed Internet access providers that have developed networks
with national reach. To realize the benefits of these access agreements we
will need to make substantial investments in capital equipment located at ISPs
and pay some of those ISPs fees based on revenue derived from their networks.
In January 2000, we entered into a letter of intent with Pacific Century
CyberWorks, or PCCW, to establish a joint venture, named iBEAM Asia, to expand
our international presence and to access PCCW's network of cable subscribers.
Industry Background
The Internet has evolved from a static information source to a dynamic
medium for commerce, communications and, most recently, media. However, the
Internet was not designed to support the delivery of full motion video and
high-fidelity audio simultaneously to large audiences. To date, Internet
broadcasts have been inferior to television and radio broadcasts due to high
Internet transmission costs, the low quality of the viewing and listening
experience and the inability to serve large audiences of simultaneous users.
Despite these limitations, existing and new website owners, traditional media
and entertainment companies and creators of new applications, such as online
education, are trying to attract and retain Internet users by using greater
amounts of visual and audio content on their websites. Streaming has become
the preferred method of distributing video and audio content because it allows
simultaneous broadcasting and playback of content, thereby eliminating the
requirement that an Internet user download an entire video or audio file
before viewing or listening.
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Burgeoning Demand for Streaming Media
Owners of Existing Websites
Owners of existing websites are trying to attract and retain users with
rich content. Richer content, such as an audio sample of a compact disc music
recording or a video demonstration of a product, combined with the interactive
and user-controlled capability of the Internet, are factors that increase
consumer interest and purchases. This enriched content is made possible
through streaming media. New media companies have emerged to address the
growing audience of Internet users with news and entertainment content. RHK
Research recently reported in a press release that streaming media now
comprises 10% of total Internet traffic.
Traditional Media and Entertainment Companies
Traditional media and entertainment companies are emerging as another
factor driving the demand for Internet distribution of streaming content. This
demand is in part to provide new content and to retain existing audiences
which are increasingly finding the Internet an attractive alternative to
television. Forrester Research recently reported that consumers between the
ages of 16 and 24 watch 47% less television because of the Internet.
Platform for New Applications
The demand for streaming media, at both the enterprise and consumer level,
will be driven by a host of new applications that currently are under
development or are not yet commercially available for sustained online usage.
At the enterprise level, corporate broadcasts, sales calls and product
launches are increasingly incorporating sophisticated web pages and streaming
media to reduce the number of face-to-face meetings, with the goal of
generating significant savings in planning and travel costs. Other enterprise-
wide processes being migrated onto the Internet include business-to-business
transactions such as ordering, purchasing, auctions, supply chain management
and large file distribution. Enterprises and educational institutions are also
offering streaming training videos on the web to facilitate Internet-based
distance learning. We believe that the ability to view and hear streaming
media on-demand will also drive consumer demand for other online products and
services such as advanced video games, interactive television and pay-per-view
events.
Internet Design Limitations for Streaming Media
The Internet was originally designed to ensure delivery of static data,
such as text and data files, and was not designed to ensure the continuous
flow of streaming media. The Internet's design goal of ensuring bulk data
delivery is accomplished by breaking transmissions into small packets of data
that can be routed through different delivery points at different times and,
subsequently, be interwoven with other data transmissions. Should an Internet
connection point, such as a server or router, receive traffic that exceeds its
capacity, packets are dropped temporarily. These "lost" packets are either
lost permanently or are eventually requested and re-sent, but the sequence of
receipt may be out of order and irregularities may occur in intervals of
receipt. Due to limited capacity on the Internet, today most streaming content
is transmitted in the UDP, or user datagram protocol, format where lost
packets are not recovered.
While static web pages can experience lost packets or delays without a
noticeable deterioration in quality, streaming media is much more sensitive to
these problems. The impact of packet loss and irregular latency causes a
"jitter" in viewing and listening to streaming media as streams stop and
restart waiting for packets to arrive. In addition, lost packets may include
"key frames" in the content that contain information needed to ensure the
proper decoding and playback of subsequent frames.
The rate of packet loss is significant on the Internet. In a 1998 Bell Labs
Study, packet loss rates of approximately 25% occurred during peak periods. We
believe packet loss will increase if traffic growth exceeds the addition of
server and router capacity. In addition, rapid deployment of high-speed
connections, such as DSL and cable modems, which are intended to improve the
viewing and listening experience of the end user, are
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increasing the traffic load on the Internet causing further congestion and
quality degradation. We believe that increasing packet loss and more high-
speed Internet connections are combining to significantly degrade the end
user's streaming media experience.
Cost and Scale Factors Limiting Streaming Media
To date, Internet broadcasts have been inferior to television and radio
broadcasts due to high Internet transmission costs, the low quality of the
viewing and listening experience, and the inability to serve large audiences
of simultaneous users. This is largely due to the current single point-to-
point land-line network model for Internet content delivery. In a point-to-
point network, each end user establishes a connection between his personal
computer and the computer originating the content delivery. Because of the
need for connectivity to each individual end user, content providers must make
large investments to support the bursts in demand that may sit idle during
non-peak periods. Often the amount of investment required is either difficult
to estimate or uneconomical to make. As a result, during periods of peak
demand for content, insufficient Internet user connections may prevent access
by many users to popular events. For example, many users trying to access the
Victoria's Secret fashion show and the John Glenn space shuttle launch over
the Internet experienced these problems.
The Internet requires users to pay multiple tiers of communication
providers for long distance and local access which results in multiple charges
and higher costs. Communication providers charge based on bandwidth, which is
the capacity of the communications line required to transmit a given amount of
data. Both the party sending data on the Internet and the ISP receiving
content into its network pay these charges. Streaming media, which is
inherently data rich and typically consumes multiple times the bandwidth of
static web pages, increases costs for content providers and ISPs. As an
example, we believe the cost of a transmission to a content provider of
streaming media that approaches the quality of a VCR video (a 300 kilobit
stream) would typically exceed advertising revenue derived by the content
provider from such transmission. Our belief is based on discussions with
Internet advertising specialists, which indicate that content providers will
receive approximately $40 in advertising revenue for each 30 seconds of
advertising in a three minute broadcast segment to 1,000 users, and our own
experience in purchasing capacity in the communications bandwidth market,
which indicates that the average cost of transmitting content to these 1,000
users for each three minute broadcast segment is approximately $70. In
addition, ISPs that are typically bound to fixed monthly revenues under their
contracts with end users may see their costs increase as their customers
access increasing amounts of streaming media. While we believe that land-line
data transmission cost will decline significantly over time, we also believe
the land-line networks are unlikely to approach the economies of scale
achieved by alternatives, such as point-to-multipoint broadcasting by
satellite, where there is no direct transmission cost of adding an additional
broadcast viewer.
Limitations of Current Approaches to Delivering Streaming Content
While various products and delivery services have been developed to address
the challenges of delivering streaming content, we believe they do not
adequately resolve the issues of quality, cost and scalability. Some content
hosting companies store and locate streaming content on servers located at
multiple points on the Internet closer to end users. This typically increases
the speed of connection to a user. However, it does not eliminate the
potential for packet loss as content is delivered from these servers to the
end user through the remaining Internet connections. In addition, both product
companies and hosting companies offer caching software or services that store
content most frequently requested by users closer to the user in order to
reduce the transmission costs across the Internet. This usually requires a
large investment in caching software, offers only limited improvements for
live streaming content and lacks other capabilities such as forward error
correction, which is the ability to detect and correct errors in data
transmissions before such data reaches the end users. Furthermore, it does not
generate reporting and network management data for content providers.
Many traditional communications or Internet backbone providers have been
trying to increase their network capacity. However, these fiber-optic networks
do not offer a complete managed service and rely on network connections that
are subject to packet loss and quality degradation. In addition, some of the
webcasting companies have proposed to lower transmission cost by having ISPs
agree to retransmit content in a daisy chain approach. This
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approach does lower cost, but propagates packet loss and errors as data is
transmitted to the next ISP. Also, while these approaches offer some benefits
for data which can be stored and retransmitted, neither the traditional web
hosting providers, the caching technologies nor the new fiber-optic based
networks are currently capable of large scale, high fidelity Internet
broadcasting. Our Internet broadcast network leverages the best attributes of
many of these approaches and combines them with our proprietary streaming
software to deliver cost effective streaming media broadcasting that offers
high fidelity content distribution to large numbers of simultaneous users.
The iBEAM Solution
We provide an Internet broadcast network that delivers streaming media with
viewing and listening quality that can approach that of television and radio.
Our broadcast network offers content providers the ability to serve large
audiences of simultaneous users. Our network uses a combination of land-line
networks and satellite broadcasting to deliver Internet content to iBEAM
servers located at the edge of the Internet, which is the Internet access
point closest to the end user. This improves the quality of the broadcast
stream by avoiding Internet congestion. Our satellite broadcast approach and
streaming management software bypasses the congestion of the Internet
backbone. We provide a wide range of services to our content provider
customers to facilitate their use of streaming media on the Internet. Our
investment in servers at the edge of Internet enables the delivery of new
value-added services, such as advertisement insertion, to both the content
providers and ISPs. We also provide production, event management, encoding and
acquisition services to facilitate use of our broadcasting services by content
providers.
The key benefits of our streaming media services to our customers include:
. High-Fidelity Video and Audio Streams--Our satellite broadcasting
capability and our software enable smooth, continuous content delivery
to our servers before being transmitted to the end user. By delivering
content to the edge of the Internet, our network eliminates packet loss
and jitter, thereby delivering a superior broadcast-quality stream.
. Low Cost Distribution--Using satellite technology to broadcast on a
point-to-multipoint basis at a fixed cost allows us to broadcast to each
additional user at little or no incremental cost. This economy of scale
lets us charge content providers less to distribute streaming media than
traditional Internet bandwidth providers that rely on land-line point-
to-point connectivity and may enable content providers to improve their
profitability.
. Ability to Serve Large Audiences Simultaneously--Our network of servers
and our use of satellite technology to transmit a single stream to an
unlimited number of servers are designed to allow us to serve large
audiences of simultaneous users. As we add streaming capacity through
additional investments in servers and hosting center equipment, we will
be able to serve increasingly larger audiences with the quality and
reliability that both end users and content providers demand.
. No End User Special Equipment Needed--Since we broadcast to the ISPs,
end users do not need to purchase receiver dishes, special software or
change their procedures to view content. This makes our services
transparent to the end user and we believe facilitates the rapid
deployment of our network.
. Broad Range of Service Offerings to Facilitate Use of Streaming Media--
Our streaming media services for content providers consist of, among
other things, production, event planning, encoding and production
services. The acquisition of webcasts.com will supplement our service
offerings by giving us the capability to integrate chat and e-commerce
databases with streaming media content and by adding to our other
services. Our customers do not need to utilize multiple vendors to
enable their websites to offer streaming media.
. Usage Reporting Capabilities--We have developed a web-based network
dashboard that allows content providers to determine, by individual
stream, who is watching or listening to their content, how long they
have been watching or listening and where the user is geographically
located. This dashboard gives content providers on our network the
insight they need to make intelligent programming and
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advertising decisions, which is a great advantage compared to the
traditional rating services relied on by media companies.
. Network Supports a Variety of Technologies and Applications--Our network
is designed to support all streaming media applications. We support the
major streaming media players including Windows Media Player and
RealPlayer and we intend to support new players as they gain widespread
market acceptance. Our servers deployed throughout the Internet can
execute a variety of value-added applications. Our server platform is
designed to be highly flexible, allowing for new services and
applications such as streaming advertising insertion, pay-per-view
administration and other e-commerce related services. These new
applications will create the potential for new revenue sources for our
customers.
Strategy
Our goal is to become the leading provider of high-fidelity Internet
broadcast services by developing the world's largest, premier quality, and
most cost efficient distributed streaming network. To this end, we are
capitalizing upon our innovative network architecture, proprietary technology
and early entry into streaming media broadcasting to position us as the
broadcast network of choice for reliable, high-fidelity Internet broadcasting.
Our strategy comprises the following initiatives:
Expand Our Customer Base. We currently have contracts to provide our
services to over 100 media, entertainment and technology companies. We intend
to increase our customer base by targeting existing new media, entertainment,
and e-commerce companies, as these companies begin to more fully use streaming
technology. We also intend to target traditional media and entertainment
companies, including motion picture, television, sports, newspapers and radio
companies, as customers, which we believe will increasingly seek to broadcast
video and audio over the Internet. To accomplish these goals, we intend to
expand our sales force and to further invest in marketing activities and
services and building the iBEAM brand. The acquisition of webcasts.com will
expand our customer base by adding customers that use webcasts.com's business-
to-business e-commerce services including Lotus/IBM and America Online, which
were its largest customers by revenue in 1999.
Globally Build Out Our High-Fidelity Internet Broadcast Network. We plan to
build out our network internationally through joint ventures, partnerships and
other commercial arrangements with global technology and media companies that
have the local resources and expertise to extend our broadcast network to
international customers. This will serve to increase the worldwide number of
users that can be reached by our edge servers, yielding high quality
transmission at low cost. We believe our satellite-based business model will
be particularly successful in markets with less developed, land-line
infrastructure. We believe that the recent growth in Internet and data related
transmission in the United States will be repeated in numerous regions across
the globe, including Europe, Asia and Latin America. In January 2000, we
signed a letter of intent with Pacific Century CyberWorks to establish a joint
venture company called iBEAM Asia. iBEAM Asia will focus on deploying our
servers into ISPs in Asia as well as distributing video and audio content in
Asia. We expect the joint venture, which will be 51% owned by PCCW and 49%
owned by iBEAM, to begin delivering content to end users in PCCW's network by
mid-year 2000. In addition, we recently entered into an agreement with
Interpacket, a satellite-based IP network serving ISPs in 80 countries, to
deliver our customers' streaming content via Interpacket points of presence in
Asia, Europe, Latin America, Africa and the Middle East.
Further Leverage Our Broadcast Network to Drive Economies of Scale. We have
developed a proprietary software platform that enables a number of standard
Internet applications to be run across a global network of distributed edge
servers. The inherent advantage of our network and its associated satellite
broadcast software platform is its ability to allow standard Internet
applications to reach large audiences. As we continue to deploy and
increasingly operate through our point-to-multipoint network architecture, we
will be able to broadcast increasing amounts of content to our highly
distributed network of servers with minimal, incremental satellite
transmission cost.
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Moreover, we can add additional points of presence, which are server
locations at an Internet users' access point within an ISP network, with low
capital expenditures and minimal increase in bandwidth costs. By leveraging
the existing infrastructure of local and regional Internet service providers
to carry our network traffic, we further reduce the expenditures we incur in
deploying our network infrastructure. Our broadcast network offers several
advantages to ISPs. By partnering with us, ISPs can avoid incoming bandwidth
charges and provide significantly improved end user experiences through our
broadcast network. This quality and cost advantage will enable us to continue
penetrating the streaming media content distribution market.
Introduce New Value Added Features and Services. In addition to offering
high-fidelity streaming at competitive prices, we believe we can attract new
streaming media customers through the introduction of advanced features such
as real-time traffic reporting and advanced data management that simplify the
task of streaming content on the Internet. We intend to aggressively pursue
these new applications and new markets. An example of a new application we
intend to pursue is the introduction of targeted streaming advertising into
our edge-delivered broadcast. Our servers may eventually have the capability
to insert directed local advertisements into each copy of the broadcast stream
it serves. We believe that this capability will allow content providers to
enhance their revenue by charging advertisers a premium for advertising
targeted directly to the end user. By the second half of 2000, we expect to be
able to insert streaming advertising which will be targeted at the end user
based on the geographic location of the user and the nature of the website the
user is visiting. Although we have not yet developed a pricing structure for
these services, we expect to generate revenue from targeted advertising in the
future. In addition, we intend to serve enterprise customers with needs for
new applications such as Internet enabled distance learning, virtual
roadshows, digital downloads and video conferencing.
Pursue Additional Commercial Relationships and Joint Ventures. We currently
have commercial relationships with various media, entertainment and technology
companies and ISPs, including America Online, Covad Communications, Microsoft,
Pacific Century CyberWorks and Sony. These relationships provide us with
insights as to future customer requirements, Internet access trends and
emerging technologies and facilitate our network expansion. For example,
through our agreement with America Online, we will be able to deploy our
servers throughout the largest U.S. Internet access network, thus expanding
the reach of our broadcast platform. This will, in turn, make our services
more attractive to content providers, which will be able to reach more end
users through our network. We intend to pursue additional commercial
relationships to accelerate market acceptance of our services and expand our
global network. We believe that these benefits, combined with what we believe
will be the ISP's unwillingness to accommodate multiple distributed networks,
will strengthen our competitive position.
Create Open Platform for New Applications. A network of distributed
computers located at the edge of the Internet can run a wide range of
applications more efficiently than a traditional approach of running these
applications on a cluster of servers located in one or a few data centers
located on the Internet backbone. We are developing a series of application
programming interfaces that allow other applications from other providers to
take advantage of our network. We believe the open architecture of our network
will encourage other application service providers to partner with us.
iBEAM's Streaming Media Services
Distribution Services
We currently offer three primary services: iBEAM On-Air, iBEAM On-Stage and
iBEAM On-Demand. These services are typically charged based on the volume of
content delivered to end users as measured in megabytes or megabits consumed
and therefore varies with the number of users, the access speeds of the users
and time users spend viewing content broadcast by us. On-Air services are
typically priced based on the amount of peak capacity purchased, which is
expressed as the maximum volume of megabits that can be delivered per second,
for which we typically charge $500 to $1000 per month. On-Demand services are
typically priced based on actual usage, which is measured by the volume of
megabits transferred during the month, for which we typically charge $.005 to
$.01 per megabyte per month. In addition, for On-Demand customers there is a
fee for
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content stored, measured in gigabytes per month. On-Stage services can be
priced on either a peak capacity or actual usage basis. For example, for an
event broadcast through our On-stage service, the content provider would be
charged for either an estimate of the number of megabytes transferred during
the event, or the actual number of megabytes transferred during the event.
Other services such as production, event management, encoding and acquisition
services, are generally provided on a consulting basis on either an hourly or
fixed price billing.
iBEAM On-Air. iBEAM On-Air is the service offered for delivery of live,
continuous content streaming, such as music video channels, Internet or
traditional radio stations or news shows and sports channels. iBEAM On-Air
service is highly differentiated since it is very difficult to deliver live
content across the Internet using existing Internet delivery or caching
technologies. Video and audio streams are typically delivered by satellite to
our servers, which we call MaxCasters, bypassing the congestion of the
Internet backbone. The satellite link and our private acquisition network
allow us to offer an end-to-end connection from content source to the ISP
ensuring high fidelity video and audio streams. We derived 6% of our revenue
in 1999 from our On-Air services.
iBEAM On-Stage. iBEAM On-Stage is the same live delivery of iBEAM On-Air,
but packaged to meet the needs of the event-based customer. Target customers
for iBEAM On-Stage include concerts, trade shows and other events. Our network
is particularly important for high profile live events, such as the Metallica
1999 concert, since the large number of simultaneous users attracted by these
events often causes wide-spread congestion in the Internet backbone. Our
satellite broadcast capability allows us to bypass this congestion and deliver
a high-fidelity stream, even during periods of peak usage. We derived 74% of
our revenue in 1999 from our On-Stage services.
iBEAM On-Demand. iBEAM On-Demand is our service for on-demand media
hosting, such as music video clips, news highlights, product displays or any
type of streaming media included on a website. iBEAM On-Demand service is
based upon our network agent iDirector that manages the replication of stored
on-demand content across the array of iBEAM MaxCaster servers. Our network has
been designed with large-scale storage capabilities to accommodate the very
large content libraries of the media companies we serve. We derived 3% of our
1999 revenue from our On-Demand services.
Other Services
To supplement our core distribution services, we offer a series of other
services aimed at facilitating a complete Internet broadcasting solution for
content providers. Our services include production, event management, encoding
and acquisition services. These services are typically billed on a consulting
or usage basis.
Production Services. We have a team of service consultants and tools that
enable the creation and management of user interfaces that enable the
integrated presentation of streaming media, chat boxes, e-commerce links and
access management controls.
Event Management Services. We have a team of event managers that will
travel to the site of broadcast events. These event managers will supervise
the interface with the content production crew, as well as provide on-site
encoding and signal acquisition.
Encoding Services. Encoding is the process of converting a raw digital
audio or video stream into a format optimized for delivery over the Internet.
Proper encoding is critical to ensure the highest fidelity streaming content.
Optimizing the encoding process requires a combination of quantitative and
subjective assessments of the content being encoded. We provide these services
directly and indirectly through qualified third-party vendors such as Loudeye
and Entertainment Blvd.
Acquisition Services. Our acquisition services collect content from content
providers for distribution through our network. We offer a variety of signal
acquisition methods. In some instances, we will procure the acquisition
circuits on behalf of our customers.
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Customers
We commenced commercial operations in October 1999. We currently have
contracts to provide our services to over 100 content providers. The following
is a partial list of our customers and webcasts.com's customers by category in
order of amount of revenue generated in 2000 through February 29, 2000:
Internet Media Film
America Online atom films
Warner Bros. Interactive iFilm Corporation
Microsoft Corporation Cinema Now
Always Independent Films
Jumpcut
Value Vision
News
Music--Video/Radio
Launch Media MSNBC
BBC World
NetRadio
Entertainment Blvd. ZDTV
Hollywood Stars TV
Ministry of Sound
ChoiceRadio
Sports Business to Business
Lotus/IBM
Max Broadcasting Prepaid Legal
ProWebCast
Pacific Century Group
The following case studies illustrate how some of our largest customers, in
terms of the amount of content distributed through our network, are using our
service offerings.
Microsoft
When Microsoft launched its Windows Media Technologies version 4, they
promoted the launch event by hosting a live concert with Buddy Guy, a popular
blues guitarist which highlighted our capability to broadcast live events that
require high fidelity streaming video. We provided iBeam On-Stage service to
Microsoft to broadcast a broadband video feed from the concert at the House of
Blues in Los Angeles to our network of MaxCasters deployed around the country.
Launch Media
We were chosen by Launch Media to provide iBEAM On-Demand hosting services
to deliver stored music through our network for the recently introduced
Launchcast personalized music service. This service allows users to specify
what genre of music they prefer and identify individual titles they want
included in their personal playlist. Hosting the Launchcast music service
makes extensive use of the intelligent data management of iBEAM On-Demand. The
Launchcast service supports a very large library of digitized music,
intelligently stored across our distributed network.
MSNBC
MSNBC utilizes the high bandwidth capabilities of iBEAM On-Air to broadcast
news coverage through our network. MSNBC's continuous live video news feed is
streamed over our network. We also deploy and update news highlights that are
available on-demand to MSNBC users. In December 1999, a single 100 kilobit per
second (kbps) video stream served by us generated nearly one terabyte of
streaming media data to MSNBC users.
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Internet Broadcast Network
The architecture of our network is conceptually similar to the architecture
of traditional broadcast television and cable networks but incorporates
several layers of redundancy. Traditional television is collected over a
private acquisition network, then broadcast by satellite to television
affiliates or cable facilities geographically dispersed around the country. We
collect streaming Internet content from providers, then broadcast it via
satellite and traditional land-line networks to our network of MaxCasters,
located in the facilities of ISPs. We then deliver these high-fidelity video
and audio streams to the end-user. Our services require no special end user
hardware or software. In addition to the efficient distribution of streaming
content, our MaxCasters can perform a wide range of value-added applications,
such as targeted advertising and integrating e-commerce links with streaming
content, which we will seek to introduce in the future.
As we expand our network of MaxCaster edge servers, we will increase the
number of users served, thereby reducing transmission costs to ISPs. We have
currently deployed servers in more than 90 networks. These service providers
include ISPs such as America Online, DSL providers such as Covad
Communications and Northpoint, cable modem service providers such as High
Speed Access and backbone providers such as Apex Global Internet Services.
Under agreements with ISPs, we have agreed to deliver content into their
networks at no charge, unlike network bandwidth providers that charge ISPs for
delivery of content. Furthermore, in some cases, we share a portion of our
revenue derived from content providers with the ISP. As of March 31, 2000, we
pay fees to less than 50% of the ISPs with which we have contracts. These fees
range from 15% to 20% of the revenue we derive from content delivered through
their network. Because the ISPs to which we pay fees tend to be the ISPs with
larger networks, we believe that as we expand our network we will pay fees
with respect to more than 50% of the Internet traffic delivered through our
network.
In addition to our network of MaxCaster edge servers, we have deployed a
series of regional hosting centers. The regional hosting centers are deployed
at strategic locations around the Internet backbone. They are designed to
reach users not served by a MaxCaster edge server. In addition, these hosting
centers provide a second tier of redundancy--if the MaxCaster is unavailable
for any reason, users are automatically routed to our nearest regional hosting
center.
The third layer of redundancy in our network is achieved by the deployment
of master hosting centers, which are located in co-location facilities of
companies such as Abovenet and Exodus Communications. The master hosting
centers provide a third layer of redundancy, filling in for any regional
hosting centers that may be unavailable for any reason. In addition, they have
large scale storage systems to host the complete content libraries of our
media customers.
As of March 31, 2000, our network was sufficient to support up to 300,000
simultaneous end users. As of that date we estimate that less than 5% of
traffic delivered through our network was served by our edge servers. The
remaining content delivered to end users through our land-line network is
served from our regional or master hosting centers. We expect that this
percentage will decline significantly as we install additional servers on the
edge of the Internet. We expect that we will be able to serve up to 40% of end
users on our network through our edge servers by the end of 2000.
Our geographically dispersed network of servers is monitored continuously
by our network operations center. We have developed a series of proprietary
network management tools that allow our network operations center personnel to
have complete visibility into any of our remote servers and to remotely manage
the servers. Our network operations center personnel can diagnose problems,
restart servers, and update or re-load software using either land-line or
satellite communications with the remote server. Our network operations center
is located in a hardened facility with back-up power supplies and redundant
systems.
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Our Technology
Since our inception in March 1998 through March 31, 2000, we have invested
$10.0 million on engineering and development activities, which has led to the
development of a series of software technologies that constitute the iBEAM
broadcast platform. An attribute of our broadcast platform is that it allows
any server in the network to deliver streams to any user on the network,
thereby avoiding the inefficiencies of dedicated servers only for specific
users.
Some of the key components of our broadcast platform include:
MaxCaster--the intelligent video and audio server at the network edge
The primary technical component of the broadcast platform is the iBEAM
MaxCaster. The MaxCaster is the remote server that sits at the edge of the
Internet. The MaxCaster receives the 1-way satellite broadcast, and performs
functions that integrate the satellite broadcast with the 2-way traffic of the
Internet. The MaxCaster contains software that allows it to receive, store and
manage data, as well as report back to our network operations center on the
state of the server and the content being served. Finally, the MaxCaster can
process the content to perform functions, such as inserting streaming
advertising that is targeted to each individual end user.
iRelay--the reliable transport layer
The second element of our broadcast platform is the iRelay transport layer.
The iRelay transport layer allows us to accept an input from several types of
sources, including live audio or video feed and FTP file delivery, and deliver
it to all of our servers without the potential for packet loss or the
atmospheric disturbances of satellite transmission. If a packet should be lost
or scrambled during transmission, the iRelay software will re-transmit the
missing packet to any downlink that did not receive the original data. iRelay
is a key component in enabling us to harness the full broadcast power of
satellites to deliver uninterrupted Internet streams to large numbers of our
servers located close to the end user.
iDirector--the intelligent network controller
The third element of our broadcast platform is a proprietary technology
called iDirector. The iDirector technology is an intelligent agent that
receives the end user request for content. For example, if a user types
www.msnbc.com to look at an MSNBC news feed, iDirector identifies where the
end user is located, then makes an assessment of network conditions, satellite
link availability, and server availability to connect the end user to the
optimal server. If any component of our network is down, the iDirector system
automatically routes the end user to a different part of the network to ensure
continued service.
Acquisition of webcasts.com
On March 21, 2000 we entered into a definitive agreement to acquire
webcasts.com, a provider of interactive broadcasting services and proprietary
tools that give businesses the ability to conduct live and on-demand Internet
broadcasts for use in distance learning, corporate communications, sales
presentations, online trade shows and interactive television.
Webcasts.com's service and tools offerings include:
. Vuser, a tool that allows a content provider to deliver an
interactive presentation that combines streaming media, animation,
graphics, banner advertising, e-commerce text and live Internet
links in one interface;
. Audience management services, which include audience registration,
pay-per-view and restricted access control; and
. Broadcast management services, which include event production
assistance, provision of Internet connections and encoding for
Internet transmission and event monitoring services.
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We believe the combination of our broadcasting services and webcasts.com
event production services will allow us to offer a broader range of services
to customers, intended to make it easier to initiate and continue broadcasting
on the Internet.
Webcasts.com's customers include Lotus/IBM and America Online, which were
its two largest customers in 1999. Webcasts.com had 95 employees as of March
31, 2000.
Commercial Relationships
We have commercial relationships with America Online, Pacific Century
CyberWorks, Covad Communications, Excite@Home, InterPacket, Microsoft
Corporation, and Sony Corporation, and intend to enter into additional
relationships with other media, entertainment and technology companies to
accelerate market acceptance of our services and to expand and enhance our
global network. We believe relationships with technology and media companies
can accelerate market acceptance of our technology and services, increase our
brand recognition and improve access to our target customer base.
America Online
In February 2000, we entered an agreement with America Online to deploy our
streaming media distribution network within the America Online network. The
agreement will increase the availability of content delivered through our
network on the edge of the Internet. We will deploy our Internet broadcast
platform to deliver live streams into the America Online network, providing
America Online's members with direct access to streaming content through our
network. We have agreed to share with America Online a portion of the revenue
derived from content delivered through their network. We made non-refundable
prepayments of an aggregate of $3.0 million to America Online as an advance
against payments due to them under the agreement.
In addition, in February 2000, we sold $5.0 million of our series E
preferred stock to America Online which will convert into 500,727 shares of
common stock upon the closing of the offering and received a warrant to
purchase $5.0 million of our common stock at an exercise price equal to the
price to the public in this offering, less estimated underwriting discounts
and commissions, which at an assumed offering price of $10.00 per share would
be 537,634 shares.
Covad Communications
In October 1999, we entered into an agreement with Covad Communications, a
leading national broadband services provider utilizing digital subscriber line
(DSL) technology, to provide Covad with high-fidelity streaming video and
audio content at lower cost than communication providers that operate only
land-line networks. Under the terms of the agreement, we will deploy our
MaxCaster servers in Covad hubs in North America thereby enlarging the edge of
our network. As part of this deployment initiative, we have collaborated with
Covad on technical efforts aimed at enabling new services including quality of
service management, subscriber management and pay-per-view. We have agreed to
share with Covad a portion of the revenue derived from content delivered
through their network.
We sold 335,570 shares of our series D preferred stock to Covad for an
aggregate purchase price of approximately $2.0 million in October 1999 which
will convert into 1,386,239 shares of our common stock upon the closing of
this offering.
Excite@Home
In April 2000, we entered into an agreement with Excite@Home to deploy our
streaming media distribution network within the Excite@Home network. The
agreement also provides for Excite@Home to deliver network connectivity
services to iBEAM. We believe the agreement will increase the availability of
content delivered through our network on the edge of the Internet. We have
agreed to pay Excite@Home $2.5 million as a non-
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refundable prepayment for any services that are provided to us under the
agreement and the revenue we are obligated to share with Excite@Home for
content distributed through their network.
In addition, in April 2000, Excite@Home agreed to purchase $5.0 million of
our series H preferred stock at a price equal to the price to the public in
this offering, less underwriting discounts and commissions. The series H
preferred stock will convert into common stock on a one-for-one basis at the
closing of this offering. Based on an assumed public offering price of $10.00
per share, Excite@Home will purchase 537,634 shares of our series H preferred
stock.
InterPacket
In January 2000, we entered into an agreement with InterPacket, a
satellite-based IP network serving ISPs in over 80 countries worldwide. Under
the agreement, InterPacket will deliver our customers' streaming content via
their global satellite broadcast network to MaxCasters at InterPacket points
of presence in Asia, Europe, Latin America, Africa and the Middle East. We
believe this relationship will enhance our service offerings and revenue
potential and InterPacket's revenue potential. We will benefit from this
relationship by accelerating international deployment of our network to the
edge of the Internet.
Microsoft Corporation
We entered into a collaboration agreement with Microsoft, effective as of
September 20, 1999, to improve the delivery of streaming media over the
Internet. Under the agreement, Microsoft recommends us as a service provider
for the delivery of broadband streaming media and we will engage in
cooperative sales efforts to promote Windows Media Technology (WMT).
Additionally, for the term of the agreement, we have agreed to provide six
months of our services to content providers chosen by Microsoft, provided that
the value of these services to all to such content providers does not exceed
$200,000 in the aggregate. We cannot currently quantify the number of content
providers to which we expect to provide free services under this arrangement.
In addition to our direct sales efforts, we are collaborating on feature
development, including technical exchanges regarding the identification and
development of new functions to be included in either our NT based network
platform or WMT. We are provided early adopter access to new WMT products and
agree to incorporate and promote new competitive WMT features. We do not have
an exclusive arrangement under which Microsoft will not recommend any other
service providers for the delivery of broadband streaming media.
Our agreement with Microsoft will extend through September 2002. Microsoft
has agreed to pay us $500,000 through April 15, 2000, all of which Microsoft
may use to purchase our services either for itself or on behalf of other
Internet content providers.
We sold 1,677,852 shares of our series D preferred stock to Microsoft for
an aggregate purchase price of approximately $10.0 million in October 1999
which will convert into 6,931,206 shares of our common stock upon the closing
of this offering. In addition, we granted Microsoft a warrant to purchase
218,120 shares of series D preferred stock at an exercise price of $5.96 per
share which will convert into 901,053 shares of common stock.
Pacific Century CyberWorks
In March 2000, we signed a letter of intent with Pacific Century CyberWorks
Limited, a Hong Kong based Internet services and investment company, to
establish a joint venture company named iBEAM Asia to introduce iBEAM's
streaming media services to its cable customers. The joint venture will
include deployment and operation of MaxCaster servers into ISPs and Internet
access providers and distributing video and audio content from media companies
to end users in the countries in Asia served by PCCW. We expect the joint
venture, which will be 51% owned by PCCW and 49% owned by iBEAM, to begin
delivering content to end users in PCCW's network by mid-year 2000.
In addition, in February 2000, we sold $30.0 million of our series E
preferred stock to PCCW which will convert into 3,004,363 shares of our common
stock upon the closing of this offering.
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Sony Corporation
We entered into an investment relationship with Sony Corporation of America
in October 1999. Sony's Vice President of Interactive Services has joined our
advisory board and has assisted in sales introductions and promoting technical
discussion with Sony regarding industry issues such as digital rights
management support, encryption, distribution and hosting methodologies.
We sold 335,570 shares of our series D preferred stock to Sony for an
aggregate purchase price of approximately $2.0 million in October 1999 which
will convert into 1,386,239 shares of our common stock upon the closing of
this offering.
Sales and Marketing
We primarily sell our services through our direct sales force. We are
currently focusing our sales efforts on the world's leading media and
entertainment companies which have launched or which we believe will launch
broadband multimedia initiatives. As of March 31, 2000, we had 30 employees in
our sales force devoted to developing relationships with content providers as
well as ISPs. We compensate our sales force with salary and commissions based
primarily on increasing traffic from existing customers as well as adding new
customers. Over the next few years we intend to significantly increase the
size of our sales force and expect to increase our expenditures on sales and
marketing efforts in the next twelve months. Our expenditures on sales and
marketing over the next 12 months are highly uncertain and will depend upon
various factors that are difficult to predict, including the number of sales
and marketing people that we are able to attract and the level of investment
that we determine we will need to market our brand over the next 12 months.
In addition to our direct sales efforts, we are developing a network of
partners which include hosting companies, streaming services companies and
Internet service providers. Our partners will resell our full range of
services beyond our immediate target market.
Our technical consulting group, composed of ten systems engineers and six
program managers, supports our sales efforts by providing implementation
services for On-Stage streaming events as well as On-Air and Internet radio
and media on-demand services.
Our marketing strategy is to build a brand associated with high-fidelity
streaming media delivery. To support this objective, we have been engaged in a
direct marketing campaign that includes a presence at key trade shows,
speaking engagements at industry forums and iBEAM sponsored events and
seminars. We have also undertaken an advertising campaign aimed at our target
content provider customers. The advertising campaign consists of a mixture of
traditional media as well as Internet based advertising.
Patents and Proprietary Rights
Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret and copyright laws and contractual
restrictions to protect the proprietary aspects of our technology. These legal
protections afford only limited protection for our technology. We have filed
eight patent applications and intend to file an additional ten patent
applications in the near future. These patent applications relate to our
streaming platform standard, content management, distribution capabilities and
subscriber management.
We seek to limit disclosure of our intellectual property by requiring
employees and consultants with access to our proprietary information to
execute confidentiality agreements with us and by restricting access to our
source code. Due to rapid technological change, we believe that factors such
as the technological and creative skills of our personnel, new product
developments and enhancements to existing products are more important than the
various legal protections of our technology to establishing and maintaining a
technology leadership position.
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<PAGE>
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. The laws of many countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets, to determine the validity and scope of
the proprietary rights of others or to defend against claims of infringement
or invalidity. Any such resulting litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on our
business, operating results and financial condition. There can be no assurance
that our means of protecting our proprietary rights will be adequate or that
our competitors will not independently develop similar technology. Any failure
by us to meaningfully protect our property could have a material adverse
effect on our business, operating results and financial condition.
From time to time, third parties might claim infringement by us with
respect to our current or future products. These claims and any resulting
lawsuit, if successful, could subject us to significant liability for damages
and invalidate our proprietary rights. Any litigation or claims, whether or
not valid, could result in substantial costs and diversion of resources. In
January 2000, we received a letter from a competitor which suggested that we
review patents to which this company claims rights. These patents purport to
cover "a system and method for delivery of video and data over a computer
network." We have conducted an investigation with respect to such patents.
Based on our investigation, we believe that we do not infringe any claims of
these patents. However, there can be no assurance that the competitor will
agree with our conclusion or not pursue a claim or litigation against us. If
this competitor does pursue a claim against us, we intend to vigorously defend
against any such claim. However, a claim, if successful, could subject us to
significant liability for damages and invalidate our propriety rights.
Any potential intellectual property litigation also could force us to do
one or more of the following:
. cease selling, incorporating or using products or services that
incorporate the infringed intellectual property;
. obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on acceptable terms, if at all; or
. redesign those products or services that incorporate the disputed
technology.
We may in the future initiate claims or litigation against third parties
for infringement of our proprietary rights or to determine the scope and
validity of our proprietary rights or the proprietary rights of competitors.
These claims could result in costly litigation and the diversion of our
technical and management personnel. As a result, our operating results could
suffer and our financial condition could be harmed.
Competition
The market for Internet broadcasting services is new, highly competitive,
and rapidly evolving. We expect competition to increase both from existing
competitors and new market entrants for various components of our service.
Unlike many of our competitors, we regard ourselves as the only Internet
broadcast network that combines satellite and land-line broadcasting of
streaming media as our primary business mission.
Our competitors primarily come from five market segments:
. Internet content distribution networks that accelerate delivery of web
pages, such as Akamai, Enron Communications and Digital Island;
. Internet webcasting companies that deliver streaming media through land-
line networks, such as InterVu, which was recently acquired by Akamai;
. Internet software vendors that reduce that cost of delivery of content
to users by storing content closer to the end user, such as Inktomi;
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. Internet production and event services companies, such as Broadcast.com
and Network24 Communications, which was acquired by Akamai; and
. Satellite companies that deliver streaming video through satellite
networks, such PanAmSat and Cidera.
We compete on price and quality of delivery, customer service, and network
features. We believe we currently have several primary competitive advantages,
including the quality of our network architecture, our proprietary technology
and our early entrance into the market for Internet broadcast services.
However, our competitors may be able to respond more quickly than we can to new
or emerging technologies and changes in customer requirements. Some of our
competitors may bundle their services with Internet related products or
services from Internet device vendors or Internet service providers. These
bundling relationships may inhibit our ability to sell service to Internet
content providers or to deploy servers at Internet service providers.
Increased competition could result in price reductions, fewer customer
orders, reduced gross margins or loss of market share. Any of these conditions
could materially and adversely affect our business, financial condition, and
operational results.
Facilities
Our headquarters are currently located in approximately 59,000 square feet
of leased office space in Sunnyvale, California. We recently obtained an
additional 23,000 square feet of office space near our headquarters.
We are building a network operations center in our headquarters which will
begin operations in April 2000.
Webcasts.com's principal offices are in Oklahama City, Oklahoma and Phoenix,
Arizona with sales offices in various U.S. cities.
Employees
As of March 31, 2000 we had a total of 266 employees. We have never had a
work stoppage and no personnel are represented under collective bargaining
agreements. We consider our employee relations to be good.
We have rapidly increased our employee base and need to continue to hire
additional personnel. We believe that our future success will depend upon our
continued ability to attract, integrate, retain, train and motivate highly
qualified personnel and upon the continued service of our senior management and
key personnel. Competition for qualified personnel is intense, particularly in
the Silicon Valley area, where our headquarters is located. There can be no
assurance that we will successfully attract, integrate, retain, train and
motivate a sufficient number of qualified personnel to conduct our business in
the future.
Development of our Business
We believe that the net proceeds of this offering, together with our
available funds, will be sufficient to meet our anticipated needs for working
capital and capital expenditures for the next 12 to 18 months. We expect to
spend at least $35.0 million in 2000 for capital expenditures, $28.2 million of
which was spent in the first quarter. The purpose of these capital expenditures
is to increase the number of users the network can support at the edge of the
Internet and relates primarily to our investment in edge servers, hosting
centers and our network operations center. In addition, we expect to make
additional expenditures to fund our sales and marketing and engineering and
development efforts in 2000. Our sales and marketing expenses are related to
our efforts to build up our sales force and build our brand name in order to
increase our customer base. Engineering and development expenses will be
related to developing value added services such as advertisement insertion
capabilities. The amount we spend for
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these purposes will depend on various factors that are difficult to predict,
including the level of competition we will experience and the availability for
hire of qualified sales, marketing and engineering personnel.
Legal Proceedings
On February 3, 2000, Gerald F. Chew filed a lawsuit in California state
court, County of Santa Clara, against us and one of our founders alleging
breach of contract and other claims entitled Gerald F. Chew v. iBEAM
Broadcasting, Inc. et al., No. CV 787599. Mr. Chew claims that he was one of
our founders and that we and one of our founders breached their promise to him
to issue founder's stock in exchange for his services. Mr. Chew alleges
damages of at least $10.0 million and seeks a determination from the Court
that he is entitled to an unspecified number of shares of our capital stock.
Mr. Chew's complaint is not clear whether his claims for such relief are
cumulative or in the alternative. In subsequent filings with the Court, Mr.
Chew has claimed entitlement to the same number of founders shares as received
by Mr. Wilmot. We intend to defend this action vigorously, however, litigation
is inherently uncertain and we may not prevail against Mr. Chew. Should Mr.
Chew prevail on his lawsuit, we could be required to issue stock to Mr. Chew
on the same terms as those granted to our founders and recognize an expense in
connection with such issuance, which could have a material adverse effect on
our results of operations. In addition, any such issuance would be dilutive to
existing stockholders.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth information regarding our directors and
executive officers and their ages as of March 31, 2000:
<TABLE>
<CAPTION>
Executive Officers: Age Position
------------------- --- --------
<C> <C> <S>
Peter Desnoes.................... 57 President, Chief Executive Officer and
Chairman of the Board
Chris Dier....................... 47 Vice President and Chief Financial
Officer
Nils Lahr........................ 26 Chief Architect
Jeremy Zullo..................... 28 Vice President, Engineering
Dave Brewer...................... 31 Vice President, Operations
Robert Davis..................... 41 Vice President, Sales
David Strehlow................... 45 Vice President, Business Development
Tom Gillis....................... 34 Vice President, Marketing
Andrew Henry..................... 38 Vice President, Product Marketing
Daniel Sroka..................... 37 Vice President and General Counsel
Directors:
----------
Barry Baker(2)................... 47 Director
Frederic Seegal.................. 52 Director
Richard Shapero(1)(2)............ 52 Director
Peter Wagner(1)(2)............... 34 Director
Robert Wilmot.................... 55 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Peter Desnoes joined our board of directors in June 1998. He has served as
our President and Chief Executive Officer since January 1999 and as Chairman
of the Board since April 2000. Prior to joining us, Mr. Desnoes was the
founder, Managing General Partner and Chief Executive Officer of Burnham
Broadcasting Company, a partnership which owned network affiliated television
stations in several major U.S. markets in addition to operating a major
commercial production and post-production company. Mr. Desnoes started Burnham
Broadcasting Company in 1983 after a 16-year career with the American
Broadcasting Company (ABC). At ABC, Mr. Desnoes served as President and
General Manager of WLS-TV in Chicago from 1979 until 1983. Prior to that time,
he served as Vice President of Sales and Marketing for the ABC television
stations division, and was also elected Chairman of the ABC Affiliates Board
of Governors. Mr. Desnoes holds a B.A. in Philosophy from the University of
Arizona.
Chris Dier has been our Vice President and Chief Financial Officer since
joining us in November 1998. From August 1996 to February 1998, Mr. Dier
served as Vice President Administration and Chief Financial Officer of Aurum
Software Incorporated, a sales force automation software company. From January
1990 to July 1996, he served as Vice President of Administration and Chief
Financial Officer of VERITAS Software Corporation, a publicly traded company
focused on the storage management software market. Previous employment
includes Tolerant Systems and Intel Corporation where he held a variety of
operating finance positions. He holds a B.A. in Humanities and an M.B.A. from
Santa Clara University.
Nils Lahr joined us in April 1998 and has been our Chief Architect since
July 1999. From April 1998 to May 1999, he served as our Director of Server
Engineering and, from May 1999 to July 1999, he served as our Executive
Director of Technology. From May 1997 to June 1998, Mr. Lahr was an
independent contractor serving as a Senior Software Developer for Microsoft
Corporation where he helped clients deploy digital video applications and was
a key developer for Microsoft's digital video services. From April 1996 to May
1997, he served as a Senior Technical Programmer for CNN America where he
designed the technologies and
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infrastructure supporting the CNNfn.com website. From February 1995 to April
1996, Mr. Lahr worked as super-computer programmer for the United States Air
Force.
Jeremy Zullo joined us in May 1998 and has been our Vice President,
Engineering since December 1999. From May 1998 to July 1999, he served as our
Director of Development and, from July 1999 to December 1999, he served as our
Executive Director of Development. Prior to joining us, Mr. Zullo was the
Manager of Internet Products for Bloomberg Television and Internet Divisions
from February 1996 to April 1998. From 1992 to 1996, Mr. Zullo served as Chief
Executive Officer at Dominion Systems Technologies Inc., a company he founded
to create distributed real time engines. From 1993 to 1996, Mr. Zullo was also
a senior consultant for various United States military branches. Mr. Zullo
holds a B.S. in Physics from Rensselaer Polytechnic Institute.
Dave Brewer has been our Vice President, Operations since he joined us in
November 1999. From May 1991 to November 1999, Mr. Brewer was Chief Executive
Officer of Brewer Consulting Networks, a company that he founded which focuses
on designing, installing and maintaining local and wide area computer
networking systems for a variety of Fortune 1000 companies and educational
organizations. From 1986 to 1991, Mr. Brewer was a Network Engineer and
Systems Technician with Landis & Gyr Systems, Inc. a supplier of electronic
payment solutions.
Robert Davis joined us as Vice President, Sales in August 1999. From July
1996 to November 1998, Mr. Davis served in several capacities, including as
President, Chief Executive Officer and a member of the board of directors of
Formida Software Corporation, a publicly traded Australian software company.
From September 1993 to July 1996, Mr. Davis was a Senior Vice President of
Worldwide Sales and Support for Premenos Technology Corporation, a software
company. His earlier experiences include senior sales management positions
with Sprint Corporation and Southern Bell. Mr. Davis holds a B.S. Degree from
the University of Akron.
David Strehlow has served as our Vice President, Business Development since
joining us in August 1999. From September 1998 to July 1999, Mr. Strehlow
served as acting Vice President of Business Development for two startup
companies, SoftVideo, Inc. and Live Picture, Inc. From September 1996 to
September 1998, Mr. Strehlow served as Senior Director of Business Development
at RealNetworks, Inc., a provider of media delivery and digital distribution
solutions. From October 1995 to June 1996, he served as Senior Director of
Business Development at VDOnet Corporation, a provider of video applications
and online communities for use over the Internet. Prior to this time,
Mr. Strehlow served in various capacities at Oracle Corporation, a supplier of
software for information management, in both product management and product
marketing roles. Mr. Strehlow holds an M.B.A. from Carnegie Mellon University,
an M.S. in Oceanography from Oregon State University and a B.S. in
Oceanography from University of Washington.
Tom Gillis joined us in July 1998 and has served as our Vice President,
Marketing since December 1999. From July 1998 to May 1999, he served as our
Director of Product Management and, from May 1999 to December 1999, he served
as our Assistant Vice President, Marketing. Prior to joining us, from 1995 to
June 1998 Mr. Gillis served in several capacities at Silicon Graphics,
including Product Line Manager for Desktop Workstations and Product Manager
for Silicon Graphics' digital media streaming and compression hardware
products. From 1987 to 1993, Mr. Gillis was a Senior Hardware Engineer
responsible for wireless communications and radar systems design at Raytheon
Company. Mr. Gillis has an M.B.A. from Harvard University, an M.S. in
Electrical Engineering from Northwestern University and a B.S. in Electrical
Engineering from Tufts University.
Andrew Henry has been our Vice President, Product Marketing since joining
us in January 2000. Prior to joining us, from January 1994 to December 1999,
Mr. Henry held a variety of positions with Silicon Graphics, most recently
serving as Vice President and General Manager of the Visual Solutions Business
Unit. From September 1990 to January 1994, Mr. Henry served as Manager, Visual
Engineering with Failure Analysis Associates. Prior to this time, Mr. Henry
co-founded a graphics technology company called Animated Technologies and was
an engineering manager with TRW Space and Technology Group. He earned a B.S.
degree in Engineering Physics from the University of the Pacific and an
M.S.E.E. in Electro-optics from the University of Southern California.
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Daniel Sroka joined us in January 2000 as our General Counsel and has
served as our Vice President and General Counsel since February 2000. Prior to
joining us, Mr. Sroka was a partner at the law firm of Brooks, Pierce,
McLendon, Humphrey & Leonard, L.L.P. Prior to becoming partner in August 1995
and since joining the firm in 1989, Mr. Sroka was an associate with Brooks,
Pierce, McLendon, Humphrey & Leonard. Mr. Sroka's practice has specialized in
mergers and acquisitions, commercial transactions, corporate finance,
formation and capitalization of business entities, commercial real estate and
taxation. He graduated from the University of Wisconsin, Madison with a degree
in Business Administration Accounting and received his law degree from Wake
Forest School of Law.
Barry Baker has served as a member of our board of directors since January
2000. Since March 1999, Mr. Baker has been with USA Networks, Inc., a media
and electronic commerce company, most recently serving as its President and
Chief Operating Officer. Before joining USA Networks, from June 1996 to
February 1999, Mr. Baker served as Chief Executive Officer/Designate of
Sinclair Communications, a broadcasting company, where he oversaw a business
of 64 television and 54 radio stations in 28 states. From August 1989 to May
1996, Mr. Baker served in various capacities at River City Broadcasting, a
broadcasting company he founded which was later sold to Sinclair Broadcast
Group. Prior to these experiences, Mr. Baker served in management positions in
cable and radio broadcasting and managed radio startups. Mr. Baker has served
on numerous industry boards. Mr. Baker was recently appointed to the Board of
Directors of the National Association of Television Program Executives, the Ad
Council and The Production Resource Group.
Frederic Seegal has served as a member of our board of directors since
August 1999. Mr. Seegal has served as President of Wasserstein Perella Group,
Inc. and Managing Director of Wasserstein Perella & Co., Inc. since March
1994. These Wasserstein entities form part of Wasserstein Perella & Co., an
international investment banking and financial services firm. Prior to joining
the Wasserstein entities, Mr. Seegal was Managing Director/Co-Head of Domestic
Corporate Finance at Salomon Brothers, an investment bank, during the period
of 1990 through 1994. From 1982 to 1990, Mr. Seegal was in charge of Lehman
Brothers investment banking activities in the Media & Communications
Industries, where he served as Managing Director of Lehman Brothers. Mr.
Seegal holds a Bachelors Degree from Cornell University and graduated from
Harvard Law School and Harvard Business School in 1974.
Rich Shapero has served as a member of our board of directors since
April 1998. Mr. Shapero has been a general partner of Crosspoint Venture
Partners, L.P., a venture capital investment firm, since April 1993. From
January 1991 to June 1992, he served as Chief Operating Officer of Shiva
Corporation, a computer network company. Previously, he was a Vice President
of Sun Microsystems, Senior Director of Marketing at AST, and held marketing
and sales positions at Informatics General Corporation and UNIVAC's
Communications Division. Mr. Shapero serves as a member of the board of
directors of Covad Communications Group, Inc., Sagent Technology, Inc. and
several privately held companies. Mr. Shapero received a B.A. in English
literature from the University of California at Berkeley.
Peter Wagner has served as a member of the board of directors since
June 1998. Mr. Wagner joined Accel Partners, a Palo Alto-based private equity
investing firm, in July 1996, and has been a General Partner since January
1998, where he specializes in investing in companies in the communications
sector, including networking, telecommunications and wireless technology. From
September 1992 to July 1996, Mr. Wagner was a Product Line Manager for Silicon
Graphics. Mr. Wagner serves on the board of directors of NorthPoint
Communications Group, Inc. and several privately held companies. Mr. Wagner
holds a B.S. in Physics and an M.B.A. from Harvard.
Robert Wilmot is one of our founders and has served as a member of our
board of directors since our inception in March 1998. Dr. Wilmot has been
Chairman at Wilmot Consulting Inc., which provides strategic consulting
services to large and small businesses in the United States and Europe, since
May 1995. From April 1994 to May 1995, Dr. Wilmot was an independent
consultant and investor. From May 1985 through April 1994, he was Chairman at
Wilmot Enterprises Ltd., which provides strategic consulting services to large
and small businesses in the United States and Europe. In these capacities, Dr.
Wilmot has advised several Fortune 100 technology companies on their Internet
transformation. His other prior positions include Vice President and
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Managing Director of Texas Instruments and Chief Executive Officer of
International Computers PLC. Dr. Wilmot is an active angel investor and
Chairman of the Supervisory Board of Euro Ventures BV, a venture fund
operating in nine European countries. He is also a Director of COM21, FVC.COM
and @POS.COM and several private companies. Dr. Wilmot received a B.S. in
Electrical Engineering from Nottingham University.
Technical Advisory Board
The technical advisory board members are available to our executive
officers for periodic consultations relating to the development of our
technologies. The following individuals are members of our Technical Advisory
Board:
Navin Chaddha is one of our founders. He is currently Chairman of the Board
and Chief Executive Officer of Biztro, a privately held web-based company
serving small businesses. Prior to becoming Chairman and CEO of Biztro, he
held several management positions at Microsoft, the most recent of which was
Director, Broadband and Infrastructure, Streaming Media Division. While with
Microsoft, Mr. Chaddha also served as Chief Architect and Director, Commercial
Network Solutions, Microsoft's Network Solutions Group. Prior to joining
Microsoft Corporation, Mr. Chaddha founded Vxtreme (acquired by Microsoft
Corporation), an Internet media streaming software company, in December 1995.
Mr. Chaddha is an investor and serves on the advisory board of several
Internet startups. Mr. Chaddha holds a B.S. in electrical engineering from
Indian Institute of Technology, Delhi and an M.S. in electrical engineering
from Stanford University.
Llewellyn Chang is Vice President, Interactive Services for Sony
Corporation of America. In this position, he is involved in developing and
managing a range of technology-enabled products while providing technical
leadership in assessing and exploiting Sony's many digital opportunities.
Prior to joining Sony, Mr. Chang spent eleven years at Salomon Smith Barney
where he served as First Vice President and Area Manager responsible for
Enterprise Applications Engineering. This includes extensive experience in
distributed systems architecture and design, software engineering, large-scale
systems, network integration and applications development as well as the
management of strategic partner and vendor relationships. Previous to Salomon
Smith Barney, Mr. Chang held Information Technology positions at Goldman Sachs
and Company, AT&T Bell Laboratories, and Exxon Research and Engineering. Mr.
Chang holds a B.S. from the University of the West Indies and an M.S. from
Polytechnic Institute of New York, both in Electrical Engineering.
Robert Hawk is President of Hawk Communications. He previously served as
President and Chief Executive Officer of US WEST Multimedia Communications,
Inc., where he headed the cable, data and telephony communications business
from May 1996 to April 1997. He was president of the Carrier Division of US
West Communications, a regional telecommunications service provider, from
September 1990 to May 1996. Prior to that time, Mr. Hawk was Vice President of
Marketing and Strategic Planning for CXC Corporation. Prior to joining CXC
Corporation, Mr. Hawk was director of Advanced Systems Development for
AT&T/American Bell. He currently serves on the boards of PairGain
Technologies, COM21, Concord Communications, Covad Communications Group,
Radcom, Efficient Networks and several privately held companies. Mr. Hawk
received an M.B.A. from the University of San Francisco and a B.B.A. from the
University of Iowa.
Jon Kannegaard is Senior Vice President of Sun Labs. Mr. Kannegaard has
held several positions at Sun during his 12-year tenure, including Acting
President for Software Products and Platforms, Vice President and General
Manager, Java Platform, and President of SunSoft. Prior to Sun, Mr. Kannegaard
worked with Motorola for over 10 years and previously held positions at
Information Systems and Boeing Aerospace.
Rod Perth is President of Jim Henson Television Group Worldwide. Mr. Perth
has full responsibility for managing prime time and children's programming
network development and production at Henson Television. He also supervises
global television entertainment. In his previous term as President of
Entertainment at USA Networks, Mr. Perth led all programming efforts for both
the USA Network and the Sci-Fi Channel.
Philip Rosedale is an Entrepreneur-in-Residence at Accel Partners. Prior to
joining Accel in August 1999, Mr. Rosedale spent three and one-half years at
RealNetworks, most recently serving as Vice President and Chief Technology
Officer. His extensive work there included the creation of RealVideo,
development and deployment of the RealSystem 5.0 and G2 products, and
management of audio and video compression research. Before
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joining RealNetworks, Mr. Rosedale ran his own software company, Automated
Management Systems, which in 1995 developed FreeVue, a low-bitrate
videoconferencing product for Internet users. Mr. Rosedale holds a B.S. degree
in Physics from the University of California at San Diego.
Tony Werner is Vice President of Engineering and Technical Operations and
Chief Technology Officer for AT&T Broadband & Internet Services. Mr. Werner is
currently responsible for managing AT&T's broadband rollout and new service
implementation, including interactive TV, high-speed data and residential
telephone service. Prior to AT&T, Mr. Werner was the Vice President of
Operations Engineering for Rogers Communications, Inc. He also served the top
engineering role for Hong Kong Cable Communications, a joint venture between
US West, Shaw, Coditel, Sung Hun Kai and Wharf.
Board of Directors
Our board of directors currently consists of six members. Upon completion
of this offering, our board of directors will be divided into three classes,
each serving staggered three year terms. The term of office and directors
consisting of each class is as follows:
<TABLE>
<CAPTION>
Class Directors Term of Office
----- --------------------------------- ---------------------------------
<C> <C> <S>
Class I Frederic Seegal and Robert Wilmot . expires at the annual meeting
of stockholders in 2001 and at
each third succeeding annual
meeting thereafter
Class II Richard Shapero and Peter Wagner . expires at the annual meeting
of stockholders in 2002 and at
each third succeeding annual
meeting thereafter
Class III Peter Desnoes and Barry Baker . expires at the annual meeting
of stockholders in 2003 and at
each third succeeding annual
meeting thereafter
</TABLE>
The classification of directors has the effect of making it more difficult
to change the composition of the board of directors. See "Description of
Capital Stock--Delaware Law and Certain Provisions of Our Certificate of
Incorporation and Bylaws."
Our board of directors appoints our executive officers on an annual basis
to serve until their successors have been elected and qualified. There are no
family relationships among any of our directors or officers.
Voting Agreement for Directors
Under the terms of a voting agreement between us and the stockholders that
purchased shares of our preferred stock prior to the completion of this
offering, holders of our series A preferred and series B preferred had an
agreement to vote their shares at the election of directors in favor of a
director nominated by Crosspoint Venture Partners and Accel Partners. Mr.
Shapero is the nominee of Crosspoint Venture Partners and was elected to our
board of Directors as a result. Mr. Wagner is a nominee of Accel Partners and
was elected to our board of Directors as a result. This agreement terminates
with respect to these provisions upon the closing of our initial public
offering.
Board Committees
Our Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee of the Board of Directors consists of Messrs. Shapero,
Wagner and Baker. The Audit Committee reviews our financial statements and
accounting practices and makes recommendations to our Board of Directors
regarding the selection of independent auditors.
The Compensation Committee of the Board of Directors consists of Messrs.
Shapero and Wagner. The Compensation Committee makes recommendations to the
Board of Directors concerning salaries and incentive compensation for our
officers and employees and administers our employee benefit plans.
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Director Compensation
We do not currently compensate our directors in cash for their service as
members of the board of directors, although directors are reimbursed for
reasonable expenses incurred in attending board or committee meetings. Our
officers are appointed by the board of directors and serve at its discretion.
We have granted options to purchase shares of our common stock to some of our
non-employees. In September 1999, we granted Mr. Seegal an option to purchase
247,860 shares of common stock at an exercise price of $0.145 per share. This
option was granted under our 1998 Stock Plan. Of these shares, 214,812 shares
of common stock subject to options vest over a four year period with 25% of
the shares subject to option vesting 12 months from the date of grant and the
remaining shares vesting ratably each month after that date so long as Mr.
Seegal continues to serve as our director. The remaining 33,048 shares subject
to option vest over one year with 25% of the shares vesting at the end each
four month period from the date of grant so long as Mr. Seegal continues to
serve as our director.
In July 1998, we granted Mr. Desnoes an option to purchase 111,537 shares
of common stock at an exercise price of $0.040 per share. This option was
granted under our 1998 Stock Plan. The shares underlying this option were
immediately vested.
In January 2000, we granted Mr. Baker an option to purchase 82,620 shares
of common stock at an exercise price of $4.84 per share. These options were
granted under our 1998 Stock Plan. The shares underlying the option vests in
equal monthly installments over four years.
Our 2000 Director Option Plan provides for the automatic grant of non-
statutory stock options to purchase 82,620 shares of common stock to non-
employee directors who join us after this offering. For further information
regarding the provisions of the 2000 Director Option Plan, see "--Employee and
Director Benefit Plans."
Limitations on Directors' Liability and Indemnification
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
. Any breach of their duty of loyalty to the corporation or its
stockholders;
. Acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. Unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. Any transaction from which the director derived an improper personal
benefit.
The limitation of liability does not apply to liabilities arising under the
federal securities law and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and officers and may indemnify our employees and other agents to
the fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence on the part of indemnified parties. Our
bylaws also permit us to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
their capacity as an officer, director, employee or other agent, regardless of
whether the bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our bylaws. These
agreements provide, among other things, for indemnification for judgments,
fines, settlement amounts and expenses, including attorneys' fees incurred by
director, or executive officer in any action or proceeding, including any
action by or in our right, arising out of the person's services as a director
or executive officer, any of our subsidiaries or any other company or
enterprise to which the person provides services at our request. We believe
that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
57
<PAGE>
The limitation on liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against our directors for breach of their fiduciary duty
and may reduce the likelihood of derivative litigation against our directors
and officers, even though a derivative action, if successful, might otherwise
benefit us and our stockholders. A stockholder's investment in us may be
adversely affected to the extent we pay the costs of settlement or damage
awards against our directors and officers under these indemnification
provisions.
Compensation Committee Interlocks and Insider Participation
Our compensation committee currently consists of Messrs. Wagner and
Shapero. In January 1999, Mr. Desnoes, our President and Chief Executive
Officer, resigned from the compensation committee upon being appointed an
executive officer. Other than Mr. Desnoes, none of the members of our
compensation committee is currently or has been, at any time since the time of
our formation, one of our officers or employees. None of our executive
officers currently serves, or in the past has served, as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving on our board or compensation committee. Mr. Wagner
is a general partner of Accel Partners, a holder of approximately 17.8% of our
outstanding stock that has purchased shares of our series B preferred stock,
series C preferred stock and series D preferred stock. Mr. Shapero is a
general partner of Crosspoint Venture Partners, a holder of approximately
18.9% of our outstanding stock that has purchased shares of our series A
preferred stock, series B preferred stock, series C preferred stock and
series D preferred stock. See "Certain Relationships and Related
Transactions."
58
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all compensation paid by us for services
rendered to us in all capacities during our fiscal year ended December 31,
1999, by (i) our chief executive officer and (ii) our four most highly
compensated executive officers who earned more than $100,000 in salary and
bonus during the fiscal year ended December 31, 1999, whom we refer to as the
"named executive officers."
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Number of
1999 Annual Compensation Shares
------------------------------ Underlying
Name and Principal Other Annual Options All Other
Position (1) Salary Bonus Compensation Granted (#) Compensation (4)
- ------------------ -------- -------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Peter Desnoes (2)....... $255,769 $157,000 $83,262(3) 1,982,880 $1,103
President and Chief
Executive Officer
Chris Dier.............. 182,500 13,500 -- 151,194 1,434
Vice President and
Chief Financial Officer
Tom Gillis.............. 126,137 -- -- 227,205 1,258
Vice President,
Marketing
Nils Lahr............... 137,311 30,000 -- 305,694 1,244
Chief Architect
Jeremy Zullo............ 142,083 7,500 -- 227,205 1,267
Vice President,
Engineering
</TABLE>
- --------
(1) This table does not include Michael Bowles who served as our Chief
Executive Officer until January 1999 and as Chairman of our Board of
Directors until September 1999. During our fiscal year ended December 31,
1999, Mr. Bowles was paid a salary of $126,769 based on an annualized
salary of $160,000. During fiscal 1999, we paid premiums for life
insurance in the amount of $1,007 on Mr. Bowles' behalf. Mr. Bowles did
not receive a bonus during fiscal 1999.
(2) Mr. Desnoes commenced full-time employment with us in February 1999. Mr.
Desnoes' salary on an annualized basis was $300,000 during fiscal 1999.
(3) Mr. Desnoes was reimbursed this amount for relocation expenses.
(4) Consists of premiums paid by us for term life insurance.
59
<PAGE>
Option Grants During Year Ended December 31, 1999
The following table sets forth certain information for the year ended
December 31, 1999 with respect to grants of stock options to each of the named
executive officers. All options granted by us in 1999 were granted under our
1998 Stock Plan. These options have a term of 10 years. These options are
immediately exercisable in full at the date of grant, but shares purchased on
exercise of unvested options are subject to a repurchase right in our favor
that entitles us to repurchase unvested shares at their original exercise
price on termination of the employee's service with us. Unless otherwise
indicated, the repurchase right lapses as to 25% of the shares on the first
anniversary of the grant date and the balance over the next three years. See
"--Employee and Director Benefit Plans" for a description of the material
terms of these options.
We granted options to purchase common stock and issued shares of common
stock pursuant to restricted stock purchase agreements equal to a total of
15,061,982 shares during 1999. Potential realizable values are net of exercise
price before taxes, and are based on the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until the expiration of the ten-year term. These numbers are calculated
based on SEC requirements and do not reflect our projection or estimate of
future stock price growth.
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------- Potential Realizable Value at
Number of Percentage of Assumed Annual Rates of Stock
Securities Total Options Reassessed Price Appreciation For Option
Underlying Granted to Exercise Fair Term
Options Employees in Price Market Expiration ------------------------------
Name(1) Granted 1999 Per Share(3) Value(4) Date 0% 5% 10%
- ------- ---------- ------------- ------------ ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter Desnoes........... 1,982,880 13.2% $0.040 $0.497 1/11/09 $905,760 $1,525,196 $2,475,533
Chris Dier.............. 151,194 1.0 0.083 0.580 2/24/09 75,103 130,207 214,748
Tom Gillis.............. 61,965 0.4 0.083 1.017 4/1/09 57,870 97,490 158,276
165,240 1.1 3.631 5.810 12/31/09 360,000 963,739 1,889,993
Nils Lahr............... 140,454(2) 0.9 0.083 0.580 2/25/09 69,768 120,958 199,492
82,620 0.6 0.145 1.235 8/12/09 90,000 154,147 252,562
82,620 0.6 3.631 5.810 12/31/09 180,000 481,869 944,996
Jeremy Zullo............ 61,965 0.4 0.083 0.580 2/25/09 30,780 53,364 88,011
61,965 0.4 0.145 1.235 8/12/09 67,500 115,610 189,421
103,275 0.7 3.631 5.810 12/31/09 225,000 602,337 1,181,245
</TABLE>
- --------
(1) Michael Bowles was not granted any options during fiscal 1999.
(2) The repurchase right lapses as to 66,096 of the shares according to the
following schedule: 34% of the shares on the first anniversary of the
grant date and the balance over the next two years.
(3) Exercises prices reflect our board of directors good faith determination
of the fair market value of our common stock on the date of grant.
(4) Based on recent developments, we reassessed the fair market value of our
common stock underlying options at the time of grant.
60
<PAGE>
Aggregated Option Exercises In 1999 And Year-End Values
The following table sets forth certain information regarding exercised
stock options during the fiscal year ended December 31, 1999 and unexercised
options held as of December 31, 1999 by each of the named executive officers.
The value realized is based on the reassessed fair market value of the
underlying securities as of the date of exercise, minus the per share exercise
price, multiplied by the number of shares underlying the option. The value of
unexercised in-the-money options are based on a value of $5.81 per share, the
reassessed fair market value of our common stock on December 31, 1999. Amounts
reflected are based on the value of $5.81 per share, minus the per share
exercise price, multiplied by the number of shares underlying the option.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Year-End at Year-End
Acquired on Value ------------------------- -------------------------
Name(1) Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ------- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter Desnoes........... 2,094,417 $965,943 -- -- -- --
Chris Dier.............. 516,375 307,650 171,849 -- $ 989,483 --
Tom Gillis.............. 218,943 152,256 165,240 -- 360,000 --
Nils Lahr............... 96,252 106,091 230,096 -- 946,141 --
Jeremy Zullo............ -- -- 417,231 -- 2,027,280 --
</TABLE>
- --------
(1) Michael Bowles did not exercise any options during fiscal 1999.
Employment and Severance Agreements
Peter Desnoes. In January 1999, we entered into a written employment
agreement with Mr. Desnoes. The agreement provides that Mr. Desnoes is
entitled to receive an annual salary of $300,000 and a bonus of $200,000, to
be paid based on the achievement of performance-based milestones. We also
agreed to provide Mr. Desnoes with compensation in the form of a grant of an
option to purchase 1,982,880 shares of common stock at an exercise price of
$0.040 per share, which vests over a four year period. The agreement also
provides that Mr. Desnoes is entitled to purchase up to 80,000 shares of our
Series C preferred stock on the same terms as the other investors. Mr. Desnoes
purchased these shares on February 3, 1999. In addition, we agreed to pay
expenses related to his relocation to California. See "Executive Compensation"
and "Certain Relationships and Related Transactions."
The agreement provides that either we or Mr. Desnoes can terminate the
employment relationship for any reason with 14 days notice. The agreement
further provides that if Mr. Desnoes is terminated other than for cause, he
shall be entitled to receive up to 12 months of annual salary until the
earliest of (i) 12 months from the date of his termination, (ii) the
expiration of his continuation coverage under COBRA and (iii) the date Mr.
Desnoes receives health insurance coverage in connection with new employment.
In the event of a change of control, Mr. Desnoes will agree to continue
service with us or our successor corporation for a period not to exceed six
months if he is requested to do so. Upon the completion of this period, or if
Mr. Desnoes is not requested to remain with us or our successor, Mr. Desnoes
is entitled to receive six months salary and bonus and the options he has been
granted will vest as if he had performed an additional six months of service.
In the event that Mr. Desnoes is requested to remain with us or our successor
upon a change a control and he declines such request then Mr. Desnoes will not
be entitled to receive any additional compensation or vesting, unless his
refusal to continue service is in effect an involuntary termination, in which
case he will receive the benefits described in the preceding paragraph.
Chris Dier. In November 1998, Chris Dier accepted our offer of employment.
The offer letter provides that Mr. Dier will receive an annual salary of
$180,000 and up to an additional $20,000 bonus each year based upon the
successful attainment of mutually agreed upon performance goals. The offer
letter provides that options granted to Mr. Dier in connection with his
employment will provide for accelerated vesting in the event of a
61
<PAGE>
change of control where Mr. Dier is not designated as Chief Financial Officer
reporting to the Chief Executive Officer equal to an amount of 50% of Mr.
Dier's unvested shares. In addition, Mr. Dier will receive a termination
payment equal to six months full compensation payable on the earlier of six
months after a change of control or termination of employment by the acquiring
company.
Nils Lahr. In July 1999, Nils Lahr accepted our offer of employment. The
offer letter provides that Mr. Lahr is entitled to receive an annual salary of
$150,000 and a bonus of $30,000 based on achievement of performance
milestones. Mr. Lahr has agreed to be employed by us through June 30, 2000, at
which time he will become an at-will employee. We may terminate his employment
with us at any time.
Jeremy Zullo. In July 1999, Jeremy Zullo accepted our offer of employment.
The offer letter provides that Mr. Zullo is entitled to receive an annual
salary of $155,000 and a bonus of $20,000 based on the achievement of
performance milestones. Mr. Zullo has agreed to be employed by us through June
30, 2000, at which time he will become an at-will employee. We may terminate
his employment with us at any time.
On September 24, 1999 we entered into a Settlement Agreement and Mutual
Release with Michael Bowles in connection with his departure from our company.
We paid Mr. Bowles all salary and unused vacation through his employment end
date. In connection with Mr. Bowles' departure, the repurchase right with
respect to his shares of common stock lapsed. In addition, we and Mr. Bowles
agreed to a mutual release.
Employee and Director Benefit Plans
1998 Stock Plan
Our 1998 Stock Plan was adopted by our board of directors in March 1998,
and our stockholders initially approved the plan in April 1998. Our 1998 Stock
Plan provides for the grant of incentive stock options to our employees, and
for the grant of nonstatutory stock options and stock purchase rights to our
employees, directors and consultants.
As of March 31, 2000, there were outstanding options to purchase 11,912,132
shares of common stock and 3,115,887 shares were available for future grant.
As of the date of this prospectus, we will not grant any additional stock
options under our 1998 stock plan. Instead we will grant options under our
2000 Stock Plan.
The 1998 Stock Plan provides that in the event of a change in control, each
outstanding option shall be accelerated and become fully vested and
exercisable if such option is not assumed or substituted for by the successor
corporation.
2000 Stock Plan
Our 2000 Stock Plan was adopted by our board of directors in January 2000,
and we expect to submit the plan to our stockholders for approval in April
2000. This plan provides for the grant of incentive stock options to employees
and nonstatutory stock options and stock purchase rights to employees,
directors and consultants.
As of March 2000, a total of 9,639,000 shares of common stock were reserved
for issuance pursuant to the 2000 Stock Plan. No options have yet been issued
pursuant to the 2000 Stock Plan. The number of shares reserved for issuance
under our 2000 Stock Plan will increase annually on January 1st of each
calendar year, effective beginning in 2001, equal to the lesser of:
. 5% of the outstanding shares of common stock on the first day of the
year,
. 5,508,000 shares, or
. such lesser amount as our board of directors may determine.
62
<PAGE>
Our board of directors or a committee of our board administers the 2000
Stock Plan. The committee may consist of two or more "outside directors" to
satisfy certain tax and securities requirements. The administrator has the
power to determine the terms of the options or stock purchase rights granted,
including the exercise price, the number of shares subject to each option or
stock purchase right, the exercisability of the options, the vesting schedule
of the options and the form of consideration payable upon exercise. The
administrator determines the exercise price of options granted under our stock
option plan, but with respect to incentive stock options, the exercise price
must at least be equal to the fair market value of our common stock on the
date of grant. Additionally, the term of an incentive stock option may not
exceed ten years. The administrator determines the term of all other options.
No optionee may be granted an option to purchase more than 1,377,000 shares in
any fiscal year. In connection with his or her initial service, an optionee
may be granted an additional option to purchase up to 2,754,000 shares of our
common stock.
After termination of one of our employees, directors or consultants, he or
she may exercise his or her option for the period of time stated in the option
agreement. If termination is due to death or disability, the option will
generally remain exercisable for 12 months following such termination. In all
other cases, the option will generally remain exercisable for three months.
However, an option may never be exercised later than the expiration of its
term. The administrator determines the exercise price of stock purchase rights
granted under our 2000 Stock Plan. Unless the administrator determines
otherwise, the restricted stock purchase agreement will grant us a repurchase
option that we may exercise upon the voluntary or involuntary termination of
the purchaser's service with us for any reason (including death or
disability). The purchase price for shares we repurchase will generally be the
original price paid by the purchaser. The administrator determines the rate at
which our repurchase option will lapse. Our stock option plan generally does
not allow for the transfer of options or stock purchase rights and only the
optionee may exercise an option and stock purchase right during his or her
lifetime.
Our 2000 Stock Plan provides that in the event of our merger with or into
another corporation or a sale of substantially all of our assets, the
successor corporation will assume or substitute for each option or stock
purchase right. If the outstanding options or stock purchase rights are not
assumed or substituted for, all outstanding options and stock purchase rights
will become fully vested and exercisable prior to the merger or sale of
assets.
Our 2000 Stock Plan will automatically terminate in 2010, unless we
terminate it sooner. In addition, our board of directors has the authority to
amend, suspend or terminate the stock option plan provided it does not
adversely affect any option previously granted under our stock option plan.
2000 Employee Stock Purchase Plan
Concurrently with this offering, we intend to establish an employee stock
purchase plan. A total of 688,500 shares of our common stock will be made
available for sale. In addition, our plan provides for annual increases in the
number of shares available for issuance under the purchase plan on January 1st
of each year, beginning in 2001, equal to the lesser of 2% of the outstanding
shares of our common stock on the first day of the calendar year, 1,927,800
shares, or such other lesser amount as may be determined by our board of
directors. Our board of directors or a committee of our board administers the
plan. Our board of directors or its committee has full and exclusive authority
to interpret the terms of the plan and determine eligibility. All of our
employees are eligible to participate if they are customarily employed by us
or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, an employee may not be granted an
option to purchase stock under the plan if such employee:
. immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
. whose rights to purchase stock under all of our employee stock purchase
plans accrues at a rate that exceeds $25,000 worth of stock for each
calendar year.
63
<PAGE>
Our plan is intended to qualify for preferential tax treatment and contains
consecutive, overlapping 24-month offering periods. Each offering period
includes four six-month purchase periods. The offering periods generally start
on the first trading day on or after November 1 and May 1 of each year, except
for the first such offering period which will commence on the first trading
day on or after the effective date of this offering and will end on the last
trading day on or before October 31, 2000.
The plan permits participants to purchase common stock through payroll
deductions of up to 15% of their eligible compensation which includes a
participant's base straight time gross earnings and commissions but excluding
all other compensation paid to our employees. A participant may purchase no
more than 10,000 shares during any six-month purchase period.
Amounts deducted and accumulated by the participant are used to purchase
shares of our common stock at the end of each six-month purchase period. The
price is 85% of the lower of the fair market value of our common stock at the
beginning of an offering period or after a purchase period ends. If the fair
market value at the end of a purchase period is less than the fair market
value at the beginning of the offering period, participants will be withdrawn
from the current offering period following their purchase of shares on the
purchase date and will be automatically re-enrolled in a new offering period.
Participants may end their participation at any time during an offering
period, and will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us.
A participant may not transfer rights granted under our employee stock
purchase plan other than by will, the laws of descent and distribution or as
otherwise provided under the plan.
In the event of our merger with or into another corporation or a sale of
all or substantially all of our assets, a successor corporation may assume or
substitute each outstanding option. If the successor corporation refuses to
assume or substitute for the outstanding options, the offering period then in
progress will be shortened, and a new exercise date will be set.
Our plan will terminate in 2010. However, our board of directors has the
authority to amend or terminate our plan, except that, subject to certain
exceptions described in the plan, no such action may adversely affect any
outstanding rights to purchase stock under our plan.
2000 Director Option Plan
Our board of directors adopted the 2000 Director Option Plan in January
2000 and we expect to submit the plan to our stockholders for approval in
April 2000. As of March 2000, a total of 688,500 shares were reserved for
issuance under the Director Plan, none of which were subject to outstanding
options as of this date. The number of shares reserved for issuance under our
Director Plan will increase annually on January 1st of each calendar year,
effective beginning in 2001, by an increase equal to that number of shares
granted pursuant to options under the Director Plan in the prior fiscal year
or a lesser amount determined by the board of directors.
All grants of options to our non-employee directors under the Director Plan
are automatic. We will grant each non-employee director an option to purchase
82,620 shares upon the date when such person first becomes a non-employee
director (except for those directors who became non-employee directors by
ceasing to be employee directors).
All options granted under our Director Plan have a term of ten years and an
exercise price equal to fair market value on the date of grant. Each option
vests and becomes exercisable as to 1/48th of the shares subject to the option
on each monthly anniversary of the date of grant, provided the non-employee
director remains a director on such dates. After termination as a non-employee
director with us, an optionee must exercise an option at the time set forth in
his or her option agreement. If termination is due to death or disability, the
option will remain exercisable for 12 months. In all other cases, the option
will remain exercisable for a period of six months. However, an option may
never be exercised later than the expiration of its term. A non-employee
director may not transfer options granted under our Director Plan other than
by will or the laws of descent and distribution. Only the non-employee
director may exercise the option during his or her lifetime.
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<PAGE>
In the event of our merger with or into another corporation or a sale of
substantially all of our assets, the successor corporation will assume or
substitute each option. If such assumption or substitution occurs, the options
will continue to be exercisable according to the same terms as before the
merger or sale of assets. Following such assumption or substitution, if a non-
employee director is terminated other than by voluntary resignation, the
option will become fully exercisable and generally will remain exercisable for
a period of three months. If the outstanding options are not assumed or
substituted for, our board of directors will notify each non-employee director
that he or she has the right to exercise the option as to all shares subject
to the option for a period of 90 days following the date of the notice. The
option will terminate upon the expiration of the 90-day period.
Unless terminated sooner, our Director Plan will automatically terminate in
2010. Our board of directors has the authority to amend, alter, suspend, or
discontinue the Director Plan, but no such action may adversely affect any
grant made under the Director Plan.
401(k) Plan
Our employee savings and retirement plan is qualified under Section 401 of
the Internal Revenue Code. Our employees may elect to reduce their current
compensation by up to the statutorily prescribed annual limit and have the
amount of such reduction contributed to the 401(k) plan. We may make matching
or additional contributions to the 401(k) plan in amounts to be determined
annually by our board of directors.
65
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of transactions since inception in March
1998, to which we have been a party, in which the amount involved in the
transaction exceeds $60,000 and in which any director, executive officer or
holder of more than 5% of our capital stock had or will have a direct or
indirect material interest other than compensation arrangements which are
otherwise required to be described under "Management."
Series A Preferred Stock. On April 16, 1998, we sold 1,333,333 shares of
series A preferred stock at a per share price of $1.20. The sale of the series
A preferred stock included, among others, the sale of 1,250,000 shares of
series A preferred stock to Crosspoint Venture Partners 1997, a holder of more
than 5% of our common stock, for an aggregate consideration of $1,500,000.
Upon the closing of this offering, each share of series A preferred stock will
automatically convert into 4.131 shares of common stock. As a result,
Crosspoint Venture Partners 1997 will receive 5,163,750 shares of common stock
upon conversion of their shares of series A preferred at the completion of
this offering. Based an assumed public offering price of $10.00 per share,
these shares will have a value of $51,637,500 at the time of the offering.
Series B Preferred Stock. On June 8, 1998 and July 21, 1998, we sold an
aggregate of 3,248,904 shares of series B preferred stock at a per share price
of $1.65. Upon the closing of this offering, each share of series B preferred
stock will automatically convert into 4.131 shares of common stock. The
purchasers of the series B preferred stock, included, among others:
<TABLE>
<CAPTION>
Shares of Value of
Series B As Converted Aggregate Stock at
Preferred Shares of Purchase Time of
Purchaser Stock Common Stock Price Paid Offering
--------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Accel Partners............. 1,787,943 7,385,992 $2,950,106 $73,859,920
Crosspoint Venture Partners
1997...................... 696,995 2,879,286 1,150,042 28,792,860
Media Technology Ventures.. 666,690 2,754,096 1,100,039 27,540,960
</TABLE>
Series C Preferred Stock. On February 3, 1999, we sold 3,591,816 shares of
series C preferred stock at a per share price of $3.42. Upon the closing of
this offering, each share of series C preferred stock will automatically
convert into 4.131 shares of common stock. The purchasers of the series C
preferred stock, included, among others:
<TABLE>
<CAPTION>
Shares of Value of
Series C As Converted Aggregate Stock at
Preferred Shares of Purchase Time of
Purchaser Stock Common Stock Price Paid Offering
--------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Intel Corporation.......... 877,194 3,623,688 $3,000,003 $36,236,880
Crosspoint Venture Partners
1997...................... 621,200 2,566,177 2,124,504 25,661,770
Accel Partners............. 570,454 2,356,545 1,950,953 23,565,450
Media Technology Ventures.. 212,712 878,713 727,475 8,787,130
Peter Desnoes.............. 80,000 330,480 273,600 3,304,800
Michael Bowles............. 29,240 120,790 100,000 1,207,900
Chris Dier................. 8,772 36,237 30,000 362,370
</TABLE>
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<PAGE>
Series D Preferred Stock. On October 14, 1999, we sold 7,072,732 shares of
series D preferred stock at a per share price of $5.96. Upon the closing of
this offering, each share of series D preferred stock will automatically
convert into 4.131 shares of common stock. The purchasers of the series D
preferred stock, included, among others:
<TABLE>
<CAPTION>
Shares of Value of
Series D As Converted Aggregate Stock at
Preferred Shares of Purchase Time of
Purchaser Stock Common Stock Price Paid Offering
--------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Intel Corporation............ 1,639,584 6,773,121 $9,771,921 $67,731,210
Microsoft Corporation........ 1,677,852 6,931,206 9,999,998 69,312,060
Accel Partners............... 1,090,604 4,505,285 7,000,000 45,052,850
Crosspoint Venture Partners
1997........................ 1,090,604 4,505,285 7,000,000 45,052,850
Media Technology Ventures.... 385,906 1,594,177 3,000,000 15,941,770
Peter Desnoes IRA............ 10,906 45,052 65,000 450,520
Leonard Grossi............... 8,400 34,700 50,064 347,000
Frederic Seegal.............. 8,389 34,654 49,998 346,540
Chris Dier................... 2,000 8,262 11,920 82,620
Tom Gillis................... 2,000 8,262 11,920 82,620
David Strehlow............... 2,000 8,262 11,920 82,620
Robert Davis................. 2,000 8,262 11,920 82,620
</TABLE>
Series D Warrant. On October 14, 1999, we granted a warrant to Microsoft to
purchase 218,120 shares of our series D preferred stock at an exercise price
of $5.96 per share. By virtue of the fact that at the completion of this
offering each share of series D preferred stock will convert into 4.131 shares
of common stock, at the completion of this offering, the Microsoft warrant
will be exercisable for 901,053 shares of common stock at $1.44 per share.
Common Stock. On March 23, 1998, we sold 7,636,669 shares of common stock
at a per share price of $.00024 to our three founders. Robert Wilmot, one of
our founders, is currently serving as one of our directors. The Wilmot Living
Trust, for which Mr. Wilmott and his spouse serve as trustees, purchased
2,743,190 shares of common stock. Of these shares, 75% are subject to our
right of repurchase which lapses as to 1.5625% of the shares after each month
Mr. Wilmot continues to serve as our employee or consultant. In connection
with the formation of our company, Mr. Wilmot entered into a consulting
agreement pursuant to which he agreed to spend at least one day a week
providing certain business development services as requested from time to time
by us.
Michael Bowles, another of our founders and our former Chief Executive
Officer and director, purchased 4,114,785 shares of common stock. Of these
shares, 75% were subject to our right of repurchase which lapsed as to 1.5625%
of the shares after each month. Mr. Bowles continued to serve as our employee
or consultant. In connection with Mr. Bowles' departure from our company in
September 1999, our repurchase right lapsed with respect to Mr. Bowles' shares
of common stock. See "--Employment Agreements."
Option Grants to Certain Directors. In September 1999, we granted Mr.
Seegal options to purchase 247,860 shares of common stock at an exercise price
of $0.145 per share. These options were granted under our 1998 Stock Plan. Of
these, 214,812 shares of common stock subject to options vest over a four year
period with 25% of the shares subject to option vesting 12 months from the
date of grant and the remaining shares vesting ratably each month after that
date so long as Mr. Seegal continues to serve as our director. The remaining
33,048 shares subject to option vest over one year with 25% of the shares
vesting at the end of each four month period from the date of grant so long as
Mr. Seegal continues to serve as our director.
In July 1998, we granted Mr. Desnoes an option to purchase 111,537 shares
of common stock at an exercise price of $0.040 per share. This option was
granted under our 1998 Stock Plan. The shares underlying this option were
immediately vested.
In January 2000, we granted Mr. Baker an option to purchase 82,620 shares
of common stock at an exercise price of $4.84 per share. These options were
granted under our 1998 Stock Plan. The shares underlying the option vests in
equal monthly installments over four years.
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<PAGE>
Consulting Agreement with Director. In January 2000, we entered into a
consulting agreement with Mr. Seegal, one of our directors, wherein Mr. Seegal
agreed to assist us in financing plans and strategies and perform such other
business and marketing services as may from time to time be reasonably
requested by us. To date, Mr. Seegal has been in regular contact with our
Chief Executive Officer and other of our officers advising on financing plans
and other strategic matters. In connection with this agreement, Mr. Seegal
purchased 908,820 shares of our common stock at a per share price of $4.84 for
an aggregate purchase price of $4,395,600, all of which are subject to our
right of repurchase which lapses with respect to 12.5% of the shares six
months from the date of the purchase and which lapses ratably with respect to
1/48 of the remaining shares each month thereafter. We loaned Mr. Seegal
$1,999,998 to apply to the purchase price for these shares. This loan is
evidenced by a full recourse promissory note in our favor and bears interest
at a rate of 6.5% per annum. The principal and interest become due and payable
on the earlier of (i) January 25, 2004, (ii) the sale of these securities by
Mr. Seegal and (iii) 90 days after termination of Mr. Seegal as one of our
service providers, however, this latter time period will be increased to 180
days if our securities are publicly traded and Mr. Seegal is restricted from
selling our securities under applicable securities laws or an affiliate's
agreements.
Microsoft Relationship. We entered into a collaboration agreement with
Microsoft, effective as of September 20, 1999, to improve the delivery of
streaming media over the Internet. Under the agreement, Microsoft recommends
us as a service provider for the delivery of broadband streaming media and we
will engage in cooperative sales efforts to promote Windows Media Technology.
Additionally, for the term of the agreement we have agreed to provide six
months of our services to content providers chosen by Microsoft, provided that
the value of these services to all such content providers does not exceed
$200,000 in the aggregate. Our agreement with Microsoft will extend through
September 2002. Microsoft has agreed to pay us $500,000 through April 15,
2000, all of which Microsoft may use to purchase our services either for
itself or on behalf of other Internet content providers. Microsoft's
obligations under the agreement are conditioned upon the performance of our
obligations under the agreement and our meeting certain performance criteria
for our services. On June 20, 1999, we also entered into an agreement with
Microsoft providing that Microsoft pay us $200,000. In consideration for this
payment we agreed to provide up to an aggregate of $200,000 in services to
content providers designated by Microsoft. This agreement extends through June
30, 2000 unless terminated by either party. This agreement may be terminated
by either party upon material breach of the other.
Agreement with Brewer Consulting. In connection with the hiring of David
Brewer, our Vice President of Operations, we agreed to purchase at least $2.0
million of services from Brewer Consulting Networks, a company controlled by
Mr. Brewer, beginning January 1, 2000 and ending December 31, 2001. Brewer
Consulting Networks provides us with consulting services related to the
installation of our network servers. Our obligation to purchase these services
from Brewer Consulting Networks is contingent on Mr. Brewer relinquishing
operational or ownership control of Brewer Consulting Networks. We paid Brewer
Consulting Networks an aggregate of $702,395 for services provided in 1999.
Indemnification
We have entered into indemnification agreements with each of our directors
and officers. These indemnification agreements and our certificate of
incorporation and bylaws require us to indemnify our directors and officers to
the fullest extent permitted by Delaware law. See "Management--Limitations on
Directors' Liability and Indemnification."
Conflict of Interest Policy
We believe that all transactions with affiliates described above were made
on terms no less favorable to us than could have been obtained from
unaffiliated third parties. Our policy is to require that a majority of the
independent and disinterested outside directors on our board of directors
approve all future transactions between us and our officers, directors,
principal stockholders and their affiliates. These transactions will continue
to be on terms no less favorable to us than we could obtain from unaffiliated
third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of March 31, 2000 (assuming conversion of all outstanding shares of
preferred stock into common stock upon the closing of this offering and as
adjusted to reflect the sale of the shares offered by this prospectus) by:
. each person who is known by us to beneficially own more than 5% of our
common stock;
. each of the named executives and each of our directors; and
. all of our officers and directors as a group.
Percentage of ownership is based on 94,944,209 shares outstanding as of
March 31, 2000, assuming conversion of the preferred stock, and 105,944,209
shares outstanding after this offering and no exercise of the underwriters'
over-allotment options. Beneficial ownership is calculated based on SEC
requirements. All shares of the common stock subject to options currently
exercisable or exercisable within 60 days after March 31, 2000 are deemed to
be outstanding for the purpose of computing the percentage of ownership of the
person holding such options, but are not deemed to be outstanding for
computing the percentage of ownership of any other person. Unless otherwise
indicated below, each stockholder named in the table has sole voting and
investment power with respect to all shares beneficially owned, subject to
applicable community property laws. Unless otherwise indicated in the table,
the address of each individual listed in the table is iBEAM Broadcasting
Corporation, 645 Almanor Avenue, Suite 100, Sunnyvale, CA 94086.
<TABLE>
<CAPTION>
Number of Percentage of Shares
Shares of Beneficially Owned
Beneficially ------------------------------
Name of Beneficial Owner Owned Before Offering After Offering
------------------------ ------------ --------------- --------------
<S> <C> <C> <C>
5% Stockholders:
Crosspoint Venture Partners 1997.. 15,114,498 15.9% 14.3%
2925 Woodside Road
Woodside, CA 94062
Accel Partners (1)................ 14,247,817 15.0 13.5
428 University Avenue
Palo Alto, Ca 94301
Intel Corporation................. 10,396,809 11.0 9.8
2200 Mission College Blvd.
Santa Clara, CA 95052-8119
Microsoft Corporation (2)......... 7,832,259 8.2 7.3
One Microsoft Way
Redmond, WA 98052-6399
Media Technology Ventures, L.P.
(3).............................. 5,226,985 5.5 4.9
One First Street
Los Altos, CA 94022
Executive Officers and Directors:
Peter Desnoes (4)................. 2,469,949 2.6 2.3
Chris Dier (5).................... 732,724 * *
Tom Gillis (6).................... 392,445 * *
Nils Lahr (7)..................... 460,607 * *
Jeremy Zullo (8).................. 417,231 * *
Barry Baker (9)................... 82,620 * *
Frederic Seegal................... 1,191,334 1.3 1.1
Robert Wilmot (10)................ 2,743,190 2.9 2.6
Richard Shapero (11).............. 15,114,498 15.9 14.3
Peter Wagner (12)................. 14,247,817 15.0 13.5
All executive officers and
directors as a group (15 persons)
(13)............................. 40,086,047 41.2 37.0
</TABLE>
- --------
* Represents less than 1% of our outstanding common stock.
69
<PAGE>
(1) Includes 1,481,771 shares held by Accel Internet Fund II L.P., 983,099
shares held by Accel Investors '98 L.P., 185,216 shares held by Accel
Keiretsu VI L.P. and 11,597,731 shares held by Accel VI L.P.
(2) Includes 901,053 shares issuable upon exercise of a warrant, which was
exercisable within 60 days of March 31, 2000.
(3) Includes 314,943 shares held by Media Technology Entrepreneurs Fund,
L.P., 282,787 shares held by Media Technology Ventures Entrepreneurs
Fund, L.P. and 4,629,255 shares held by Media Technology Ventures L.P.
(4) Includes 45,052 shares held by Peter Desnoes, IRA for which the Guarantee
& Trust Company is trustee.
(5) Includes 171,850 shares subject to options, all of which were exercisable
within 60 days of March 31, 2000. Includes 4,131 shares held by a member
of Mr. Dier's immediate family.
(6) Includes 165,240 shares subject to options, all of which were exercisable
within 60 days of March 31, 2000.
(7) Includes 230,097 shares subject to options, all of which were exercisable
within 60 days of March 31, 2000.
(8) All of these shares are subject to options and immediately exercisable.
(9) All of these shares are subject to options, all of which were exerisable
within 60 days of March 31, 2000.
(10) All of these shares are held in the name of the Wilmot Living Trust, of
which Mr. Wilmot and his spouse are trustees.
(11) All of these shares are held by Crosspoint Venture Partners 1997. Mr.
Shapero is a general partner of Crosspoint Venture Partners 1997 and is
one of our directors. Mr. Shapero disclaims beneficial ownership of
shares held by this entity, except to the extent of his proportional
partnership interest in Crosspoint Venture Partners 1997.
(12) All of these shares are held by entities affiliated with Accel Partners
(as described in footnote 1). Mr. Wagner is a general partner of Accel
Partners and is one of our directors. Mr. Wagner disclaims beneficial
ownership of shares held by these entities, except to the extent of his
proportional interest arising from his partnership interest in Accel
Partners.
(13) Includes 2,480,232 shares subject to options, all of which were
exercisable within 60 days of March 31, 2000.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, we will be authorized to issue
413,100,000 shares of common stock, $.0001 par value per share, and 10,000,000
shares of undesignated preferred stock, $.0001 par value per share. The
following description of our capital stock does not purport to be complete and
is subject to and qualified by our certificate of incorporation and bylaws,
which are included as exhibits to the registration statement of which this
prospectus forms a part, and by the provisions of applicable Delaware law.
Common Stock
As of March 31, 2000, there were 94,944,209 shares of common stock
outstanding, assuming the conversion of all outstanding shares of preferred
stock into common stock, which were held of record by approximately 254
stockholders. This number includes:
. 66,489,527 shares of common stock to be issued upon automatic conversion
of all outstanding shares of our series A, B, C, D and E preferred stock
upon completion of this offering;
. 8,004,528 shares of our series F preferred stock issued in connection with
the acquisition of webcasts.com and the conversion of those shares into
the same number of shares of common stock;
. 1,000,000 shares of our series G preferred stock to be issued to The Walt
Disney Corporation for $10.0 million at a price equal to the price to the
public in this offering and the conversion of these shares into the same
number shares of common stock; and
. 537,634 shares of our series H preferred stock to be issued to Excite@Home
for $5.0 million at a price equal to the price to the public in this
offering, less estimated underwriting commissions and discounts, and the
conversion of these shares into the same number of shares of common stock.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock
are entitled to receive ratably dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of our liquidation, dissolution
or winding up, the holders of common stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. The common
stock has no preemptive or conversion rights or other subscription rights.
There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are fully paid and
nonassessable, and the shares of common stock to be issued upon the closing of
this offering will be fully paid and nonassessable.
Preferred Stock
The board of directors has the authority, without action by our
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. The effect of the
issuance of any shares of preferred stock upon the rights of holders of the
common stock might include, among other things, restricting dividends on the
common stock, diluting the voting power of the common stock, impairing the
liquidation rights of the common stock and delaying or preventing a change in
control of iBEAM without further action by the stockholders. We have no
present plans to issue any shares of preferred stock.
Warrants
On an as converted basis, as of March 31, 2000, there were warrants
outstanding to purchase a total of 1,949,987 shares of common stock. All of
these warrants will remain outstanding after the completion of this offering.
Of these, warrants to purchase 511,300 shares of common stock will expire
three years from the date of this prospectus unless earlier exercised, of
which 112,664 shares are exercisable at an exercise price of $0.40 per share,
268,246 shares are exercisable at an exercise price of $0.56 per share, 26,421
shares are exercisable at an exercise price of $1.14 per share and 103,969
shares are exercisable at an exercise price of $1.44 per share.
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<PAGE>
Another warrant to purchase 901,053 shares of common stock expires four years
from the completion of this offering unless earlier exercised and has an
exercise price of $1.44 per share. Another warrant to purchase 537,634 shares
of common stock expires four years from the closing of this offering unless
earlier exercised and has an exercise price of equal to the price to the
public in the offering, less estimated underwriting discounts and commissions.
Registration Rights
After this offering, the holders of approximately 76,031,689 shares of
common stock and the holders of warrants to purchase approximately 1,438,687
shares of common stock will be entitled to rights with respect to the
registration of these shares under the Securities Act. These holders are
entitled to demand registration rights pursuant to which they may require us
on up to two occasions to file a registration statement under the Securities
Act at our expense. We are required to use all reasonable efforts to effect
this registration. These registration rights are subject to the right of the
underwriters of an offering to limit the number of shares included in such
registration. They are also subject to our right not to effect a requested
registration within 180 days following an offering of our securities pursuant
to a registration statement in connection with an underwritten public
offering, including this offering, or if we believe that a registration at
that time would be seriously detrimental to us. Additionally, if we propose to
register any of our securities under the Securities Act, either for our
account or the account of other security holders exercising registration
rights, these holders are entitled to notice of such registration and are
entitled to include some or all of their shares of common stock in the
registration. These registration rights are also subject to the right of the
underwriters of an offering to limit the number of shares included in the
registration. Further, holders may require us to file registration statements
on Form S-3 at our expense. These registration rights are subject to our right
not to effect a requested registration if it would be seriously detrimental to
us to file an S-3 registration statement at that time.
Delaware Law and Certain Provisions of Our Certificate of Incorporation and
Bylaws
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make it more difficult to acquire us by means of a tender offer,
a proxy contest or otherwise and the removal of incumbent officers and
directors. These provisions, summarized below, are expected to discourage
certain types of coercive takeover practices and inadequate takeover bids and
to encourage persons seeking to acquire control of us to first negotiate with
us. We believe that the benefits of increased protection of our potential
ability to negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure us outweigh the disadvantages of
discouraging takeover or acquisition proposals because, among other things,
negotiation of these proposals could result in an improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became
an interested stockholder, unless, with exceptions, the business combination
or the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a business combination includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. Generally, an interested stockholder is
a person who, together with affiliates and associates, owns, or within three
years prior to the determination of interested stockholder status, did own,
15% or more of a corporation's voting stock. The existence of this provision
would be expected to have an anti-takeover effect with respect to transactions
not approved in advance by the board of directors, including the
discouragement of attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
Our certificate of incorporation and bylaws require that any action
required or permitted to be taken by our stockholders must be effected at a
duly called annual or special meeting of the stockholders and may not be
effected by a consent in writing. In addition, special meetings of our
stockholders may be called only by the board of directors or certain of our
officers. Our certificate of incorporation and bylaws also provide that,
beginning upon the closing of this offering, our board of directors will be
divided into three classes, with each
72
<PAGE>
class serving staggered three-year terms. These provisions may have the effect
of deterring hostile takeovers or delaying changes in control or management of
iBEAM.
Agreement with Investors
America Online, Pacific Century CyberWorks, Microsoft, Sony, Covad and
Exite@Home have each agreed not to acquire more than 15% of our voting stock
at any time before October 2004 without our permission. This standstill
agreement terminates under the following circumstances:
. we sell equity securities to another company with whom we have a strategic
relationship, and such company does not enter into a similar standstill
agreement;
. with respect to one of these investors, if another investor breaches the
standstill agreement and the breach is not cured within ten days; or
. another company or group initiates a tender offer for 15% or more of our
capital stock, acquires 15% of our capital stock, acquires all or
substantially all of our assets, enters an agreement to acquire 15% or
more of our capital stock, or solicits proxies in opposition to a proxy
solicitation of iBEAM.
In addition, these investors have agreed not to transfer shares of our
capital stock owned by them for a period of one year after the closing date of
this offering.
Voting Agreement
Each of Pacific Century CyberWorks, America Online, Microsoft, Sony, Covad
and Liberty Media, which in the aggregate will own 15.9% of our common stock
upon the closing of this offering, have agreed to vote their securities as
directed by our board of directors, in any merger in which more than 50% of
our voting power is transferred or in a sale of substantially all of our
assets. This obligation lapses for each of these companies if and when it owns
less than 5% of our voting power.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Equiserve Trust
Company. The transfer agent's address is P.O. Box 2533, mail stop 4691, Jersey
City, NJ 07303, and its telephone number is (201) 222-5610.
73
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of common stock in the
public market could adversely affect the market price of our common stock.
Upon completion of this offering, we will have outstanding 105,944,209
shares of common stock, assuming the issuance of 11,000,000 shares of common
stock offered by us and no exercise of options outstanding after March 31,
2000. All of the 11,000,000 shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
except for shares purchased by our affiliates, as defined under the Securities
Act. The Securities Act defines affiliates to be persons that directly, or
indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, iBEAM. These persons typically include our
executive officers and directors. Shares purchased by affiliates would be
subject to the limitations and restrictions that are described below.
The remaining 94,944,209 shares of common stock held by existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. All these shares will be
subject to lock-up agreements, described below, on the date of this
prospectus. Upon expiration of the lock-up agreements, 81,317,719 shares will
become eligible for sale pursuant to Rule 144(k), Rule 144, and Rule 701.
Thereafter, 13,047,251 shares will become eligible for sale pursuant to Rule
144.
<TABLE>
<CAPTION>
Approximate
Number of
Shares Eligible
Relevant Dates for Future Sale Comment
- -------------- --------------- --------------------------------------
<S> <C> <C>
On the date of this 11,000,000 Freely tradable shares sold in
prospectus.............. this offering
180 days after the date 81,317,719 All shares subject to lock-up
of this prospectus...... agreements released; shares saleable
under Rules 144, 144(k) and 701
Thereafter............... 13,047,251 Shares saleable under Rule 144
</TABLE>
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately 1,059,442 shares immediately after this offering, or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to other requirements regarding the
manner of sale, notice filing and the availability of current public
information about us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, notice
filing, volume limitation or notice provisions of Rule 144. Therefore, unless
otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
Rule 701
In general, under Rule 701, any of our employees, directors, officers,
consultants, or advisors who purchases shares from us in connection with a
compensatory stock or option plan or other written agreement before the
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<PAGE>
effective date of this offering is entitled to resell such shares 90 days
after the effective date of this offering in reliance on Rule 144, without
having to comply with the holding period requirements or other restrictions
contained in Rule 701.
The Securities and Exchange Commission has indicated that Rule 701 will
apply to typical stock options granted by an issuer before it becomes subject
to the reporting requirements of the Securities Exchange Act, along with the
shares acquired upon exercise of such options, including exercises after the
date of this prospectus. Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this prospectus, may be sold by
persons other than "affiliates," as defined in Rule 144, subject only to the
manner of sale provisions of Rule 144 and by "affiliates" under Rule 144
without compliance with its one-year minimum holding period requirement.
Registration Rights
Beginning six months after the date of this offering, the holders of
approximately 76,031,689 shares of common stock and the holders of warrants to
purchase approximately 1,438,687 shares of common stock will be entitled to
certain rights with respect to the registration of these shares for sale in
the public market. See "Description of Capital Stock--Registration Rights."
Registration of these shares under the Securities Act would result in these
shares becoming freely tradeable in the public market without restriction.
Stock Options
As of March 31, 2000, there were a total of 11,912,132 shares of common
stock subject to outstanding options under our 1998 Stock Plan, subject to
lock-up agreements similar to those described below. Immediately after the
completion of the offering, we intend to file registration statements on Form
S-8 under the Securities Act to register all of the shares of common stock
issued or reserved for future issuance under our 1998 Stock Plan, 2000 Stock
Plan, 2000 Director Stock Option Plan, and 2000 Employee Stock Purchase Plan.
After the effective dates of these registration statements, shares purchased
upon exercise of options granted under the 1998 Stock Plan, 2000 Stock Plan,
2000 Director Stock Plan and 2000 Employee Stock Purchase Plan will be
available for resale in the public market.
Lock-up Agreements
All of our officers and directors and substantially all of our
stockholders, have agreed, subject to limited exceptions, not to offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise transfer or dispose of, directly or indirectly, or
enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of any shares of
common stock or any securities convertible into or exercisable or exchangeable
for shares of common stock for a period ending 180 days after the date of this
prospectus, without the prior written consent of Morgan Stanley & Co.
Incorporated. In addition, the participants in the directed share program, as
described in the section entitled "Underwriters," will be subject to similar
lock-up restrictions.
We have no agreement or understanding with Morgan Stanley & Co.
Incorporated for a waiver of these lock-up restrictions. However, Morgan
Stanley & Co. Incorporated may, in its discretion, release us or any of our
stockholders at any time, without notice, prior to the expiration of the lock-
up period. In some cases underwriters have agreed to waive lock-up
restrictions when a company's stock has performed well for a sustained period
of time in order to allow a follow-on offering of common stock. Any decision
by Morgan Stanley & Co. Incorporated to waive the lock-up restrictions would
depend on a number of factors, including market conditions, the performance of
our common stock in the market and our financial condition at that time. If
Morgan Stanley & Co. Incorporated were to waive the lock-up restrictions prior
to the expiration of the 180-day period, and our stockholders were to sell
additional shares of common stock to the public, the market price of our
common stock could decline.
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<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., J.P. Morgan
Securities Inc. and FleetBoston Robertson Stephens Inc. are acting as
representatives, have severally agreed to purchase, and iBEAM has agreed to
sell to them, severally, the number of shares indicated below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ----------
<S> <C>
Morgan Stanley & Co. Incorporated.................................
Bear, Stearns & Co. Inc. .........................................
J.P. Morgan Securities Inc. ......................................
FleetBoston Robertson Stephens Inc. ..............................
----------
Total........................................................... 11,000,000
==========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from iBEAM and subject to prior sale. The
underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of common stock
offered by this prospectus are subject to the approval of certain legal
matters by their counsel and to certain other conditions. The underwriters are
obligated to take and pay for all of the shares of common stock offered by
this prospectus if any such shares are taken. However, the underwriters are
not required to take or pay for the shares covered by the underwriters' over-
allotment option described below.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price listed on the cover
page of this prospectus and part to certain dealers at a price that represents
a concession not in excess of $ a share under the public offering price.
No underwriter will allow, and no dealer will reallow, a concession to other
underwriters or to dealers. After the initial offering of the shares of common
stock, the offering price and other selling terms may from time to time be
varied by the representatives.
iBEAM has granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to an aggregate of 1,650,000
additional shares of common stock at the public offering price listed on the
cover page of this prospectus, less underwriting discounts and commissions.
The underwriters may exercise this option solely for the purpose of covering
overallotments, if any, made in connection with the offering of the shares of
common stock offered by this prospectus. To the extent the option is
exercised, each underwriter will become obligated, subject to certain
conditions, to purchase about the same percentage of the additional shares of
common stock as the number listed next to the underwriter's name in the
preceding table bears to the total number of shares of common stock listed
next to the names of all underwriters in the preceding table. If the
underwriters' option is exercised in full, the total price to the public would
be $ , the total underwriters' discounts and commissions would be $
and total proceeds to iBEAM would be $ .
The underwriting discounts and commissions will be determined by
negotiations between iBEAM and the representatives and will be a percentage of
the offering price to the public. The primary factors to be considered in
determining the discounts and commissions will be the size of the offering,
the nature of the securities offered and the discounts and commissions charged
in comparable transactions. The estimated offering expenses payable by iBEAM,
in addition to the underwriting discounts and commissions, are approximately
$1,750,000, which includes legal, accounting and printing costs and various
other fees associated with registering and listing the common stock.
76
<PAGE>
The underwriters have informed iBEAM that they do not intend sales to
discretionary accounts to exceed 5% of the total number of shares of common
stock offered by them.
Application has been made for quotation on the Nasdaq National Market under
the symbol "IBEM."
Each of iBEAM and the directors, executive officers and certain other
stockholders of iBEAM has agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not,
during the period ending 180 days after the date of this prospectus:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock.
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise. The restrictions
described in this paragraph do not apply to:
. the sale of shares to the underwriters;
. the issuance by iBEAM of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing; or
. transactions by any person other than iBEAM relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters are not required to engage in
these activities, and may end any of these activities at any time.
iBEAM and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
At the request of iBEAM, the underwriters have reserved for sale, at the
initial offering price, up to 1,200,000 shares offered hereby for directors,
officers, employees and business associates and related persons, such as
consultants and suppliers, of iBEAM. The shares of common stock available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any reserved shares which are not so purchased will be
offered by the underwriters to the general public on the same basis as the
other shares offered hereby.
Morgan Stanley Dean Witter Online Inc., an affiliate of Morgan Stanley &
Co. Incorporated, will distribute shares of common stock over the Internet to
its eligible account holders. E*TRADE Securities, Inc. will also distribute
shares of common stock over the Internet to its customers.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between iBEAM and the representatives. The primary factors to be
77
<PAGE>
considered in determining the initial public offering price will be the future
prospects of iBEAM and its industry in general, revenues, operating results
and certain other financial operating information of iBEAM in recent periods,
and the price-earnings ratios, price-revenues ratios, market prices of
securities and certain financial and operating information of companies
engaged in activities similar to those of iBEAM. The estimated initial public
offering price range set forth on the cover page of this preliminary
prospectus is subject to change as a result of market conditions and other
factors.
iBEAM sold an aggregate of 83,893 shares of Series D preferred stock to
J.P. Morgan Direct Venture Capital Institutional Investors LLC and J.P. Morgan
Direct Venture Capital Private Investors LLC in October 1999, each of which is
a fund of investors associated with J.P. Morgan Securities Inc., one of the
representatives in this offering.
78
<PAGE>
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for iBEAM by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California. An investment partnership composed of current and
former members of and persons associated with Wilson Sonsini Goodrich &
Rosati, Professional Corporation, beneficially owns series D preferred stock
convertible into 34,654 shares of our common stock upon completion of this
offering. Davis Polk & Wardwell, Menlo Park, California, is representing the
underwriters in connection with this offering.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and for the
period from March 20, 1998 (inception) to December 31, 1998 and 1999 and for
the year ended December 31, 1999 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of webcasts.com as of December 31,
1998 and 1999, and for the years then ended have been included herein in
reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act in connection with this
offering. This prospectus does not contain all of the information in the
registration statement and the accompanying exhibits and schedules. For
further information with respect to our company and our common stock, we refer
you to the registration statement and the accompanying exhibits and schedules.
Statements contained in this prospectus as to the contents of any contract or
any other document referred to are not necessarily complete. In each instance,
we refer you to the copy of such contract or document filed as an exhibit to
the registration statement, and each such statement is qualified in all
respects by such reference. The registration statement, including the
accompanying exhibits and schedules, may be inspected without charge at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, Suite 1300, New York, New York 10048 and
Northwestern Atrium Center, 500 Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of these materials may be obtained from the public
reference section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a website that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's website is www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and will
file periodic reports, proxy statements and other information with the
Commission. Such periodic reports, proxy statements and other information will
be available for inspection and copying at the regional offices, public
reference facilities and website of the Commission referred to above.
79
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
iBEAM Broadcasting Corporation
Report of Independent Accountants....................................... F-2
Balance Sheets.......................................................... F-3
Statements of Operations................................................ F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders'
Deficit................................................................ F-5
Statements of Cash Flows................................................ F-6
Notes to Financial Statements........................................... F-7
Unaudited Pro Forma Combined Financial Information...................... F-21
webcasts.com, Inc. and Subsidiary
Independent Auditors' Report............................................ F-26
Consolidated Balance Sheets............................................. F-27
Consolidated Statements of Operations................................... F-28
Consolidated Statements of Stockholders' Equity (Deficit)............... F-29
Consolidated Statements of Cash Flows................................... F-30
Notes to Consolidated Financial Statements.............................. F-31
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
iBEAM Broadcasting Corporation
In our opinion, the accompanying balance sheets and the related statements
of operations, of redeemable convertible preferred stock and stockholders'
deficit and of cash flows present fairly, in all material respects, the
financial position of iBEAM Broadcasting Corporation (a development stage
company) as of December 31, 1998 and 1999 and the results of its operations
and its cash flows for the period from March 20, 1998 (inception) to December
31, 1998, and for the year ended December 31, 1999, and for the period from
March 20, 1998 (inception) to December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
January 28, 2000, except as to the second
paragraph of Note 2 and Note 10,
which is as of April 11, 2000
F-2
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
----------------- December 31,
1998 1999 1999
------- -------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 2,198 $ 24,863
Short-term investments...................... -- 4,977
Accounts receivable......................... -- 70
Prepaid expenses and other current assets... 125 796
------- --------
Total current assets....................... 2,323 30,706
Property and equipment, net.................. 1,477 12,912
Other assets................................. 407 1,123
------- --------
$ 4,207 $ 44,741
======= ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................ $ 815 $ 3,055
Accrued liabilities......................... 437 879
Deferred revenue............................ -- 448
Current portion of capital lease
obligations................................ -- 1,573
------- --------
Total current liabilities.................. 1,252 5,955
Capital lease obligations, net of current
portion..................................... -- 3,627
------- --------
Total liabilities.......................... 1,252 9,582
------- --------
Commitments and contingencies (Note 6)
Redeemable convertible preferred stock,
$0.0001 par value; 20,000 shares authorized;
4,582, 15,247, and no (unaudited) shares
issued and outstanding (aggregate
liquidation value at December 31, 1999 of
$61,398).................................... 6,905 61,192 $ --
------- --------
Stockholders' equity (deficit):
Common stock, $0.0001 par value; 40,000
shares authorized; 9,827, 17,132 and 80,117
(unaudited) shares issued and outstanding.. 1 2 8
Additional paid-in capital.................. 853 21,773 82,959
Unearned stock-based compensation........... (577) (13,613) (13,613)
Deficit accumulated during development
stage...................................... (4,227) (34,195) (34,195)
------- -------- --------
Total stockholders' equity (deficit)....... (3,950) (26,033) $ 35,159
------- -------- ========
$ 4,207 $ 44,741
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from Period from
March 20, 1998 March 20, 1998
(Inception) to Year Ended (Inception) to
December 31, December 31, December 31,
1998 1999 1999
-------------- ------------ --------------
<S> <C> <C> <C>
Revenue............................ $ -- $ 149 $ 149
------- -------- --------
Operating costs and expenses:
Cost of services.................. -- 8,249 8,249
Engineering and development....... 1,468 4,531 5,999
Sales and marketing............... 1,788 10,363 12,151
General and administrative........ 1,096 7,174 8,270
------- -------- --------
Total operating costs and
expenses........................ 4,352 30,317 34,669
------- -------- --------
Loss from operations............... (4,352) (30,168) (34,520)
Interest income.................... 125 579 704
Loss on disposal of assets......... -- (199) (199)
Interest expense................... -- (180) (180)
------- -------- --------
Net loss........................... $(4,227) $(29,968) $(34,195)
======= ======== ========
Net loss per share--basic and
diluted........................... $ (0.56) $ (3.43)
======= ========
Weighted average common shares
outstanding....................... 7,488 8,726
======= ========
Pro forma net loss per share--basic
and diluted (unaudited)........... $ (0.63)
========
Pro forma weighted average common
shares outstanding (unaudited).... 47,435
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Convertible Deficit
Preferred Accumulated
Stock Common Stock Additional Unearned During Total
-------------- ------------- Paid-in Stock-based Development Stockholders'
Shares Amount Shares Amount Capital Compensation Stage Equity
------ ------- ------ ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 20,
1998 (Inception)
Issuance of common stock
in March 1998........... -- $ -- 7,636 $ 1 $ 1 $ -- $ -- $ 2
Issuance of series A
redeemable convertible
preferred stock at $1.20
per share, less issuance
costs of $33, in April
1998.................... 1,333 1,567 -- -- -- -- -- --
Issuance of series B
redeemable convertible
preferred stock at $1.65
per share, less issuance
costs of $22, in June
and July 1998........... 3,249 5,338 -- -- -- -- -- --
Exercise of employee
stock options........... -- -- 2,191 -- 17 -- -- 17
Issuance of warrants in
connection with capital
leases (Note 7)......... -- -- -- -- 219 -- -- 219
Unearned stock-based
compensation, net....... -- -- -- -- 616 (577) -- 39
Net loss................ -- -- -- -- -- -- (4,227) (4,227)
------ ------- ------ --- ------- -------- -------- --------
Balance at December 31,
1998 4,582 6,905 9,827 1 853 (577) (4,227) (3,950)
Issuance of series C
redeemable convertible
preferred stock at $3.42
per share, less issuance
costs of $83, in
February 1999........... 3,592 12,201 -- -- -- -- -- --
Issuance of series D
redeemable convertible
preferred stock at $5.96
per share, less issuance
costs of $67, in October
1999.................... 7,073 42,086 -- -- -- -- -- --
Exercise of employee
stock options, net...... -- -- 6,987 1 685 -- -- 686
Issuance of common stock
for services rendered... -- -- 318 -- 232 -- -- 232
Issuance of warrants in
connection with capital
leases (Note 7)......... -- -- -- -- 574 -- -- 574
Issuance of warrant to
an investor in October
1999 (Note 7)........... -- -- -- -- 1,000 -- -- 1,000
Unearned stock-based
compensation, net....... -- -- -- -- 18,429 (13,036) -- 5,393
Net loss................ -- -- -- -- -- -- (29,968) (29,968)
------ ------- ------ --- ------- -------- -------- --------
Balance at December 31,
1999 15,247 $61,192 17,132 $ 2 $21,773 $(13,613) $(34,195) $(26,033)
====== ======= ====== === ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from Period from
March 20, 1998 March 20, 1998
(Inception) to Year Ended (Inception) to
December 31, December 31, December 31,
1998 1999 1999
-------------- ------------ --------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss........................... $(4,227) $(29,968) $(34,195)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization.... 65 1,707 1,772
Loss on disposal of assets....... -- 199 199
Amortization of stock-based
compensation.................... 39 5,393 5,432
Issuance of common stock for
services........................ -- 232 232
Issuance of warrant (see Note
7).............................. -- 1,000 1,000
Changes in assets and
liabilities:
Accounts receivable............. -- (70) (70)
Prepaid expenses and other
assets......................... (313) (813) (1,126)
Accounts payable................ 815 2,240 3,055
Accrued liabilities............. 437 442 879
Deferred revenue................ -- 448 448
------- -------- --------
Net cash used in operating
activities.................... (3,184) (19,190) (22,374)
------- -------- --------
Cash flows from investing
activities:
Purchase of property and
equipment......................... (1,542) (7,491) (9,033)
Purchase of investments............ -- (4,977) (4,977)
------- -------- --------
Net cash used in investing
activities.................... (1,542) (12,468) (14,010)
------- -------- --------
Cash flows from financing
activities:
Issuance of convertible preferred
stock............................. 6,905 54,287 61,192
Issuance of common stock........... 19 686 705
Payment of capital lease
obligations....................... -- (650) (650)
------- -------- --------
Net cash provided by financing
activities.................... 6,924 54,323 61,247
------- -------- --------
Net increase in cash and cash
equivalents........................ 2,198 22,665 24,863
Cash and cash equivalents at
beginning of period................ -- 2,198 --
------- -------- --------
Cash and cash equivalents at end of
period............................. $ 2,198 $ 24,863 $ 24,863
======= ======== ========
Supplemental non-cash investing and
financing activities:
Property and equipment purchased
under capital lease obligations... $ -- $ 5,850 $ 5,850
======= ======== ========
Issuance of warrants in connection
with equipment lease line......... $ 219 $ 574 $ 793
======= ======== ========
Supplemental cash flows disclosures:
Cash paid for interest............. $ -- $ 140 $ 140
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
1. The Company
iBEAM Broadcasting Corporation (the "Company"), formerly Bowles, Inc., was
incorporated on March 20, 1998 in Delaware. iBEAM provides an Internet
broadcast network that enables content providers to broadcast content over the
Internet. The network uses point-to-multipoint satellite broadcasting of
Internet content to intelligent iBEAM servers located at the edge of the
Internet, which is the Internet access point closest to the end user.
The Company is in the development stage, devoting substantially all of its
efforts to product development and raising capital financing. The Company has
funded its operating losses since inception through capital lease obligations
and the sale of equity securities. Management's plans for funding operations
include generating revenue while controlling costs, the sale of equity
securities and the utilization of equipment lease lines (see Note 5). The
Company's failure to sell its services or to raise sufficient capital would
unfavorably impact the Company.
2. Significant Accounting Policies
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Stock split
The Company's Board of Directors authorized a 3-for-1 stock split of the
Company's common stock in January 2000. In March 2000, the Company's Board of
Directors authorized a 1.377-for-1 stock split of the Company's common stock.
All common and per share information in these financial statements has been
retroactively adjusted to reflect these stock splits. As a result of these
splits, the conversion rate of Series A, B, C, and D redeemable convertible
preferred stock into common stock automatically adjusts from 1:1 to 1:4.131
and has been retroactively adjusted in these financial statements (see note
7). The Company issued Series E redeemable convertible preferred stock in
February 2000. The conversion rate of Series E redeemable convertible
preferred stock into common stock automatically adjusts from 1:1 to 1:1.377.
Risks and uncertainties
The Company is subject to all of the risks inherent in an early stage
company conducting electronic services over the Internet. These risks include,
but are not limited to, a limited operating history, limited management
resources, dependence upon consumer acceptance of the Internet and the
changing nature of the electronic broadcasting industry. The Company's
operating results may be materially affected by the foregoing factors.
Cash, cash equivalents, restricted cash and investments
The Company considers all highly liquid investments purchased with original
or remaining maturities of three months or less at the date of purchase to be
cash equivalents. Restricted cash of $107,000 consists of a certificate of
deposit held as collateral against the Company's corporate credit cards and is
included in other assets.
F-7
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company classifies all short-term investments as available-for-sale in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
Company's short-term investments are invested in high-grade corporate
securities and government bonds maturing approximately twelve months or less
from the date of purchase. At December 31, 1999, these investments are carried
at cost, which approximates fair value. Material unrealized gains or losses,
if any, are reported in stockholders' equity and included in other
comprehensive income. The cost of securities sold is based on the specific
identification method. For the year ended December 31, 1999, realized gains
and losses on available-for-sale securities were immaterial.
Fair value of financial instruments
The reported amounts of certain of the Company's financial instruments,
including cash and cash equivalents, short-term investments, accounts
receivable, accounts payable and accrued liabilities approximate fair value
due to their short maturities.
Concentration of credit risk
Cash and cash equivalents are deposited in large domestic financial
institutions that management believes are creditworthy. With respect to
accounts receivable, the Company's customer base is dispersed across many
geographic areas primarily within the United States. The Company performs
ongoing credit evaluations of its customers financial condition, generally
requires no collateral from its customers, and establishes allowances for bad
debt as warranted.
Property and equipment
Property and equipment are stated at cost. Depreciation is generally
computed using the straight-line method over the estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Network equipment, computers, software and 3 years
other equipment.............................
Furniture and fixtures....................... 5-7 years
Leasehold improvements....................... Shorter of the lease term or
the estimated useful life
</TABLE>
Long-lived assets
The Company evaluates the recoverability of its long-lived assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," which requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets.
Revenue recognition
On-Air is a service that provides the customer the ability to transfer live
content 24 hours a day, 7 days a week. On-Air services are provided under
contracts that typically last for a period of three to twelve months. These
services are billed based upon either the peak capacity purchased, which is
expressed as the maximum volume that can be delivered per second, or upon
actual usage, which is the total amount of megabytes transferred in the month.
These contracts may also provide for minimum monthly fees. Revenue for these
services is recognized as the service is provided.
F-8
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
On-Stage services are provided under contracts that typically relate to a
single event. These services are billed based upon the peak capacity purchased
which is the maximum megabits delivered per second per event, or upon actual
usage, which is the total amount of megabits transferred. These contracts may
also provide for minimum fees. Revenue for these services is recognized as the
service is provided.
On-Demand is a service that allows the customer to store content on the
Company's network, which can then be accessed by end users at any time. This
service is provided under contracts that typically last for a period of three
to twelve months. There are two streams of revenue associated with this
service. Firstly, there is a fee for the amount of content stored, measured in
gigabytes per month. Secondly, there is a charge for the amount of content
delivered to end users which is billed based upon either the peak capacity
purchased, which is the maximum megabits delivered per second, or upon actual
usage, which is the total amount of megabytes transferred in the month. These
contracts may also provide for minimum monthly fees. Revenue for these
services is recognized as the service is provided.
The Company has the ability to insert advertisements into the content
delivered in connection with the On-Air, On-Stage and On-Demand services.
Revenue from advertising is recognized over the period the advertisements are
delivered.
Other services such as encoding, production, event management, acquisition
services, custom web integration with chat and e-commerce tools are generally
provided on a consulting basis on either hourly or fixed price billing over a
period of 30 days or less. Revenue for these services is recognized upon
completion of the services.
The Company is required to share 15%-20% of the revenue generated from the
delivery of content from the On-Air, On-Stage and On-Demand services with
certain internet service providers. The Company records the revenue from On-
Air, On-Stage and On-Demand services gross because they act as the principal
in the transactions and are wholly responsible for the delivery of the
services. In addition, the Company bears the risk of loss for collection from
the customer. The Company records the revenue sharing amount as cost of
services.
Engineering and development expense
Engineering and development costs are expensed as incurred, except for
certain software development costs. In January 1999, the Company adopted
Statement of Position ("SOP") 98-1, which requires software development costs
associated with internal use software to be charged to operations until
certain capitalization criteria are met. For the year ended December 31, 1999,
software development costs of approximately $800,000 were capitalized and
included in property and equipment.
Advertising expense
Expenses related to advertising and promotion of products is charged to
sales and marketing expense as incurred. Advertising expense for the period
from March 20, 1998 (inception) to December 31, 1998 and for the year ended
December 31, 1999 was $23,000 and $2,621,000, respectively.
Stock-based compensation expense
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25 ("APB
No. 25"), "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation expense is based on the
difference, if any, on the date of grant, between the fair value of the
Company's shares and the exercise price of the option. Equity instruments
issued to nonemployees are accounted for in accordance with the provisions of
SFAS No. 123 and Emerging Issues Task Force ("EITF") 96-18.
F-9
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Comprehensive income (loss)
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity (net assets) during a
period from non-owner sources. There is no difference between net loss and
comprehensive loss.
Net loss per share
Basic and diluted net loss per share is computed by dividing the net loss
for the period by the weighted average number of shares of common stock
outstanding during the period. The calculation of diluted net loss per share
excludes potential common shares if the effect is antidilutive. Potential
common shares are comprised of common stock subject to repurchase rights and
incremental shares of common and preferred stock issuable upon the exercise of
stock options or warrants and upon conversion of Series A, Series B, Series C
and Series D convertible preferred stock (collectively, "Preferred Stock").
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Period from
March 20, 1998
(Inception) to Year Ended
December 31, December 31,
1998 1999
-------------- ------------
<S> <C> <C>
Net loss........................................... $(4,227) $(29,968)
======= ========
Basic and diluted:
Weighted average common shares outstanding........ 9,610 14,678
Weighted average unvested common shares subject to
repurchase....................................... (2,122) (5,952)
------- --------
Weighted average shares used to compute basic and
diluted net loss per share....................... 7,488 8,726
======= ========
Net loss per share--basic and diluted.............. $ (0.56) $ (3.43)
======= ========
</TABLE>
The following table sets forth potential common shares that are not
included in the diluted net loss per share calculation above because to do so
would be antidilutive (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1998 1999
------ ------
<S> <C> <C>
Convertible preferred stock upon conversion to common stock..... 18,930 62,984
Convertible preferred stock warrants upon conversion to common
stock.......................................................... 381 1,413
Unvested common shares subject to repurchase.................... 2,191 7,101
Options to purchase common stock................................ 4,513 9,437
------ ------
26,015 80,935
====== ======
</TABLE>
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of the Company's
Preferred Stock into shares of common stock effective upon the closing of the
offering, as if such conversion occurred on January 1, 1999 or at the date of
original issuance, if later. The resulting pro forma
F-10
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
adjustment includes an increase in the weighted average shares used to compute
basic and diluted net loss per share of 38,709,000 shares for the year ended
December 31, 1999.
Pro forma stockholders' equity (unaudited)
Immediately prior to the effective date of the offering, the Preferred
Stock outstanding will automatically convert into common stock at a one-to-one
ration. The pro forma effects of this transaction is unaudited and has been
reflected in the accompanying Pro Forma Stockholders' Equity as of December
31, 1999.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value. The Company, to date, has not engaged in derivative
and hedging activities, and accordingly does not believe that the adoption of
SFAS No. 133 will have a material impact on the financial reporting and
related disclosures of the Company. The Company will adopted SFAS No. 133 as
required by SFAS No. 137, "Deferral of the Effective Date of the FASB
Statement No.133," beginning with the third quarter of fiscal 2000.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements," which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
The Company has complied with the guidance in SAB 101 for all periods
presented.
3. Balance Sheet Components (in thousands)
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------ -------
<S> <C> <C>
Property and equipment, net:
Network software and equipment............................. $ 366 $ 8,224
Computers, software and equipment.......................... 705 5,494
Furniture and fixtures..................................... 456 631
Leasehold improvements..................................... 15 180
------ -------
1,542 14,529
Less: Accumulated depreciation and amortization............ (65) (1,617)
------ -------
$1,477 $12,912
====== =======
Accrued liabilities:
Accrued payroll and related liabilities.................... $ 54 $ 489
Other accrued liabilities.................................. 236 390
Deferred rent.............................................. 147 --
------ -------
$ 437 $ 879
====== =======
</TABLE>
F-11
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Income Taxes
No provision for federal and state income taxes has been recorded as the
Company has incurred net operating losses since inception. The components of
the Company's deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Net operating loss carryforwards........................... $ 1,343 $10,552
Nondeductible expenses..................................... 333 588
Research and development credit carryovers................. 58 477
Other...................................................... -- 187
------- -------
1,734 11,804
Less: Valuation allowance.................................. (1,734) (11,804)
------- -------
$ -- $ --
======= =======
</TABLE>
Management believes that, based on a number of factors, it is more likely
than not that the deferred tax assets will not be utilized; and accordingly, a
full valuation allowance has been recorded. The change in the valuation
allowance was $1,734,000 and $10,070,000 for the period from March 20, 1998
(inception) to December 31, 1998 and for the year ended December 31, 1999,
respectively.
At December 31, 1999, the Company had approximately $25.8 million of
federal and state net operating loss carryforwards available to offset future
taxable income which expire in varying amounts beginning in 2004. Under the
Tax Reform Act of 1986, the amounts of and benefits from net operating loss
carryforwards may be impaired or limited in certain circumstances. Events
which cause limitations in the amount of net operating losses that the Company
may utilize in any one year include, but are not limited to, a cumulative
ownership change of more than 50%, as defined, over a three year period.
5. Capital Lease Obligations
The Company entered into a master lease agreement with Comdisco, Inc. in
November 1998 with aggregate lines of credit totaling $4.5 million, which
expired in January 2000. The Company received additional lines totaling $1.0
million in September 1999, which expired in September 2000, and an extension
to existing lines for an additional $3.0 million in December 1999, which
expired in January 2000. Advances under the lines are to be repaid over
periods ranging from 30 months to 48 months, bear interest at rates ranging
from 7% to 8%, and are collateralized by the purchased equipment. As of
December 31, 1999, the Company had $2.9 million available under its lease
lines, of which $0.9 million could be used for software, tenant improvements
and tooling specifically approved by Comdisco, Inc. and $2.0 million could be
used for equipment specifically approved by Comdisco, Inc. Warrants were
issued to Comdisco, Inc. in conjunction with the master lease agreement and
each additional increase in credit (see Note 7).
F-12
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The advances under the lines have been classified as capital leases. As of
December 31, 1999, the cost of such leased equipment was approximately
$5,850,000 with accumulated amortization of $842,000. As of December 31, 1999,
future minimum lease payments under these agreements are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2000................................................................ $ 1,947
2001................................................................ 1,976
2002................................................................ 1,597
2003................................................................ 244
-------
Total minimum lease payments........................................ 5,764
Less: Amount representing interest (7% to 8%)....................... (564)
-------
Present value of minimum lease payments............................. 5,200
Less: Current portion of capital lease obligations.................. (1,573)
-------
Long-term portion of capital lease obligations...................... $ 3,627
=======
</TABLE>
6. Commitments and contingencies
The Company leases office space and equipment under non-cancelable
operating leases with various expiration dates through February 2002. Rent
expense for the period from March 31, 1998 (inception) to December 31, 1998
and for the year ended December 31, 1999 was approximately $107,000 and
$803,000, respectively. The Company also leases bandwidth from a satellite
service provider under a non-cancelable lease agreement, which expires on
December 2002.
Future minimum lease payments under non-cancelable operating leases are as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2000................................................................. $ 2,744
2001................................................................. 4,028
2002................................................................. 5,692
-------
$12,464
=======
</TABLE>
In September and October 1999, the Company entered into three-year service
agreements with Northpoint Communications, Inc. ("NorthPoint") and Covad
Communications Group, Inc. ("Covad"), respectively, to provide streaming video
and audio. Under the terms of the agreements, the Company will deploy its
servers in NorthPoint and Covad hubs in North America and pay up to twenty
percent of all revenues created from the transport of content through their
networks. No amounts have been incurred under these arrangements as of
December 31, 1999.
In connection with the hiring of David Brewer, Vice President of
Operations, the Company agreed to purchase at least $2.0 million of services
from Brewer Consulting Networks, a company controlled by Mr. Brewer, beginning
January 1, 2000. The obligation to purchase these services from Brewer
Consulting Networks is contingent on Mr. Brewer relinquishing operational or
ownership control of Brewer Consulting Networks.
The Company is subject to legal proceedings, claims and litigation arising
in the ordinary course of business. The Company's management does not expect
that the ultimate costs to resolve these matters will have a material adverse
effect on the Company's financial position, results of operations, or cash
flows.
F-13
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Redeemable Convertible Preferred Stock
The following table summarizes convertible preferred stock at December 31,
1999 (in thousands):
<TABLE>
<CAPTION>
Shares
---------------------- Liquidation Net
Designated Outstanding Amount Proceeds
---------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Series A......................... 1,350 1,333 $ 1,600 $ 1,567
Series B......................... 3,380 3,249 5,361 5,338
Series C......................... 3,650 3,592 12,284 12,201
Series D......................... 7,500 7,073 42,153 42,086
------ ------ ------- -------
15,880 15,247 $61,398 $61,192
====== ====== ======= =======
</TABLE>
iBEAM's Certificate of Incorporation, as amended, authorizes iBEAM to issue
20 million shares of $0.0001 par value preferred stock in the aggregate.
The rights, privileges and restrictions of holders of series A, B, C and D
convertible preferred stock ("Series A," "Series B," Series C" and "Series D,"
respectively) are set forth in iBEAM's amended and restated Certificate of
Incorporation, and are summarized as follows:
Voting
Each share of Preferred Stock has voting rights equal to an equivalent
number of shares of common stock into which it is convertible and votes
together as one class with the common stock.
As long as at least any shares of Preferred Stock remain outstanding, the
Company must obtain approval from a majority of the holders of Preferred Stock
in order to alter the Certificate of Incorporation as related to Preferred
Stock, change the authorized number of shares of Preferred Stock, repurchase
any shares of common stock other than shares subject to the right of
repurchase by the Company, change the authorized number of Directors,
authorize a dividend for any class or series other than Preferred Stock,
create a new class of stock or effect a merger, consolidation or sale of
assets where the existing shareholders retain less than 50% of the voting
stock of the surviving entity.
Dividends
Holders of Series A, B, C and D are entitled to receive noncumulative
dividends at the per annum rate of $0.096, $0.132, $0.274 and $0.477 per
share, respectively, when and if declared by the Board of Directors. The
holders of Preferred Stock will also be entitled to participate in dividends
on common stock, when and if declared by the Board of Directors, based on the
number of shares of common stock held on an as-if converted basis. No
dividends on the Preferred Stock or common stock have been declared by the
Board from inception through December 31, 1999.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's common stock and Preferred Stock own less than 51% of the
resulting voting power of the surviving entity, the holders of Series A, B, C
and D are entitled to receive an amount of $1.20, $1.65, $3.42 and $5.96 per
share, respectively, plus any declared but unpaid dividends prior to and in
preference to any distribution to the holders of common stock. Should the
Company's
F-14
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
legally available assets be insufficient to satisfy the liquidation
preferences, the funds will be distributed ratably among the holders of Series
A, B, C and D in proportion to the amount of such stock owed by each holder.
The remaining assets, if any, shall be distributed among the holders of Series
A, B, C and D and common stock pro-rated based on the number of shares of
common stock held by each (assuming full conversion of all such shares Series
A, B, C and D) until the value of the assets distributed to or the
consideration received aggregate $180 million.
Conversion
Each share of Preferred Stock is convertible, at the option of the holder,
according to a conversion ratio of 4.131 shares of common stock for one share
of Preferred Stock, subject to adjustment for dilution and common stock
splits, and Preferred Stock automatically converts into the number of shares
of common stock into which such shares are convertible at the then effective
conversion ratio upon: (1) the closing of a public offering of common stock at
a per share price of at least $3.97 per share with gross proceeds of at least
$20 million or (2) the consent of the holders of the majority of Preferred
Stock.
Warrants for Preferred Stock
The Company issued warrants to purchase 27,273 and 64,935 shares of Series
B at $1.65 per share and $2.31 per share, respectively, in October 1998, 6,396
shares of Series C at $4.69 per share in September 1999, and 25,168 shares of
Series D at $5.96 per share in December 1999 to Comdisco, Inc. upon signing
various equipment lease lines as described in Note 5. These warrants expire
the earlier of five years from the date of grant or three years from the
effective date of the Company's initial public offering. The Company valued
the warrants using the Black-Scholes option pricing model applying expected
lives of five years, a weighted average risk free rate of 6%, a dividend yield
of zero percent and volatility of 80%. The fair value of approximately
$793,000 represents additional interest on the equipment lease lines and is
being expensed over the lease term using the effective interest rate method.
No amounts were amortized in 1998, and $40,000 was amortized during the year
ended December 31, 1999.
In October 1999, the Company also issued a warrant to purchase 218,120
shares of Series D at $5.96 per share to a new investor. In September 1999,
the Company entered into sales and marketing cooperative agreement with this
investor. These warrants expire the earlier of seven years from the date of
grant or four years from the effective date of the Company's initial public
offering and were valued using the Black-Scholes option pricing model applying
an expected life of seven years, a weighted average risk free rate of 6%, a
dividend yield of zero percent and volatility of 80%. The fair value of
approximately $1,000,000 represents a non-cash inducement to enter into future
commercial agreements and was included in sales and marketing expense during
the quarter ended December 31, 1999.
8. Benefit Plans
Stock Option Plan
On March 23, 1998, the Company adopted the 1998 Stock Option Plan (the
"Plan"). The Plan provides for the granting of stock options to employees and
consultants of the Company. Options granted under the Plan may be either
incentive stock options or non-qualified stock options. Incentive stock
options ("ISO") may be granted only to Company employees (including officers
and directors who are also employees). Non-qualified stock options ("NSO") may
be granted to Company employees and consultants. As of December 31, 1999, the
Company had reserved approximately 22,038,000 shares of common stock for
issuance under the Plan.
F-15
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Options under the Plan may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO and NSO shall not be less than 100% and 85% of
the estimated fair value of the shares on the date of grant, respectively, and
(ii) the exercise price of an ISO and NSO granted to a 10% shareholder shall
not be less than 110% of the estimated fair value of the shares on the date of
grant. Options are exercisable immediately subject to repurchase options held
by the Company which lapse with the options vesting schedule. Options may have
a maximum term of up to 10 years as determined by the Board of Directors. To
date, options granted generally vest over four years.
The following table summarizes activity under the Plan since inception (in
thousands, except per share data):
<TABLE>
<CAPTION>
Period from March 20, 1998 Year Ended
(Inception) to December 31, 1998 December 31, 1999
--------------------------------------- -------------------------
Weighted Average Weighted Average
Options Exercise Price Options Exercise Price
---------------- -------------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 4,513 $0.04
Granted................ 6,704 0.03 15,062 0.59
Exercised.............. (2,191) 0.01 (8,900) 0.09
Cancelled.............. -- -- (1,238) 0.06
---------------- ------
Outstanding at end of
period................. 4,513 0.04 9,437 0.87
================ ======
Options vested at end of
period................. 17 0.04 2,488 0.07
================ ======
</TABLE>
At December 31, 1998 and 1999, shares of common stock subject to a
repurchase option held by the Company totaled approximately 2,191,000 and
7,101,000 shares at a weighted average price of $0.02 and $0.24 per share,
respectively.
The following table summarizes information regarding stock options
outstanding as of December 31, 1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
----------------------------------------------------------------
Weighted
Average Weighted
Range of Number Remaining Average
Exercise of Options Contractual Exercise
Prices Outstanding Life Price
---------- ----------- ----------- --------
<S> <C> <C> <C>
$0.04 1,270 8.7 years $0.04
$0.08 666 8.8 years 0.08
$0.15 902 9.0 years 0.15
$0.29 4,028 9.0 years 0.29
$1.45 1,156 9.9 years 1.45
$3.63 1,415 10.0 years 3.63
-----
$0.04-$3.63 9,437 9.2 years 0.87
=====
</TABLE>
F-16
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Fair value disclosures
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for the awards under a
method prescribed by SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Period from
March 20, 1998
(Inception) to Year Ended
December 31, December 31,
1998 1999
-------------- ------------
<S> <C> <C>
Net loss:
As reported.................................... $(4,227) $(29,968)
Pro forma...................................... (4,265) (30,731)
Net loss per share--basic and diluted:
As reported.................................... $ (0.56) $ (3.43)
Pro forma...................................... (0.56) (3.52)
</TABLE>
The Company calculated the value of each option grant on the date of grant
using the Black-Scholes option pricing model with the following assumptions
for all periods: dividend yield expected and volatility of 0%; expected lives
of four years and risk free interest rate of 5.75%. These pro forma amounts
may not be representative of the effects on reported net loss for future years
as options vest over several years and additional awards are generally made
each year. The weighted average fair value of options granted was $0.19 and
$1.80 for the period from March 20, 1998 (inception) to December 31, 1998 and
for the year ended December 31, 1999, respectively.
Stock-based compensation
In connection with certain stock option grants to employees and board
members, the Company recognized approximately $608,000 and $17,290,000 of
unearned stock-based compensation for the excess of the deemed fair market
value over the exercise price at the date of grant for the period from March
10, 1998 (inception) to December 31, 1998 and for the year ended December 31,
1999, respectively. The compensation expense is being recognized, using the
multiple option method as prescribed by FASB Interpretation No. 28, over the
option's vesting period of generally four years. As a result, the Company
recorded stock-based compensation expense of $31,000 and $4,974,000 for the
period from March 20, 1998 (inception) to December 31, 1998 and for the year
ended December 31, 1999, respectively, and expects to amortize stock-based
compensation of $7,313,000 in 2000, $3,491,000 in 2001, $1,533,000 in 2002 and
$556,000 in 2003.
Stock-based compensation expense related to stock options granted to
consultants is recognized as the stock options are earned. The fair value of
the stock options granted is calculated at each reporting date using the
Black-Scholes option pricing model. The Company believes that the fair value
of the stock options are more reliably measurable than the fair value of the
services received. As a result, the stock-based compensation expense will
fluctuate as the fair market value of our common stock fluctuates. In
connection with the grant of stock options to consultants, the Company
recorded stock-based compensation expense of $8,000 and $419,000 for the
period from March 20, 1998 (inception) to December 31, 1998 and for the year
ended December 31, 1999, respectively. As of December 31, 1999, the Company
expects to amortize stock-based compensation expense of $720,000 over future
periods assuming no change in the underlying value of the Company's common
stock.
401(k) Plan
The Company's employee savings and retirement plan is qualified under
Section 401 of the Internal Revenue Code. Employees may elect to reduce their
current compensation by up to the statutorily prescribed
F-17
<PAGE>
iBEAM BROADCASTING CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
annual limit and have the amount of such reduction contributed to the 401(k)
Plan. The Company currently does not make matching or additional contributions
to the 401(k) Plan on its employees' behalf.
9. Segment Information
The Company currently operates in a single business segment as there is
only one measurement of profitability for its operations. Through December 31,
1999, foreign operations have not been significant in either revenues or
investments in long-lived assets.
A summary of the Company's revenues by service offering is as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
<S> <C>
iBEAM On-Air.................................................... $ 9
iBEAM On-Stage.................................................. 110
iBEAM On-Demand................................................. 5
Other services.................................................. 25
----
$149
====
</TABLE>
For the year ended December 31, 1999, the Company's significant customers
were ProWebCast, MusicNow, Inc. and Pixelworld, which represented 40%, 15% and
13% of total revenue, respectively. At December 31, 1999, Pacific Century
Group and Pixelworld represented 43% and 28%, respectively, of the accounts
receivable balance.
10. Subsequent Events (unaudited):
Series E Financing
In February 2000, the Company issued 2,545,454 shares of Series E
redeemable convertible preferred stock at a price of $13.75 per share, for
aggregate proceeds of $35.0 million. These convertible preferred shares will
automatically convert into 3,505,089 shares of common stock upon the closing
of this offering. The difference between the mid-point of the estimated price
range for shares in the Company's initial public offering ("IPO") and the
conversion price resulted in a beneficial conversion feature of $10.8 million.
Under Emerging Issues Task Force No. 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features, the beneficial conversion
feature will result in a preferred dividend of $10.8 million the quarter ended
March 31, 2000.
Acquisition of webcasts.com, Inc.
In March 2000, the Company entered into an agreement to acquire with
webcasts.com, Inc. ("webcasts.com") in a transaction to be accounted for as a
purchase business combination with an expected purchase price of $90.8
million. Webcasts.com provides interactive broadcasting services and
proprietary tools that give businesses the ability to conduct live and on-
demand Internet broadcasts for use in distance learning, corporate
communications, sales presentations, on-line trade shows and interactive
television.
Under the terms of the agreement, all issued and outstanding shares and
warrants of webcasts.com will be exchanged for shares of the Company's series
F redeemable convertible preferred stock ("Series F") equal to 8% of the
fully-diluted capitalization of the combined companies immediately following
the acquisition. Using the capitalization of the companies as of March 31,
2000, the Company expects to issue 8,004,528 shares, at $10.00 per share, for
a value of approximately $80.0 million. In addition, based on an exchange
ratio of 0.3407 shares of iBEAM for every share of webcasts.com, all of the
outstanding options granted under the webcasts.com 1999 Stock Option Plan will
be converted into options to purchase 760,845 shares of the Company's Series
F. The fair value of these options of approximately $6.1 million was
determined using the
F-18
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Black-Scholes option pricing model and is included as a component of the
purchase price. The Company will also issue a $3.0 million note to the
webcasts.com's redeemable preferred stockholders, which is payable on
September 30, 2000 and bears interest at 10% per annum. The Company
anticipates incurring approximately $1.7 million in acquisition related
expenses, which consist primarily of financial advisory, accounting and legal
fees. See Unaudited Pro Forma Combined Financial Information.
America Online, Inc.
In February 2000, the Company entered into a two year commercial agreement
with America Online, Inc. to deploy the Company's streaming media distribution
network within America Online's network. Under the agreement, the Company
agreed to pay an advance against future revenue sharing obligations. In the
event the Company does not deliver a minimum amount of traffic to America
Online, they can terminate this agreement, at which time, a portion of the
advance will be refunded to the Company. In addition, America Online may
purchase services pursuant to the Company's standard service terms and
conditions.
In February 2000, America Online purchased $5 million of the series E
redeemable convertible preferred stock ("Series E") financing for $13.75 per
share, which converts into 500,726 shares of common stock at the closing of
this offering, and received a warrant to purchase 537,634 shares of our common
stock at an exercise price equal to the price to public in this offering, less
underwriting discounts and commissions. The warrant was a condition to the
commercial agreement and was valued using the Black-Scholes option pricing
model. The fair value of $3.1 million represents an expense for receiving
equipment rack space at each of America Online's data centers and will be
recognized ratably over the term of the agreement.
We have agreed to share with America Online a portion of the revenue
derived from content delivered through their network. We have agreed to make
nonrefundable prepayments of an aggregate of $3.0 million to America Online as
an advance against payments due to them under the agreement.
Pacific Century CyberWorks (PCCW)
The Company have entered into an agreement with Pacific Century CyberWorks
Limited (PCCW) to establish a joint venture company that will bring high-
fidelity streaming audio and video to Asia. The new company, to be called
iBEAM Asia will be responsible for extending the Company's current business
and services to Asia. This will include deployment and operation of MaxCaster
servers into ISPs and Internet access providers and distributing video and
audio content from media companies to end users in over 50 countries in Asia.
The joint venture will be 51% owned by PCCW and 49% owned by iBEAM and is
expected to be operational by mid-year 2000. The joint venture will be
accounted for under the equity method of accounting. In addition, in February
2000, PCCW purchased $30 million of Series E for $13.75 per share.
RealNetworks, Inc.
In February 2000, the Company entered into a seven-year Infrastructure
Software License Agreement with RealNetworks, Inc. for an initial payment of
$10.0 million for the G2 streaming software platform. Additionally, the
Company has agreed to pay RealNetworks a quarterly royalty, subject to certain
annual minimum and maximum payments. The aggregate future minimum payments
under the agreement are $15 million.
The Walt Disney Company
In March 2000, the Company agreed to issue shares of Series G redeemable
convertible preferred stock to The Walt Disney Company for $10.0 million at a
price per share equal to the price to the public in the initial public
offering. The Series G redeemable convertible preferred stock will convert
into common stock on a one-for-one basis at the closing of this offering.
Based on an assumed public offering price of $10.00 per share, Walt Disney
will purchase 1,000,000 shares of Series G redeemable convertible preferred
stock.
F-19
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Excite@Home
In April 2000, the Company agreed to issue shares of Series H redeemable
convertible preferred stock to Excite@Home for $5.0 million at a price per
share equal to the price to the public in the initial public offering, less
underwriting commissions and discounts. The Series H redeemable convertible
preferred stock will convert into common stock on a one-for-one basis at the
closing of this offering. Based on an assumed public offering price of $10.00
per share, Excite@Home will purchase 537,634 shares of Series H redeemable
convertible preferred stock.
Stock Option Plans
The Company's 2000 Stock Plan (the "2000 Plan") was adopted by the Board of
Directors, subject to stockholder approval, in January 2000. The 2000 Plan
provides for the grant of incentive stock options to employees and non-
statutory stock options and stock purchase rights to employees, directors and
consultants.
A total of 9,639,000 shares of common stock were reserved for issuance
pursuant to the 2000 Plan. No options have yet been issued. The number of
shares reserved for issuance under the 2000 Plan will increase annually on
January 1st of each calendar year, effective beginning in 2001, equal to the
lesser of:
. 5% of the outstanding shares of common stock on the first day of the
year,
. 5,508,000 shares or
. such lesser amount as determined by the Board of Directors.
In January 2000, the Board of Directors adopted, subject to stockholder
approval, the 2000 Director Option Plan (the "Director Plan"). The Director
Plan provides for the periodic grant of nonstatutory stock options to non-
employee directors. A total of 500,000 shares were reserved for issuance under
the Director Plan.
In January 2000, the Board of Directors adopted, subject to stockholder
approval, the 2000 Employee Stock Purchase Plan (the "Purchase Plan"). A total
of 688,500 shares of common stock will be made available under the Purchase
Plan. The Purchase Plan provides for annual increases in the number of shares
available for issuance on January 1st of each year, beginning in 2001, equal
to the lesser of (i) 2% of the outstanding shares of common stock on the first
day of the calendar year, (ii) 1,927,800 shares, or (iii) such other lesser
amount as determined by the Board of Directors. The Purchase Plan is intended
to qualify for preferential tax treatment and contains consecutive,
overlapping 24-month offering periods. Each offering period includes four 6-
month purchase periods. The offering periods generally start on the first
trading day on or after November 1 and May 1 of each year, except for the
first such offering period which will commence on the first trading day on or
after the effective date of this offering and will end on the last trading day
on or before October 31, 2000. The Purchase Plan permits participants to
purchase common stock through payroll deductions of up to 15% of their
eligible compensation which includes a participant's base straight time gross
earnings and commissions but excluding all other compensation paid to our
employees. A participant may purchase no more than 10,000 shares during any 6-
month purchase period. Amounts deducted and accumulated by the participant are
used to purchase shares of our common stock at the end of each 6-month
purchase period. The price is 85% of the lower of the fair market value of our
common stock at the beginning of an offering period or after a purchase period
ends.
For the period from January 1, 2000 to March 31, 2000, we issued options to
purchase 4,025,712 shares to employees at a weighted average exercise price of
$8.80 per share. In connection with such grants, we will record an additional
$11.3 million of unearned stock-based compensation.
Common Stock
In January 2000, we issued 908,820 shares of common stock, subject to a
right of repurchase which lapses over four years, to a consultant. At February
29, 2000, this grant resulted in an additional $8.3 million of unearned stock-
based compensation, assuming no change in the underlying value of our common
stock.
F-20
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
OVERVIEW
On March 21, 2000, iBEAM Broadcasting Corporation ("iBEAM" or the
"Company") entered into a definitive agreement to acquire webcasts.com, Inc.
("webcasts.com") in a transaction to be accounted for as a purchase business
combination. Webcasts.com provides interactive broadcasting services and
proprietary tools that give businesses the ability to conduct live and on-
demand Internet broadcasts for use in distance learning, corporate
communications, sales presentations, on-line trade shows and interactive
television.
Under the terms of the agreement, all issued and outstanding shares and
warrants of webcasts.com will be exchanged for shares of the Company's series
F redeemable convertible preferred stock ("Series F") equal to 8% of the
fully-diluted capitalization of the combined companies immediately following
the acquisition. Using the capitalization of the companies as of March 31,
2000 as adjusted for the issuance of 1,537,634 shares of preferred stock to
The Walt Disney Company and Excite@Home, the Company expects to issue
8,004,528 shares, at $10.00 per share, for a value of approximately $80.0
million. In addition, based on an exchange ratio of 0.3407 shares of iBEAM for
every share of webcasts.com, all of the outstanding options granted under the
webcasts.com 1999 Stock Option Plan will be converted into options to purchase
760,845 shares of the Company's Series F. The fair value of these options of
approximately $6.1 million was determined using the Black-Scholes option
pricing model and is included as a component of the purchase price. The
Company will also issue a $3.0 million note to the webcasts.com's redeemable
preferred stockholders, which is payable on September 30, 2000 and bears
interest at 10% per annum. The Company anticipates incurring approximately
$1.7 million in acquisition related expenses, which consist primarily of
financial advisory, accounting and legal fees. In addition, the former
securityholders of webcasts.com may receive an additional 1,222,172 shares of
common stock if the webcasts.com subsidiary meets revenue targets in the
twelve months after the closing of the acquisition.
The total purchase price of $90.8 million was allocated to the assets
acquired, including tangible and intangible assets, and liabilities assumed
based upon the fair value of such assets and liabilities on the date of
acquisition. The total estimated purchase price of the acquisition has been
allocated based on a preliminary basis to assets and liabilities based on
management estimates of their fair value and a preliminary independent
appraisal of certain intangible assets with the excess cost over the net
assets acquired allocated to goodwill. This allocation is subject to change
pending a final analysis of the total purchase price and fair value of the
assets acquired and liabilities assumed. The aggregate purchase price has been
allocated as follows (in thousands):
<TABLE>
<S> <C>
Tangible assets received......................................... $ 4,931
Purchased technology............................................. 3,400
Assembled workforce.............................................. 2,150
Non-competition agreements....................................... 4,700
Goodwill......................................................... 78,637
Liabilities assumed.............................................. (2,985)
-------
$90,833
=======
</TABLE>
The tangible assets consist primarily of cash and cash equivalents,
accounts receivable and property and equipment. The liabilities assumed
consist primarily of accounts and notes payable and a revolving line of
credit. webcasts.com's tangible assets received and liabilities assumed as of
December 31, 1999 were used for purposes of calculating the pro forma
adjustments as they approximate fair value at such date. The amounts allocated
to purchased technology, assembled workforce, and non-competition agreements
are being amortized over their estimated useful lives of three years. The
purchase price in excess of net identified tangible and intangible assets is
allocated as goodwill, which is being amortized over three years.
The acquisition is expected to be structured as a tax-free exchange of
stock, therefore, the differences between the recognized fair values of
acquired assets, including tangible and intangible assets and their historical
tax bases, are not deductible for tax purposes.
F-21
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Historical -----------------------
iBEAM webcasts.com Adjustments Combined
ASSETS ---------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $24,863 $ 1,780 $ -- $ 26,643
Short-term investments...... 4,977 -- -- 4,977
Accounts receivable, net.... 70 902 -- 972
Prepaid expenses and other
current assets............. 796 159 -- 955
------- ------- -------- --------
Total current assets....... 30,706 2,841 -- 33,547
Property and equipment, net.. 12,912 2,019 -- 14,931
Goodwill and acquired
intangible assets........... -- 3,939 84,948 (A) 88,887
Other assets................. 1,123 71 -- 1,194
------- ------- -------- --------
$44,741 $ 8,870 $ 84,948 $138,559
======= ======= ======== ========
<CAPTION>
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
(DEFICIT)
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable............ $3,055 $ 1,178 $ -- $ 4,233
Accrued liabilities......... 879 378 1,700 (A) 2,957
Deferred revenue............ 448 134 -- 582
Current portion of capital
lease obligations.......... 1,573 99 -- 1,672
Current portion of notes
payable.................... -- 64 -- 64
Notes payable to preferred
stockholders............... -- 2,720 280 (A) 3,000
------- ------- -------- --------
Total current liabilities.. 5,955 4,573 1,980 12,508
Revolving line of credit..... -- 978 -- 978
Notes payable, net of current
portion..................... -- 52 -- 52
Capital lease obligations,
net of current portion...... 3,627 102 -- 3,729
------- ------- -------- --------
Total liabilities.......... 9,582 5,705 1,980 17,267
------- ------- -------- --------
Redeemable convertible
preferred stock............. 61,192 -- 86,133 (A) 147,325
------- ------- -------- --------
Redeemable preferred stock... -- 2,483 (2,483)(A) --
------- ------- -------- --------
Stockholders' equity
(deficit):
Preferred stock............. -- -- -- --
Common stock................ 2 -- -- 2
Additional paid-in capital.. 21,773 5,116 (5,116)(A) 21,773
Unearned stock-based
compensation............... (13,613) -- -- (13,613)
Deficit accumulated during
development stage.......... (34,195) (4,434) 4,434 (A) (34,195)
------- ------- -------- --------
Total stockholders' equity
(deficit)................. (26,033) 682 (682) (26,033)
------- ------- -------- --------
$44,741 $ 8,870 $ 84,948 $138,559
======= ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
F-22
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
webcasts.com Pro Forma
------------------------------------------------ ---------------------
Historical Historical Historical Adjust- Pro Forma Adjust-
iBEAM webcasts.com RIG ments webcasts.com ments Combined
---------- ------------ ---------- ------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 149 $ 2,431 $ 2,648 $(174)(C) $ 4,905 $ -- $ 5,054
-------- ------- ------- ----- ------- -------- --------
Operating costs and
expenses:
Cost of services....... 8,249 1,800 1,913 (174)(C) 3,539 -- 11,788
Engineering and
development........... 4,531 235 35 -- 270 -- 4,801
Sales and marketing.... 10,363 768 307 -- 1,075 -- 11,438
General and
administrative 7,174 3,681 1,585 28 (D) 5,294 -- 12,468
Amortization of
goodwill and acquired
intangibles........... -- 97 -- 476 (E) 573 29,056 (B) 29,629
-------- ------- ------- ----- ------- -------- --------
Total operating costs
and expenses......... 30,317 6,581 3,840 330 10,751 29,056 70,124
-------- ------- ------- ----- ------- -------- --------
Loss from operations.... (30,168) (4,150) (1,192) (504) (5,846) (29,056) (65,070)
Other income (expense),
net.................... 200 (86) (472) 468 (F) (90) -- 110
-------- ------- ------- ----- ------- -------- --------
Net loss................ (29,968) (4,236) (1,664) (36) (5,936) (29,056) (64,960)
Dividends and accretion
related to preferred
stock and redeemable
warrants............... -- (1,797) -- -- (1,797) -- (1,797)
-------- ------- ------- ----- ------- -------- --------
Net loss attributable to
common stock........... $(29,968) $(6,033) $(1,664) $ (36) $(7,733) $(29,056) $(66,757)
======== ======= ======= ===== ======= ======== ========
Net loss per share
attributable to common
stock:
Basic and diluted...... $ (3.43) $ (3.99)
======== ========
Weighted average common
shares outstanding.... 8,726 16,731
======== ========
Pro forma net loss per
share attributable to
common
stock: (G)
Basic and diluted...... $ (0.63) $ (1.20)
======== ========
Pro forma weighted
average common shares
outstanding........... 47,435 55,440
======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
F-23
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
1. Basis of presentation
The unaudited pro forma combined balance sheet gives effect to this
acquisition as if it occurred on December 31, 1999 and combines the balance
sheet of iBEAM as of December 31, 1999 and the consolidated balance sheet of
webcasts.com as of December 31, 1999.
On October 15, 1999, webcasts.com completed its acquisition of all the
outstanding capital stock of The Rock Island Group, Inc. ("RIG"). The RIG
acquisition was accounted for using the purchase method of accounting and,
accordingly, the net assets and results of operations of RIG have been
included in the consolidated financial statements of webcasts.com since the
acquisition date.
The unaudited pro forma statement of operations gives effect to the
webcasts.com acquisition as if it had occurred on January 1, 1999 and presents
the results of operations of iBEAM for the year ended December 31, 1999
combined with the unaudited pro forma statement of operations of webcasts.com
for the year ended December 31, 1999. The unaudited pro forma statement of
operations of webcasts.com includes the results of operations of webcasts.com
for the year ended December 31, 1999 combined with the results of operations
of RIG for the period from January 1, 1999 to October 14, 1999 as if the RIG
acquisition occurred on January 1, 1999.
The unaudited pro forma combined information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the transactions had been
consummated at the dates indicated, nor is it necessarily indicative of the
future operating results or the financial position of the combined companies.
2. Pro forma adjustments
The following adjustments were applied to iBEAM's historical financial
statements and those of webcasts.com to arrive at the pro forma combined
financial information:
A To reflect the issuance of Series F preferred stock and the assumption
of options to purchase Series F preferred stock in connection with the
acquisition of webcasts.com and to record the cancellation of the note
payable to webcast.com's preferred stockholders of $2.7 million in
February 2000, the issuance of a $3.0 million note payable by iBEAM to
webcasts.com's redeemable preferred stockholders, estimated transaction
costs of $1.7 million and other assets and liabilities at their fair
value.
B To reflect the amortization of goodwill and other intangibles over their
estimated useful lives as follows:
<TABLE>
<CAPTION>
Amortization
expense for
the year ended
Amortization December 31,
Amount period 1999
------- ------------ --------------
<S> <C> <C> <C>
Goodwill............................... $78,637 3 years $26,212
Purchased technology................... 3,400 3 years 1,133
Assembled workforce.................... 2,150 3 years 717
Non-competition agreements............. 4,700 3 years 1,567
</TABLE>
C To eliminate revenue related to product sales to webcasts.com by RIG
prior to webcasts.com's acquisition of RIG. Additionally, the related
cost of revenue recognized by RIG has been eliminated.
D To reflect additional depreciation expense on the fair value of tangible
assets acquired.
F-24
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION--(Continued)
E To record the additional amortization of goodwill related to the
acquisition of RIG as if the transaction occurred on January 1, 1999.
F To reduce interest expense, resulting from the settlement of notes
payable in connection with the acquisition of RIG as if the settlement
occurred on January 1, 1999.
G Pro forma basic and diluted net loss per share for the year ended
December 31, 1999 is computed using the weighted average number of
common shares outstanding, including the pro forma effects of the
automatic conversion of the Company's Series A, B, C and D effective
upon the closing of the Company's initial public offering as if such
conversion occurred on January 1, 1999, or at the date of original
issuance, if later. The shares of Series F, issued as consideration for
the acquisition, are assumed to be converted into the Company's common
stock under the automatic conversion feature and outstanding as of
January 1, 1999. Common stock subject to repurchase rights and
incremental shares of common and preferred stock issuable upon the
exercise of stock options and warrants, aggregating 18,721,000 shares,
have been excluded from the diluted net loss per share calculation
because to do so would be antidilutive.
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
webcasts.com, Inc.
We have audited the accompanying consolidated balance sheets of
webcasts.com, Inc. and subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
webcasts.com, Inc. and subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
KPMG LLP
Oklahoma City, Oklahoma
February 21, 2000
F-26
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------ -------
ASSETS
<S> <C> <C>
Current assets:
Cash......................................................... $ 23 $ 1,780
Trade accounts receivable, net of allowance for doubtful
accounts of $22 and $31 in 1998 and 1999, respectively...... 411 902
Prepaid expenses and other current assets.................... 6 132
Costs of uncompleted contracts............................... 57 27
------ -------
Total current assets........................................ 497 2,841
------ -------
Equipment..................................................... 138 2,200
Less accumulated depreciation and amortization............... (41) (181)
------ -------
Net equipment................................................. 97 2,019
Goodwill, net of accumulated amortization of $98 ............. -- 3,939
Other assets.................................................. -- 71
------ -------
$ 594 $ 8,870
====== =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Accounts payable............................................. $ 242 $ 1,178
Deferred revenues............................................ 139 134
Accrued liabilities.......................................... 67 378
Notes payable, current portion............................... 203 64
Notes payable to common stockholders......................... 419 --
Notes payable to preferred stockholders...................... -- 2,720
Current portion of capital lease obligations................. 23 99
------ -------
Total current liabilities................................... 1,093 4,573
Revolving line of credit...................................... -- 978
Notes payable, net of current portion......................... -- 52
Capital lease obligations, net of current portion............. 18 102
------ -------
Total liabilities........................................... 1,111 5,705
------ -------
Redeemable Preferred Stock:
Series A Senior Preferred Stock, $.0001 par value with a
redemption and liquidation value of $200 per share; 30
shares authorized, 23 shares issued and outstanding......... -- 1,878
Series B Senior Preferred Stock, $.0001 par value with a
redemption and liquidation value of $200 per share; 4 shares
authorized, 3 shares issued and outstanding................. -- 244
Series C Senior Preferred Stock, $.0001 par value with a
redemption and liquidation value of $200 per share; 5 shares
authorized, 4 shares issued and outstanding................. -- 361
------ -------
Total redeemable preferred stock............................ -- 2,483
------ -------
Stockholders' equity (deficit):
Series D Senior Convertible Preferred Stock, $.0001 par value
with a liquidation value of $17.39 per share, 230 shares
authorized and 210 shares issued and outstanding............ -- --
Common stock, $.00001 par value, 50,000 shares authorized,
12,875 shares issued and 10,787 shares outstanding in 1998
and 12,150 shares issued and outstanding in 1999............ -- --
Warrants to purchase common stock............................ -- 2,292
Additional paid in capital................................... 73 2,824
Accumulated deficit.......................................... (198) (4,434)
Treasury stock, 2,087 shares at cost in 1998................. (392) --
------ -------
Total stockholders' equity (deficit)........................ (517) 682
------ -------
Commitments and contingencies (Notes 3, 4, 8 and 10).......... -- --
------ -------
$ 594 $ 8,870
====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Revenues.................................................... $ 1,997 $ 2,431
Cost of revenues............................................ 1,300 1,800
------- -------
Gross profit.............................................. 622 631
Operating expenses.......................................... 896 4,333
------- -------
Loss from operations........................................ (199) (4,150)
Interest income............................................. -- 33
Interest expense............................................ (48) (119)
------- -------
Net loss.................................................. (247) (4,236)
Preferred stock dividends in arrears and accretion of
discount on preferred stock and redeemable warrants........ -- (1,797)
------- -------
Net loss applicable to common stock....................... $ (247) $(6,033)
======= =======
Net loss per average common share outstanding--basic and
diluted.................................................... $ (0.02) $ (0.51)
======= =======
Weighted average common shares--basic and diluted........... 12,226 11,758
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Series D
Preferred Retained Total
Stock Common Stock Warrants Additional Earnings Stockholders'
------------- -------------- to Purchase Paid-in (Accumulated Treasury Equity
Shares Amount Shares Amount Common Stock Capital Deficit) Stock (Deficit)
------ ------ ------ ------ ------------ ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997 -- $ -- 12,875 $ -- $ -- $ -- $ 77 $ -- $ 77
Distributions to
stockholders........... -- -- -- -- -- -- (28) -- (28)
Purchase of 2,392 shares
of treasury stock, at
cost................... -- -- -- -- -- -- -- (450) (450)
Sale of 304 shares of
treasury stock......... -- -- -- -- -- 73 -- 58 131
Net loss................ -- -- -- -- -- -- (247) -- (247)
--- ---- ------ ---- ------ ------- ------- ----- -------
Balance, December 31,
1998 -- -- 12,875 -- -- 73 (198) (392) (517)
Common stock issued to
employees.............. -- -- 2,031 -- -- 516 -- -- 516
Sale of common stock.... -- -- 859 -- -- 126 -- -- 126
Exercise of stock
options................ -- -- 4 -- -- 1 -- -- 1
Issuance of preferred
stock for acquisition.. 210 -- -- -- -- 4,000 -- -- 4,000
Retirement of treasury
stock.................. -- -- (3,619) -- -- (392) -- 392 --
Sale of Bridge Loan
Warrants............... -- -- -- -- 311 -- -- -- 311
Sale of preferred stock
warrants............... -- -- -- -- 633 -- -- -- 633
Issuance of options and
warrants for services.. -- -- -- -- -- 91 -- -- 91
Accretion of redeemable
preferred stock........ -- -- -- -- -- (276) -- -- (276)
Accretion of warrants to
purchase common stock.. -- -- -- -- 1,348 (1,348) -- -- --
Stock option
compensation........... -- -- -- -- -- 33 -- -- 33
Net loss................ -- -- -- -- -- -- (4,236) -- (4,236)
--- ---- ------ ---- ------ ------- ------- ----- -------
Balance, December 31,
1999 210 $ -- 12,150 $ -- $2,292 $ 2,824 $(4,434) $ -- $ 682
=== ==== ====== ==== ====== ======= ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------
1998 1999
----- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................................... $(247) $(4,236)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.............................. 33 238
Issuance of stock to employees............................. -- 516
Accretion of debt discount................................. -- 31
Issuance of warrants and options for services.............. -- 91
Stock option compensation.................................. -- 33
Net change in:
Accounts receivable....................................... (85) (79)
Prepaid expenses and other current assets................. (2) (103)
Costs of uncompleted contracts............................ (57) 30
Accounts payable.......................................... 3 466
Deferred revenues......................................... 97 (5)
Accrued liabilities....................................... 55 142
----- -------
Net cash used in operating activities.................... (203) (2,876)
----- -------
Cash flows used in investing activities:
Purchase of equipment........................................ (36) (1,598)
Legal fees paid for acquisition.............................. -- (85)
----- -------
Net cash used in investing activities.................... (36) (1,683)
----- -------
Cash flows from financing activities:
Proceeds from sale of preferred stock........................ -- 2,841
Proceeds from sale of common stock........................... -- 77
Proceeds from notes payable.................................. 203 264
Payments on notes payable.................................... -- (420)
Proceeds from notes payable to preferred stockholders........ -- 3,000
Net proceeds from revolving line of credit................... -- 978
Payments on notes payable to stockholders.................... (4) (419)
Cash paid for treasury stock................................. (40) --
Proceeds from sale of treasury stock......................... 130 --
Distributions to stockholders................................ (28) --
Payments on capital lease obligations........................ (23) (24)
Cash received through acquisition............................ -- 19
----- -------
Net cash provided by financing activities................ 238 6,316
----- -------
Net change in cash............................................. (1) 1,757
Cash at beginning of year...................................... 24 23
----- -------
Cash at end of year............................................ $ 23 $ 1,780
===== =======
Supplemental cash flow information:
Cash paid for interest....................................... $ 38 $ 88
Debt exchanged for common stock.............................. -- 50
Acquisition consummated through issuance of preferred stock.. -- 4,000
Accretion of redeemable preferred stock...................... -- 276
Purchase of treasury stock, at cost, through issuance of
notes payable............................................... 410 --
Purchase of equipment through capital leases................. 13 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Organization, Nature of Business and Basis of Presentation
webcasts.com, Inc. (the Company) was founded in 1995 as an interactive
digital marketing agency that also develops proprietary technologies. These
tools include Internet/Web development and CD-Roms which accounted for
approximately 52% of revenues in 1999. The Company also provides custom
programming, consulting, and other digital products and services as well as
network design, implementation and management based upon specific needs of
clients which accounted for approximately 23% of revenues in 1999. During
1997, the Company launched a business to become a web-based interactive
broadcasting provider that enables web site and content owners to provide high
quality streaming of live and on-demand audio and video content over the
Internet which accounted for approximately 13% of revenues in 1999. The
Company provides all of the infrastructure to facilitate end-to-end
broadcasting which includes production capabilities, sponsorship revenue
generation, a network for the delivery of rich media including video, audio,
text, graphics and animations, and an integrated, e-commerce enabled
interface.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of webcasts.com,
Inc. and its wholly owned subsidiary. All significant intercompany balances
and transactions have been eliminated in consolidation.
(c) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(d) Revenue and Cost Recognition
Revenue is recognized on the completed contract method for all revenue
streams due to the short-term nature of the contracts, generally one to three
months in duration. The Company's revenue streams consist generally of four
types: Internet/Web development and CD-ROMs; custom programming and consulting
for digital products and services; network design, implementation and
management; and web-based interactive broadcasting of high quality streaming
of live and on-demand audio and video content over the Internet.
Revenue is recognized upon completion of the contract and contract costs
and related revenues are deferred in the balance sheet until completion. A
contract is considered complete when all costs have been incurred and the
product is performing according to specifications or has been accepted by the
customer. The Company also records deferred revenues for advance payment on
customer projects. The deferred revenues are recorded as income in the period
the services are provided.
Costs of revenues include all direct labor and material costs and those
indirect costs related to contract performance. Operating expenses are charged
to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined.
(e) Allowance for Doubtful Trade Accounts Receivable
The Company extends credit to customers in accordance with normal industry
standards and terms. The Company has established an allowance for doubtful
accounts based on known factors surrounding the credit risk of specific
customers, historical trends and other information. The Company may require
that a portion of the estimated billings be paid prior to delivering products
or performing services. In addition, the Company may terminate customer
contracts if outstanding amounts are not paid.
F-31
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(f) Warrants to Purchase Common Stock
The Company has issued debt and preferred stock with detachable common
stock purchase warrants. The stock purchase warrants are initially recorded
based on their fair value with the balance of the proceeds allocated to the
debt or preferred stock. The debt is accreted to its face value over its term
and the accretion is recorded as interest expense in the accompanying
statements of operations. Preferred stock which is redeemable for cash at the
option of the holder is accreted to its redemption value and the accretion is
recorded as a decrease to additional paid in capital in the accompanying
statement of stockholders' equity (deficit). Warrants are initially recorded
in stockholders' equity (deficit) and warrants which may be put back to the
Company for cash at the option of the holder are accreted to the put value
over the period from the date of issuance to the earliest put date of the
warrants.
(g) Equipment
Equipment, stated at cost or the present value of minimum lease payments
for assets under capital leases, is depreciated over the estimated useful
lives of the assets using the straight-line method. Estimated useful lives
range from 3 to 7 years. Significant improvements and betterments are
capitalized if they extend the useful life of the asset. Routine repairs and
maintenance are expensed when incurred.
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
(h) Research and Software Development Costs
Research and development costs are charged to operations as incurred.
Software development and prototype costs incurred prior to establishment of
technological feasibility are included in research and development and are
expensed as incurred. Software development costs incurred subsequent to the
establishment of technological feasibility until general market availability
of the product are capitalized, if material. To date, all software development
costs incurred subsequent to the establishment of technological feasibility
have been expensed as incurred due to their immateriality.
(i) Income Taxes
During 1998 the Company was taxed as an S-Corporation under the Internal
Revenue Code. As such, income taxes were the responsibility of the
shareholders and were not accounted for in the consolidated financial
statements of the Company. In 1999, the Company received permission from the
Internal Revenue Service to change its election from an S-Corporation and,
effective January 1, 1999, is taxed as a C-Corporation. As a result, income
taxes are accounted for using the asset and liability method under which
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities and tax operating loss carryforwards. The effect on deferred
taxes for a change in tax rates is recognized in income in the period that
includes the enactment date. The effect of recognizing deferred tax assets and
liabilities due to the change in tax status is included in income tax expense
and is fully offset by the income tax benefit generated in 1999.
(j) Stock Options
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," (APB No. 25), and
F-32
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
related interpretations. Compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeds the exercise
price of the stock options, and the expense is recognized over the vesting
period.
Stock options and warrants issued to non-employees for services rendered
are recorded as expense upon issuance based on their estimated fair value.
(k) Loss per Share
Loss per share is computed by dividing net loss applicable to common stock
by the weighted average number of common shares outstanding for the period.
The effect of warrants to purchase common stock, convertible preferred stock,
and stock options has been excluded since the effect would be anti-dilutive.
(l) Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of
funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
(m) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value. The Company, to date, has not engaged in derivative
and hedging activities, and accordingly does not believe that the adoption of
SFAS No. 133 will have a material impact on the financial reporting and
related disclosures of the Company. The Company will adopt SFAS No. 133 as
required by SFAS No. 137, "Deferral of the Effective Date of the FASB
Statement No. 133," beginning with the first quarter of 2001.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements," which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
Management believes that the impact of SAB 101 will not have a material effect
on the financial position or results of operations of the Company.
(2) Acquisition of The Rock Island Group, Inc.
On October 15, 1999, the Company acquired The Rock Island Group, Inc.
(RIG), a network design, implementation and management company for
approximately $5,000,000. The Company issued 210,000 shares of Series D Senior
Convertible Preferred Stock, granted 20,000 options to purchase Series D
Senior Convertible Preferred Stock at an option price of $.01, and assumed
liabilities of approximately $1,000,000 in exchange for all of the outstanding
common and preferred shares of RIG. The purchase price was allocated to the
assets acquired based on their estimated fair values, and approximately
$450,000 was allocated to current assets. The
F-33
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
excess of the purchase price over the fair value of the net assets acquired
(goodwill) was approximately $4 million and is being amortized on a straight-
line basis over 7 years.
The acquisition was accounted for by the purchase method of accounting for
business combinations. Accordingly, the accompanying consolidated statements
of operations do not include any revenues or expenses related to the
acquisition prior to the closing date.
(3) Notes Payable and Revolving Line of Credit
In February 1998, the Company entered into an agreement to transfer up to
$450,000 of trade receivables with full recourse. The agreement allowed the
Company to remit receivables with an aggregate face value of $450,000 to a
bank; however, the bank had no obligation to purchase the receivables. For a
receivable accepted in accordance with the agreement, the bank would remit 80%
of the face value to the Company. The remaining 20% was remitted to the
Company after collection of the receivable by the bank. Proceeds from the
transfers contemplated by this agreement, which totaled $153,083 at December
31, 1998, are reported as borrowings in accordance with Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities," and are included in notes
payable in the accompanying 1998 balance sheet. The bank received monthly
interest of 2.75% of the average daily balance of the receivables purchased
and an administrative fee of 1% of all receivables purchased. The
administrative fees are included in operating expenses in the accompanying
statement of operations. The borrowings were secured by all assets of the
Company and a personal guaranty of the president of the Company.
The receivable transfer agreement was terminated in May 1999, and replaced
with a revolving line of credit with a separate financial institution in the
amount of $2,000,000 in September 1999. The revolving line of credit is
comprised of a working capital loan not to exceed $1,000,000 and an equipment
loan not to exceed $1,000,000. The working capital loan expires September 15,
2000, and there were no borrowings against the loan at December 31, 1999. The
equipment loan expires September 15, 2002, and there was $978,480 borrowed
against the loan at December 31, 1999. The loans are secured by equipment and
trade accounts receivable and bear interest at the prime rate plus 1%
(approximately 9.5% at December 31, 1999).
In August 1998, the Company borrowed $50,000 from two individuals which was
included in notes payable at December 31, 1998. The promissory notes accrued
interest at 8% and were convertible to common shares of the Company at
maturity of the notes. The notes were converted to common stock in May 1999.
The Company has three promissory notes to a financial institution
outstanding which bear interest at rates ranging from 8.75% to 10.5% at
December 31, 1999. The notes are secured by equipment, fixtures and accounts
receivable. The notes are due as follows: $63,777 in 2000; $17,306 in 2001;
$20,670 in 2002; and $13,596 in 2003.
During 1998, the Company entered into an agreement to purchase 2,392,006
shares of the Company's common stock from two significant stockholders for
$450,000. Each stockholder received $20,000 upon execution of the agreement; a
promissory note in the amount of $180,000, due November 30, 1998, bearing
interest at 8%, secured by all assets of the Company; and an unsecured
promissory note in the amount of $25,000 to be paid in monthly installments of
$1,000, plus accrued interest at 8%. Each stockholder received payments of
$2,000 on the unsecured notes during 1998. The stockholders extended the
payment terms of the secured promissory notes and during May 1999 the
agreement was restructured and the stockholders transferred approximately
1,500,000 additional shares to the Company. The Company then paid the
promissory notes in full.
The Company had a note payable to the President of the Company in the
amount of $13,000 at December 31, 1998. The note accumulated interest at 8%
and was included in notes payable to common stockholders in the accompanying
1998 balance sheet. The note was repaid in 1999.
F-34
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During November 1999, the Company issued unsecured bridge promissory notes
to preferred stockholders in the aggregate amount of $3,000,000. The notes
bear interest at 10% with interest and principal due on September 30, 2000.
The notes were issued with detachable common stock purchase warrants (the
Bridge Warrants) and the recorded value is net of amounts allocated to the
Bridge Warrants. The debt has increased approximately $31,100 for the
accretion of the debt to its face value as of December 31, 1999. If the
Company consummates a private placement of equity securities in an amount not
less than $10,000,000 (Qualified Transaction) the holders of the promissory
notes have the option to exchange the notes for the securities issued in the
transaction on the same basis as the other cash investors in the private
placement.
(4) Redeemable Preferred Stock
During May and June 1999, the Company issued 23,093 shares of Series A
Senior Preferred Stock (Series A Stock), 3,000 shares of Series B Senior
Preferred Stock (Series B Stock), and 4,000 shares of Series C Senior
Preferred Stock (Series C Stock) (collectively the Preferred Stock), together
with detachable warrants to purchase an aggregate of 7,756,243 shares of
common stock (Preferred Warrants), for approximately $3,000,000. The Preferred
Stock is not convertible, ranks senior to the common stock and Series D
Preferred Stock of the Company and has a liquidation preference of $200 per
share plus all accrued, accumulated and unpaid dividends. Dividends on the
Preferred Stock are cumulative and accrue at an annual rate of $8 per share,
payable quarterly when and if declared by the Company. As of December 31,
1999, cumulative dividends in arrears for the Preferred Stock were
approximately $120,000. The Company may elect to pay all or part of dividends
declared before June 30, 2002 by issuing additional Preferred Stock and
Preferred Warrants. All dividends not declared before the earlier of a
Qualified Public Offering, as defined in the Preferred Stock purchase
agreements, or June 30, 2004 will be deemed to have not accumulated and will
not be required to be paid or declared.
The holders of the Series A and B Stock have voting rights equivalent to
23.10 common shares and holders of Series C Stock have voting rights
equivalent to 14.684 common shares. The holders of the Preferred Stock, voting
together as a class, are entitled to elect two directors of the Company,
including Chairman of the Board, and certain actions of the Company require
approval by the holders of the Preferred Stock. These rights terminate upon
redemption of all of the Preferred Stock.
The Preferred Warrants have an exercise price of less than $.01 and may be
exercised at any time prior to expiration. Approximately 6,255,000 of the
Preferred Warrants expire in May 2009 and approximately 1,501,000 Preferred
Warrants expire in June 2009.
The Company may redeem the Preferred Stock for cash at any time for $200
per share plus all accrued, accumulated and unpaid dividends. The owners of
the Preferred Stock have the option anytime after May 14, 2003, to require the
Company to redeem one or more shares of their Preferred Stock at the
liquidation preference of $200 per share. In addition, each owner of the
Preferred Stock, the related Preferred Warrants, and shares obtained through
exercise of the Preferred Warrants, have the option any time after May 14,
2004 but before May 14, 2006 to require the Company to purchase all or part of
their Preferred Stock, Preferred Warrants or shares obtained through exercise
of the Preferred Warrants at the fair value of the securities. The estimated
fair value of the Preferred Warrants is approximately $14,100,000 at December
31, 1999.
(5) Stockholders' Equity (Deficit)
Common Stock
During 1999, the board of directors and shareholders of the Company
approved amended and restated certificates of incorporation which ultimately
authorized 50,000,000 shares of common stock ($.00001 par value)
F-35
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and 2,000,000 shares of preferred stock ($.0001 par value). In addition, the
Company increased its outstanding shares through two splits of the common
stock aggregating 21,458-for-1. The Company's common stockholders have entered
into an agreement which provides for restrictions on transfers of stock and
certain rights of first refusal of shares of stock offered for sale by
stockholders. All share information has been restated for the stock splits.
Preferred Stock and Preferred Stock Options
As discussed in note 2, 210,000 shares of the Series D Senior Convertible
Preferred Stock (Series D Stock) and options to purchase 20,000 shares of
Series D Stock were issued in 1999 in connection with the acquisition of RIG.
The Series D Stock ranks senior to the common stock of the Company and has a
liquidation preference of $17.39 per share plus all accrued, accumulated and
unpaid dividends. Dividends on the Series D Stock are cumulative and accrue at
an annual rate of $1.22 per share, payable quarterly when and if declared by
the Company. As of December 31, 1999, cumulative dividends in arrears for the
Series D Stock were approximately $53,000. The holders of the Series D Stock
have voting rights equivalent to those of common stockholders. The options to
purchase additional Series D Stock have an exercise price of $.01 per share, a
term of 10 years and fully vest on March 31, 2000. No options to purchase the
Series D Stock have been exercised as of December 31, 1999.
The Series D Stock and related options are convertible to an aggregate of
2,300,000 shares of the Company's common stock at any time, however, if not
converted prior to the Company's next private placement of equity securities
and the fair value of the Company is determined to be less than $40,000,000 at
the time of the private placement, the Series D Stock and related options are
convertible into 2,400,000 shares of the Company's common stock. In addition,
the Series D Stock and related options are automatically converted upon a
Qualified Public Offering, as defined in the acquisition agreement.
Warrants to Purchase Common Stock
As discussed in note 3, the Company issued unsecured bridge promissory
notes with detachable Bridge Warrants during 1999. The amount of Bridge
Warrants to be issued to each holder is equal to 10% of the unsecured bridge
promissory notes (total of $300,000) divided by (a) the implied value of one
share of common stock in a Qualified Transaction or (b) $1.75 in the event a
private placement does not occur prior to the maturity of the Bridge Warrants
on November 30, 2009. The Bridge Warrants are exercisable anytime after a
Qualified Transaction and before maturity at an exercise price of $.01.
The Company also issued warrants to purchase 47,406 shares of common stock
at an exercise price of $.01 to a third party in exchange for services
provided to the Company. These warrants are exercisable any time prior to
expiration in May 2004.
(6) Equipment
Equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
-----------
1998 1999
---- ------
<S> <C> <C>
Office equipment................................................. $ 16 $ 67
Computer equipment............................................... 122 2,133
---- ------
$138 $2,200
==== ======
</TABLE>
F-36
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(7) Capital Leases
The Company leases certain equipment under agreements which are classified
as capital leases. The leases have original terms ranging from 2 to 7 years.
Leased capital assets included in property and equipment are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------ ------
<S> <C> <C>
Furniture and fixtures....................................... $ 63 $ 230
Computer equipment........................................... -- 40
------ ------
63 270
Less: Accumulated amortization............................... (23) (59)
------ ------
$ 40 $ 211
====== ======
</TABLE>
The following is a schedule by year of future minimum lease payments for
all capital leases together with the present value of the net minimum lease
payments as of December 31, 1999 ( in thousands):
<TABLE>
<S> <C>
2000................................................................... $108
2001................................................................... 52
2002................................................................... 42
2003................................................................... 19
----
Total minimum lease payments........................................... 221
Less: Imputed interest................................................. (20)
----
Present value of minimum lease payments................................ 201
Less: Current maturities............................................... (99)
----
Long-term obligations.................................................. $102
====
</TABLE>
(8) Operating Leases
The Company leases office space and equipment under noncancellable
operating leases. Rental expense for the office space and equipment was
approximately $154,000 and $33,000 in 1999 and 1998, respectively. The future
minimum payments by year as of December 31, 1999, are as follows (in
thousands):
<TABLE>
<S> <C>
2000................................................................... $ 232
2001................................................................... 200
2002................................................................... 187
2003................................................................... 100
-----
$ 719
=====
</TABLE>
F-37
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(9) Income Taxes
As discussed in note 1, the Company was taxed as an S-Corporation during
1998. As such, income taxes were the responsibility of the shareholders and
were not accounted for in the accompanying 1998 financial statements. Income
tax expense differed from the amounts computed by applying the U.S. federal
income tax rate of 34% to loss before income taxes in 1999 as a result of the
following (in thousands):
<TABLE>
<S> <C>
Computed expected tax benefit...................................... $(1,440)
State income taxes benefit......................................... (207)
Increase in the valuation allowance................................ 1,432
Other, net......................................................... 215
-------
$ --
=======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1999 are
as follows (in thousands):
<TABLE>
<S> <C>
Net operating loss carryforwards................................... $2,998
Other, primarily accrued liabilities and stock awards.............. 98
------
Deferred tax assets................................................ 3,096
Deferred tax liability-- property and equipment temporary
differences....................................................... (167)
2,929
Less valuation allowance........................................... (2,929)
------
Net deferred tax asset............................................. $ --
======
</TABLE>
A valuation allowance has been provided for the deferred tax assets because
the Company's management has determined it is more likely than not that the
net deferred tax asset will not be realized.
At December 31, 1999 the Company has net operating loss carryforwards of
approximately $7,900,000 for federal and state income tax purposes and the
carryforwards expire in 2011 to 2015. Approximately $4,200,000 of the net
operating loss carryforwards were generated by RIG prior to the acquisition
(see note 2) and begin to expire in 2011. Utilization of these carryforwards
is limited by section 382 of the Internal Revenue Code (section 382). In
addition, changes in ownership, as defined by section 382, during 1999 and in
future periods could limit the amount of net operating loss carryforwards used
in any one year. Any tax benefit recognized as a result of utilization of RIG
pre-acquisition tax operating losses will reduce goodwill recorded in
connection with the RIG acquisition and will not reduce future financial
income tax expense.
(10) Employment Agreements
The Company has employment agreements with four key executive officers
which expire in May 2002. In addition to a base salary, the agreements provide
for an annual performance bonus of up to $50,000 and six months severance if
terminated without cause. Two of the officers owned approximately 7,100,000
shares of common stock upon execution of the employment agreements, and two of
the officers were granted approximately 2,000,000 shares of common stock.
Approximately 29% of the 2,000,000 shares granted is subject to repurchase if
specific web-based broadcasting revenue targets are not achieved. If the
employees resign or are terminated with cause, 75% of the stock not
repurchased based on the specific revenue targets is subject to further
repurchase.
F-38
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(11) Stock Option Plan
During 1999, the Company adopted a stock option plan (the Plan) and
authorized the issuance of incentive and non-qualified options to purchase
2,200,000 shares of the Company's common stock. All employees have the ability
to earn stock options through a performance option program and all options
granted in 1999 were non-qualified and issued at a discount of approximately
15% from the fair value of the Company's common stock. Each option allows the
applicable employee to purchase one share of common stock at the exercise
price determined by the board of directors. Options become exercisable at a
rate of no less than 20% per year over five years from the grant date. The
exercise price for an employee who owns stock representing more than ten
percent of all voting power of all classes of common stock shall be no less
than 110% of the fair value of the common stock on the date of grant. The
exercise price for all other employees shall be no less than 85% of the fair
value of the common stock on the grant date. The term of each option can be no
more than ten years from the date of grant. If a participant owns stock
representing more than ten percent of the voting power of all classes of stock
of the Company, the term of the option will be five years from the date of
grant.
Stock option activity for the year ended December 31, 1999, is as follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
Weighted-
Number Average
of Exercise
Shares Price
------ ---------
<S> <C> <C>
Balance at December 31, 1998............................... -- $ --
Granted.................................................... 1,396 1.06
Exercised.................................................. (4) 0.32
Forfeited.................................................. (26) 0.32
-----
Balance at December 31, 1999............................... 1,366 1.07
=====
</TABLE>
Information about stock options outstanding at December 31, 1999, is as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Options Weighted Options
Range of Outstanding at Average Exercisable at Fair Value
Option December 31, Remaining December 31, at
Prices 1999 Contract Life 1999 Grant Date
-------- -------------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
$0.32 308 9.75 years -- $0.19
0.50 259 9.65 years 94 0.30
1.55 799 9.89 years 55 0.92
</TABLE>
The Company applies APB Opinion 25 and related interpretations in
accounting for its Plan. The amount of expense recognized in 1999 related to
employee stock options was $33,000. No expense was recognized in 1998, since
no options were granted until 1999. Had the Company applied SFAS 123 in
accounting for the plans, the additional compensation costs would have been
approximately $64,000. The fair value of each option grant was estimated using
an option-pricing model with the following weighted-average assumptions:
dividend yield of 0%; expected volatility of 0%; risk-free interest rate of
5.5% and expected lives of approximately five years.
(12) 401(k) Plan
During 1999, the Company established a 401(k) plan in which substantially
all employees of the Company are eligible to participate. Company
contributions to the 401(k) plan are at the Company's discretion and there
were no contributions in 1999.
F-39
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(13) Business and Credit Concentrations
In 1998, two customers accounted for 45% of the Company's total revenue,
and 47% of trade accounts receivable at December 31, 1998. In 1999, two
customers accounted for 24% of the Company's total revenue, and 13% of trade
accounts receivable at December 31, 1999.
(14) Related Party Transactions
The Company leased certain equipment from a corporation controlled by an
officer of the Company in 1998 and 1999. The leases expire from December 1999
to October 2000. Aggregate lease payments of approximately $29,000 were made
in 1998 and 1999. An aggregate payment of approximately $8,000 will be made in
2000.
(15) Subsequent Event-Proposed Business Combination (Unaudited)
In March 2000, the Company entered into an agreement to merge with iBEAM
Broadcasting Corporation (iBEAM) in a transaction to be accounted for as a
purchase of the Company by iBEAM. Under the terms of the agreement, all issued
and outstanding shares of common and preferred stock and warrants to purchase
shares of the Company will be exchanged for approximately 8.0 million series F
redeemable convertible preferred shares of iBEAM which are convertible into
common stock of iBEAM on a share for share basis upon the closing of iBEAM's
initial public offering. In addition, holders of the Company's securities may
receive approximately an additional 1.1 million shares of common stock if the
Company meets revenue targets in the twelve months following the acquisition.
Options granted under the Company's 1999 stock option plan will be converted
into options to purchase shares of iBEAM's series F redeemable convertible
preferred stock. The transaction is expected to be completed in April 2000.
F-40
<PAGE>
[LOGO OF IBEAM BROADCASTING]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses Of Issuance And Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of Common Stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 45,540
NASD filing fee.................................................. 17,750
Nasdaq National Market listing fee............................... 90,000
Printing and engraving costs..................................... 300,000
Legal fees and expenses.......................................... 600,000
Accounting fees and expenses..................................... 600,000
Blue Sky fees and expenses....................................... 5,000
Transfer Agent and Registrar fees................................ 10,000
Miscellaneous expenses........................................... 81,710
----------
Total.......................................................... $1,750,000
==========
</TABLE>
Item 14. Indemnification Of Directors And Officers
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article X of our Amended and Restated Certificate of Incorporation provides
for the indemnification of directors to the fullest extent permissible under
Delaware law.
Article VI of our Amended and Restated Bylaws provides for the
indemnification of officers, directors and third parties acting on behalf of
us if such person acted in good faith and in a manner reasonably believed to
be in and not opposed to our best interest, and, with respect to any criminal
action or proceeding, the indemnified party had no reason to believe his or
her conduct was unlawful.
We have entered into indemnification agreements with our directors and
executive officers, in addition to indemnification provided for in our Amended
and Restated Bylaws, and intend to enter into indemnification agreements with
any new directors and executive officers in the future. The indemnification
agreements may require us, among other things, to indemnify our directors and
officers against certain liability that may arise by reason of their status or
service as directors and officers (other than liabilities arising from willful
misconduct of a culpable nature), to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified,
and to obtain directors and officers' insurance, if available on reasonable
terms.
Item 15. Recent Sales Of Unregistered Securities
Since inception, we have issued unregistered securities to a limited number
of persons, as described below. None of these transactions involved any
underwriters, underwriting discounts or commissions, or any public offering,
and we believe that each transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof,
Regulation D promulgated thereunder or Rule 701 pursuant to compensatory
benefit plans and contracts relating to compensation as provided under such
Rule 701. The recipients of securities in each such transaction represented
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates and instruments
issued in such transactions. All recipients had adequate access, through their
relationships with us, to information about us.
II-1
<PAGE>
(1) Since inception through March 31, 2000, (the most recent practicable
date) we granted stock options and restricted stock purchase rights to acquire
an aggregate of 25,693,184 shares of our common stock at prices ranging from
$0.00024 to $13.07 to employees, consultants and directors pursuant to our
1998 Stock Plan, as amended. These shares were issued in reliance on Section
4(2) and Rule 701 of the Securities Act solely to employees, consultants and
directors.
(2) From inception through March 31, 2000, we issued an aggregate of
12,472,468 shares of our common stock to employees, consultants and directors
pursuant to the exercise of options and restricted stock purchase rights
granted under our 1998 Stock Plan, as amended, for an aggregate consideration
of $3,075,919. These shares were issued in reliance on Section 4(2) and Rule
701 of the Securities Act solely to employees, consultants and directors.
(3) On March 23, 1998, we sold 7,636,669 shares of common stock to Michael
Bowles, Robert Wilmot and Navin Chaddha in exchange for $0.00024 per share for
an aggregate purchase price of $1,848.63. These shares were issued in reliance
on Section 4(2) of the Securities Act.
(4) On April 16, 1998, we sold 1,333,333 shares of Series A Preferred Stock
for $1.20 per share to Crosspoint Venture Partners 1997 and the Annabel J.
Montgomery Revocable Trust for an aggregate purchase price of $1,599,999.60.
These shares were issued in reliance on Section 4(2) of the Securities Act.
(5) On June 8, 1998 and July 21, 1998, we sold 3,248,904 shares of Series B
Preferred Stock for $1.65 per share to Accel VI L.P., Accel Internet Fund II
L.P., Accel Keiretsu VI L.P., Accel Investors '98 L.P., Crosspoint Venture
Partners 1997, Media Technology Ventures L.P., Media Technology Entrepreneurs
Fund, L.P., Annabel J. Montgomery Revocable Trust, G&H Partners and Stanford
University, for an aggregate purchase price of $5,360,500. These shares were
issued in reliance on Section 4(2) of the Securities Act.
(6) On November 24, 1998, we issued warrants to purchase 92,208 shares of
our Series B Preferred Stock to Comdisco, Inc., of which 27,273 have an
exercise price of $1.65 and 64,935 have an exercise price of $2.31. These
warrants were issued in reliance on Section 4(2) of the Securities Act.
(7) On February 3, 1999, we sold 3,591,816 shares of Series C Preferred
Stock for $3.42 per share to Accel VI L.P., Accel Internet Fund II L.P., Accel
Keiretsu VI L.P., Accel Investors '98 L.P., Crosspoint Venture Partners 1997,
Media Technology Ventures L.P., Media Technology Ventures Entrepreneurs Fund,
L.P., Intel Corporation, Comdisco, Inc., Annabel J. Montgomery Revocable
Trust, Montgomery & Associates LP, G&H Partners, Stanford University, Peter
Desnoes, Liberty IB, Michael Bowles, Robert Hawk, Chris Dier, Jeffrey and
Janna Rodgers Revocable Trust, Larry Goldstein, Allen Freener, Bruce Lawler,
Annabel J. Montgomery Trust, Crescendo World Fund, LLC and Eagle Ventures
World Fund, LLC for an aggregate purchase price of $12,284,010. These shares
were issued in reliance on Section 4(2) of the Securities Act.
(8) On September 1, 1999, we issued a warrant to purchase 6,396 shares of
Series C Preferred Stock at an exercise price of $3.42 to Comdisco, Inc. This
warrant was issued in reliance on Section 4(2) of the Securities Act.
(9) On October 14, 1999, we sold 7,072,732 shares of Series D Preferred
Stock for $5.96 per share to Crosspoint Venture Partners 1997, Accel VI L.P.,
Accel Internet Fund II L.P., Accel Keiretsu VI, L.P., Accel Investors '98
L.P., Media Technology Ventures L.P., Media Technology Ventures Entrepreneurs
Fund, L.P., Intel Corporation, Microsoft Corporation, Covad Communications
Investment Corp., Comdisco, Inc., Sony Corporation of America, Annabel J.
Montgomery Revocable Trust Dated, J.P. Morgan Direct Venture Capital
Institutional Investors LLC, J.P. Morgan Direct Venture Capital Private
Investors LLC, Crescendo World Fund, LLC, Eagle Ventures WF, LLC, Lunn-iBEAM,
LLC, Peter Desnoes, IRA, Robert C. Hawk, Len Grossi, Fred Seegal, WS
Investment Company 99B, Chris L. Dier, Bruce D. Lawler, Tom Gillis, Nils Lahr,
David Strehlow, Robert Davis and Philip Rosendale for an aggregate purchase
price of $42,153,482. These shares were issued in reliance on Section 4(2) of
the Securities Act and Regulation D promulgated thereunder.
(10) On October 14, 1999, we issued a warrant to purchase 218,120 shares of
Series D Preferred Stock at an exercise price of $5.96 to Microsoft
Corporation. This warrant was issued in reliance on Section 4(2) of the
Securities Act.
II-2
<PAGE>
(11) On December 3, 1999, we issued a warrant to purchase 25,268 shares of
Series D Preferred Stock at an exercise price of $5.96 to Comdisco, Inc. This
warrant was issued in reliance on Section 4(2) of the Securities Act.
(12) On January 25, 2000, we issued 908,820 shares of common stock to
Frederic Seegal for a purchase price of $4.84 per share for an aggregate
purchase price of $4,395,600. These shares were issued in reliance on Section
4(2) of the Securities Act.
(13) On February 15, 2000, we issued 2,181,818 shares of our Series E
Preferred Stock to Pacific Century CyberWorks Limited at a per share purchase
price of $13.75 for an aggregate consideration of $29,999,997. These shares
were issued in reliance on Section 4(2) of the Securities Act.
(14) On February 25, 2000, we issued a warrant to purchase 537,634 shares
of common stock at an exercise price of $9.30 (assuming an initial public
offering price of $10.00 per share) to America Online, Inc. This warrant was
issued in reliance on Section 4(2) of the Securities Act.
(15) On February 28, we issued 363,636 shares of our Series E Preferred
Stock to America Online, Inc. at a per share purchase price of $13.75 for an
aggregate consideration of $5,000,000. These shares were issued in reliance on
Section 4(2) of the Securities Act.
(16) On March 21, 2000 we entered into an Agreement and Plan of Merger
pursuant to which we will acquire webcasts.com. In connection with the
acquisition, we will issue 8,004,528 shares of our Series F Preferred Stock in
exchange for outstanding shares of webcasts.com capital stock. The issuance of
these shares will be completed in reliance of Section 4(2) of the Securities
Act and Regulation D promulgated thereunder.
(17) On March 16, 2000 we entered into an agreement with The Walt Disney
Company pursuant to which The Walt Disney Company has agreed to purchase
$10,000,000 of our Series G Preferred Stock prior to the closing of this
offering at a price to the public in the offering. Based on an assumed public
offering price of $10.00 per share, The Walt Disney Company will purchase
1,000,000 shares of our Series G Preferred Stock. These shares will be issued
in reliance on Section 4(2) of the Securities Act.
(18) On April 10, 2000 we entered into an agreement with Excite@Home
pursuant to which Excite@Home has agreed to purchase $5,000,000 of our Series
H Preferred Stock prior to the closing of this offering at a price to the
public in the offering less underwriting discounts and commissions. Based on
an assumed public offering price of $10.00 per share, Excite@Home will
purchase 537,634 shares of our Series H Preferred Stock. These shares will be
issued in reliance on Section 4(2) of the Securities Act.
We relied upon the securities exemptions for the issuances listed under
footnotes (3)-(15), (17) and (18) above based on the fact that there was no
general solicitation or advertising for these issuances. These issuances were
made to a limited number of purchasers, each of whom we believe was an
accredited investor or, if not, had sufficient financial experience and
resources to evaluate the merits and risks of the investment. We believe each
investor possessed sufficient financial sophistication to participate in such
private financings.
We are relying upon the securities exemption for the issuance listed under
footnote (16) above based on the fact that there was no general solicitation
or advertising for the issuance. There was less than 35 non-accredited
webcasts.com shareholders, each of whom we believe alone or with his purchaser
representative possessed sufficient financial sophistication to participate in
this issuance. In addition, we provided all webcasts.com shareholders with
information regarding our company as required by Rule 506 of Regulation D.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Relationships and Related Transactions" in the form of prospectus included
herein.
II-3
<PAGE>
Item 16. Exhibits And Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger, dated March 21, 2000, by and among
the Registrant, WAC Acquisition Corporation, and Webcasts.com, Inc.
3.1** Restated Certificate of Incorporation of the Registrant.
3.2** Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed prior to the closing of this offering.
3.3** By-Laws of the Registrant.
3.4** Form of Amended and Restated By-Laws of the Registrant, to be
effective upon the closing of this offering.
4.1* Form of Registrant's Common Stock certificate.
4.2** Amended and Restated Investors' Rights Agreement dated February 15,
2000.
4.3** Series D Stock Purchase Warrant dated October 14, 1999 held by
Microsoft Corporation.
4.4** Amended and Restated Voting Agreement dated February 15, 2000.
4.5** Voting Agreement with Liberty IB, Inc. dated February 12, 1999.
4.6** Stock Subscription Warrant dated February 25, 2000 held by America
Online, Inc.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati Professional
Corporation.
10.1** Form of Indemnification Agreement entered into by the Registrant
with each of its directors and executive officers.
10.2** Employment Agreement dated January 12, 1999 between the Registrant
and Peter Desnoes.
10.3** 1998 Stock Plan and forms of agreement thereunder.
10.4** 2000 Stock Plan and forms of agreement thereunder.
10.5** 2000 Employee Stock Purchase Plan.
10.6** 2000 Director Option Plan.
10.7** Sublease Agreement dated July 6, 1998 between Netscape
Communications, Inc. and the Registrant with respect to
Registrant's facilities in Sunnyvale, California.
10.8**+ iBEAM and Microsoft Broadband Streaming Initiative Agreement dated
September 20, 1999.
10.9**+ iBEAM Network Membership Agreement by and between the Registrant
and Covad Communications Group dated October 5, 1999.
10.10**+ Teleport Services Agreement dated December 13, 1999 between
Williams Vyvx Services, a business unit of Williams Communications,
Inc., and the Registrant.
10.11**+ System Services Agreement dated January 27, 2000 between America
Online, Inc. and the Registrant.
10.12**+ iBEAM Network Membership Agreement by and between the Registrant
and NorthPoint Communications, Inc. dated September 30, 1999.
10.13** Employment Letter between the Registrant and Chris Dier dated
November 18, 1998.
10.14** Employment Letter between the Registrant and Jeremy Zullo dated
July 9, 1999.
10.15** Employment Letter between the Registrant and Nils Lahr dated July
9, 1999.
10.16 Consulting Agreement between the Registrant and Frederic Seegal
dated January 25, 2000.
10.17 Restricted Stock Purchase Agreement between the Registrant and
Frederic Seegal dated January 25, 2000.
10.18+ Excite@Home - iBEAM Internet Services Agreement by and between the
Registrant and At Home Corporation dated April 5, 2000.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of KPMG LLP, Independent Auditor.
23.3* Consent of Counsel. Reference is made to Exhibit 5.1.
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
Item 17. Undertakings
We hereby undertake to provide to the underwriters at the closing specified
in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification by us for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of iBEAM pursuant to the provisions referenced in Item 14 of this Registration
Statement or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by a director, officer, or
controlling person of iBEAM in the successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered hereunder, we 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
Securities Act and will be governed by the final adjudication of such issue.
We hereby undertake that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by iBEAM pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Sunnyvale, State of California, on the 13th day of April, 2000.
iBEAM BROADCASTING CORPORATION
By: /s/ Chris Dier
__________________________________
Chris Dier
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Peter Desnoes* President and Chief April 13, 2000
____________________________________ Executive Officer and
Peter Desnoes Chairman of the Board
(Principal Executive
Officer)
/s/ Chris Dier Vice President and Chief April 13, 2000
____________________________________ Financial Officer
Chris Dier (Principal Financial and
Accounting Officer)
Barry Baker* Director April 13, 2000
____________________________________
Barry Baker
Frederic Seegal* Director April 13, 2000
____________________________________
Frederic Seegal
Richard Shapero* Director April 13, 2000
____________________________________
Richard Shapero
Peter Wagner* Director April 13, 2000
____________________________________
Peter Wagner
Robert Wilmot* Director April 13, 2000
____________________________________
Robert Wilmot
</TABLE>
*By: /s/ Chris Dier
____________________________
Chris Dier
Attorney-in-fact
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger, dated March 21, 2000, by and among the
Registrant, WAC Acquisition Corporation, and Webcasts.com, Inc.
3.1** Restated Certificate of Incorporation of the Registrant.
3.2** Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed prior to the closing of this offering.
3.3** By-Laws of the Registrant.
3.4** Form of Amended and Restated By-Laws of the Registrant, to be
effective upon the closing of this offering.
4.1* Form of Registrant's Common Stock certificate.
4.2** Amended and Restated Investors' Rights Agreement dated February 15,
2000.
4.3** Series D Stock Purchase Warrant dated October 14, 1999 held by
Microsoft Corporation.
4.4** Amended and Restated Voting Agreement dated February 15, 2000.
4.5** Voting Agreement with Liberty IB, Inc. dated February 12, 1999.
4.6** Stock Subscription Warrant dated February 25, 2000 held by America
Online, Inc.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati Professional Corporation.
10.1** Form of Indemnification Agreement entered into by the Registrant with
each of its directors and executive officers.
10.2** Employment Agreement dated January 12, 1999 between the Registrant
and Peter Desnoes.
10.3** 1998 Stock Plan and forms of agreement thereunder.
10.4** 2000 Stock Plan and forms of agreement thereunder.
10.5** 2000 Employee Stock Purchase Plan.
10.6** 2000 Director Option Plan.
10.7** Sublease Agreement dated July 6, 1998 between Netscape
Communications, Inc. and the Registrant with respect to Registrant's
facilities in Sunnyvale, California.
10.8**+ iBEAM and Microsoft Broadband Streaming Initiative Agreement dated
September 20, 1999.
10.9**+ iBEAM Network Membership Agreement by and between the Registrant and
Covad Communications Group dated October 5, 1999.
10.10**+ Teleport Services Agreement dated December 13, 1999 between Williams
Vyvx Services, a business unit of Williams Communications, Inc., and
the Registrant.
10.11**+ System Services Agreement dated January 27, 2000 between America
Online, Inc. and the Registrant.
10.12**+ iBEAM Network Membership Agreement by and between the Registrant and
NorthPoint Communications, Inc. dated September 30, 1999.
10.13** Employment Letter between the Registrant and Chris Dier dated
November 18, 1998.
10.14** Employment Letter between the Registrant and Jeremy Zullo dated July
9, 1999.
10.15** Employment Letter between the Registrant and Nils Lahr dated July 9,
1999.
10.16 Consulting Agreement between the Registrant and Frederic Seegal dated
January 25, 2000.
10.17 Restricted Stock Purchase Agreement between the Registrant and
Frederic Seegal dated January 25, 2000.
10.18+ Excite@Home - iBEAM Internet Services Agreement by and between the
Registrant and At Home Corporation dated April 5, 2000.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of KPMG LLP, Independent Auditor.
23.3* Consent of Counsel. Reference is made to Exhibit 5.1.
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested.
<PAGE>
Exhibit 2.1
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
iBEAM BROADCASTING CORPORATION
WAC ACQUISITION CORPORATION
AND
WEBCASTS.COM, INC.
MARCH 21, 2000
<PAGE>
EXECUTION VERSION
TABLE OF CONTENTS
Page
----
1. Certain Definitions................................................... 2
2. The Merger............................................................ 7
2.1 Merger; Effective Time........................................... 7
2.2 Closing.......................................................... 8
2.3 Effect of the Merger............................................. 8
3. Effect of Merger on the Capital Stock of the Constituent
Corporations; Exchange of Certificates; Additional Payments........... 8
3.1 Exchange Ratio.................................................... 8
3.2 Company Options................................................... 10
3.3 Adjustments to Parent Series F Preferred Stock.................... 10
3.4 Fractional Shares................................................. 11
3.5 Exchange of Certificates.......................................... 11
3.6 Dissenting Shares................................................. 11
3.7 Contingent Consideration.......................................... 13
3.8 Further Action.................................................... 14
4. Securities Act Compliance.............................................. 16
5 Representations and Warranties of the Company.......................... 17
5.1 Organization, Qualification, and Corporate Power................. 17
5.2 Authorization.................................................... 17
5.3 Capitalization................................................... 18
5.4 Noncontravention................................................. 19
5.5 Fees............................................................. 19
5.6 Financial Statements............................................. 20
5.7 Subsidiaries..................................................... 20
5.8 Title to Assets.................................................. 20
5.9 Events Subsequent to Most Recent Fiscal Period End............... 21
5.10 Undisclosed Liabilities.......................................... 23
5.11 Legal Compliance................................................ 24
5.12 Tax Matters..................................................... 24
5.13 Properties...................................................... 26
5.14 Intellectual Property........................................... 26
5.15 Tangible Assets................................................. 30
5.16 Operation of Service............................................ 30
5.17 Contracts....................................................... 30
-i-
<PAGE>
EXECUTION VERSION
TABLE OF CONTENTS
(continued)
Page
----
5.18 Notes and Accounts Receivable.................................. 33
5.19 Power of Attorney.............................................. 33
5.20 Insurance...................................................... 33
5.21 Litigation..................................................... 34
5.22 Restrictions on Business Activities............................ 34
5.23 Product Warranty............................................... 34
5.24 Employees...................................................... 34
5.25 Employee Matters and Benefits.................................. 35
5.26 Guaranties..................................................... 39
5.27 Environment, Health, and Safety................................ 41
5.28 Certain Business Relationships With the Company................ 41
5.29 No Adverse Developments........................................ 41
5.30 Private Placement Memirandum................................... 42
5.31 Dividends...................................................... 41
5.32 Borrowings..................................................... 41
5.33 Full Disclosure................................................ 42
6. Representations and Warranties of Parent and Sub..................... 42
6.1 Organization, Qualification, and Corporate Power............... 42
6.2 Authorization.................................................. 42
6.3 Capitalization................................................. 43
6.4 Noncontravention............................................... 44
6.5 Parent Financial Statements.................................... 45
6.6 Patents, Trademarks, etc....................................... 45
6.7 Material Contracts and Commitments............................. 45
6.8 Litigation..................................................... 46
6.9 Brokers' Fees.................................................. 46
6.10 Intellectual Property.......................................... 46
6.11 Subsidiaries................................................... 49
6.12 Tax Matters.................................................... 50
6.13 Tangible Assets................................................ 51
6.14 Notes and Accounts Receivable.................................. 51
6.15 Power of Attorney.............................................. 51
6.16 Insurance...................................................... 51
6.17 Restrictions on Business Activities............................ 52
6.18 Product Warranty............................................... 52
6.19 Employees...................................................... 52
6.20 Employee Matters and Benefits.................................. 52
-ii-
<PAGE>
EXECUTION VERSION
TABLE OF CONTENTS
(continued)
Page
----
6.21 Guaranties..................................................... 57
6.22 Environment. Health and Safety................................. 57
6.23 Certain Business Relationships With Parent..................... 58
6.24 Federal Securities Filings..................................... 58
6.25 Undisclosed Liabilities........................................ 58
6.26 Full Disclosure................................................ 58
7. Pre-Closing Covenants................................................ 58
7.1 General........................................................ 58
7.2 Notices and Consents........................................... 59
7.3 Operation of Business.......................................... 59
7.4 Access to Information.......................................... 59
7.5 Notice of Developments......................................... 60
7.6 Shareholder Approval........................................... 60
7.7 No Solicitation................................................ 60
7.8 Confidentiality................................................ 61
7.9 FIRPTA Compliance.............................................. 62
7.10 Confidentiality and Assignment Compliance...................... 62
7.11 Additional Documents and Further Assurances.................... 62
8. Post-Closing Covenants............................................... 62
8.1 General........................................................ 62
8.2 Litigation Support............................................. 62
8.3 Release of Guaranty............................................ 62
8.4 Statutory Indemnification...................................... 63
8.5 Directed Share Program......................................... 63
9. Conditions to Obligations to Close................................... 63
9.1 Conditions to Parent's and Sub's Obligation to Close........... 63
9.2 Conditions to the Company's Obligations........................ 66
10. Survival of Representations, Warranties and Covenants................ 67
11. Termination.......................................................... 67
11.1 Termination of the Agreement................................... 67
11.2 Notice of Termination; Effect of Termination................... 69
11.3 Fees and Expenses.............................................. 69
-iii-
<PAGE>
EXECUTION VERSION
TABLE OF CONTENTS
(continued)
Page
----
12. Miscellaneous........................................................ 70
12.1 Press Releases and Public Disclosure........................... 70
12.2 No Third-Party Beneficiaries................................... 70
12.3 Entire Agreement and Modification.............................. 70
12.4 Succession and Assignment...................................... 70
12.5 Counterparts................................................... 70
12.6 Headings....................................................... 70
12.7 Notices........................................................ 71
12.8 Governing Law.................................................. 72
12.9 Forum Selection; Consent to Jurisdiction....................... 72
12.10 Waivers........................................................ 72
12.11 Severability................................................... 73
12.12 Construction................................................... 73
12.13 Company Disclosure Schedule.................................... 73
12.14 Attorneys' Fees................................................ 73
12.15 Further Assurances............................................. 74
12.16 Time of Essence................................................ 74
-iv-
<PAGE>
EXECUTION VERSION
EXHIBITS
Exhibit A Certificate of Merger
Exhibit B Form of Voting Agreement
Exhibit C Form of Second Amended and Restated Investors Rights Agreement
Exhibit D Shareholder Certificate
Exhibit E Opinion of Company Counsel
Exhibit F Form of Release
Exhibit G Opinion of Parent Counsel
Exhibit H Restated Certificate of Incorporation of Parent authorizing
Series F Preferred Stock
Exhibit I Exchange Ratio Calculation
Exhibit J Promissory Note
Exhibit K Revenue Plan
Company Disclosure Schedule
Parent Disclosure Schedule
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<PAGE>
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is entered into as of
March 21, 2000, by and among iBEAM Broadcasting Corporation, a Delaware
corporation ("Parent"), WAC Acquisition Corporation, an Oklahoma corporation
and wholly owned subsidiary of Parent ("Sub"), and webcasts.com, Inc., an
Oklahoma corporation (the "Company"). Parent, the Company and Sub are sometimes
referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
A. Pursuant to the Certificate of Merger in the form attached hereto as
Exhibit A (the "Certificate of Merger") providing for the merger of the Company
with and into Sub (the "Merger") pursuant to the Oklahoma General Corporation
Act, the shares and warrants of Company Capital Stock (as defined in Section 2.1
hereof) issued and outstanding immediately prior to the Effective Time and all
warrants for the purchase of Company Capital Stock will be exchanged for shares
of Parent Series F Preferred Stock (as defined in Section 2.1 hereof) and all
options to acquire capital stock of the Company will be converted into options
to acquire Series F Preferred Stock of Parent.
B. The Parties desire to enter into this Agreement for the purpose of
setting forth certain representations, warranties and covenants made as an
inducement to the execution and delivery of this Agreement, and to serve as
conditions precedent to the consummation of the Merger.
C. The respective Boards of Directors of Parent, Sub and the Company have
approved and adopted this Agreement.
D. As a material inducement to Parent and Sub, certain shareholders of the
Company are entering into voting agreements in the form of Exhibit B hereto (the
"Voting Agreements") in the manner provided in Section 7.6.
NOW, THEREFORE, in consideration of these premises and of the mutual
agreements, representations, warranties and covenants herein contained, the
Parties do hereby agree as follows:
<PAGE>
EXECUTION VERSION
AGREEMENT
1. Certain Definitions. As used in this Agreement, the following terms
have the following meanings (terms defined in the singular to have a correlative
meaning when used in the plural and vice versa). Certain other terms are defined
in the text of this Agreement.
"Affiliate" of a Person means any other Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with such Person.
"Best Efforts" means the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible.
"Breach" of a representation, warranty, covenant, obligation, or other
provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
other occurrence or circumstance that is or was inconsistent with such
representation, warranty, covenant, obligation, or other provision, and the term
"Breach" means any such inaccuracy, breach, failure, claim, occurrence, or
circumstance.
"Business" means (i) in the case of Parent, the business of providing
an Internet broadcast network to deliver streaming media, and (ii) in the case
of the Company, the business of providing interactive broadcasting that enables
Web site and content owners to provide high quality streaming of live and on-
demand audio and video content over the Internet.
"Business Condition" means the current business, financial condition,
results of operations and assets of a corporate entity.
"Company Aggregate Diluted Number" means the sum of (A) the total number of
shares of Company Capital Stock that are issued and outstanding immediately
prior to the date of this Agreement and (B) the total number of shares of
Company Capital Stock issuable upon conversion or exercise in full of all
convertible securities or options (vested and unvested), warrants or other
rights to acquire Company Common Stock that are outstanding immediately prior to
the date of this Agreement.
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<PAGE>
EXECUTION VERSION
"Company Aggregate Share Number" means the sum of the total number of
shares of Company Capital Stock that are issued and outstanding immediately
prior to the date of this Agreement.
"Company Disclosure Schedule" means the Company Disclosure Schedule
delivered by the Company to the Parent concurrently with the execution and
delivery of this Agreement, which specifically references any exceptions to the
representations and warranties of the Company set forth in Section 5 hereof, and
containing paragraphs numbered to correspond to the subsections of Section 5 to
which the respective exceptions apply.
"Company Intellectual Property" means any Technology and Intellectual
Property Rights including the Company Registered Intellectual Property Rights
(as defined below) that are owned (in whole or in part) by or exclusively
licensed to the Company.
"Company Shareholders" means the shareholders of record of the Company
immediately prior to the Effective Time.
"Contemplated Transactions" means all of the transactions contemplated
by this Agreement, including:
(a) the merger of the Company with and into Sub, the issuance by Parent of
the Parent Series F Preferred Stock, and Parent's acquisition and ownership of
the Company and exercise of control over the Company;
(b) the execution, delivery, and performance of the Employment Agreements
and the Voting Agreements;
(c) the performance by Parent, the Company and Sub of their respective
covenants and obligations under this Agreement.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation,
retirement plan, severance plan or similar plan or arrangement; (b) Employee
Pension Benefit Plan; (c) Employee Welfare Benefit Plan; and (d) any other
nonqualified plan providing welfare benefits, including but not limited to
medical, dental, life insurance and disability benefits.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Sec. 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Sec. 3(1).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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<PAGE>
EXECUTION VERSION
"Exchange Ratio" means the quotient obtained by dividing (x) the
Merger Consideration as of the date of the computation by (y) the Company
Aggregate Diluted Number as of the date of the computation.
"Governmental Body" means any:
(a) nation, province, state, county, city, town, village, district, or
other jurisdiction of any nature;
(b) federal, provincial, state, local, municipal, foreign, or other
government;
(c) governmental or quasi-governmental authority of any nature (including
any governmental agency, branch, department, official, or entity and any court
or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.
"Gross Negligence" consists of an intentional act, or the failure to
perform a duty, with reckless disregard for the consequences of such act or
failure.
"Intellectual Property Rights" any or all of the following and all rights
in, arising out of, or associated therewith: (i) all United States and foreign
patents and utility models and applications therefor and all reissues,
divisions, re-examinations, renewals, extensions, provisionals, continuations
and continuations-in-part thereof, and equivalent or similar rights anywhere in
the world in inventions and discoveries including without limitation invention
disclosures ("Patents"); (ii) all trade secrets and other rights in know-how and
confidential or proprietary information; (iii) all copyrights, copyrights
registrations, moral rights, rights of authorship and applications therefor and
all other rights corresponding thereto throughout the world ("Copyrights"); (iv)
all industrial designs and any registrations and applications therefor
throughout the world; (v) all rights in World Wide Web addresses and domain
names and applications and registrations therefor; (vi) all trade names, logos,
common law trademarks and service marks, trademark and service mark
registrations and applications therefor and all goodwill associated therewith
throughout the world ("Trademarks"); and (vii) any similar, corresponding or
equivalent rights to any of the foregoing anywhere in the world.
"Knowledge" --an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
-4-
<PAGE>
EXECUTION VERSION
(b) a prudent individual in such individual's position could be expected
to discover or otherwise become aware of such fact or other matter in the course
of conducting a reasonably comprehensive investigation concerning the existence
of such fact or other matter.
(c) Parent will be deemed to have "Knowledge" of a particular fact or
other matter if an officer or director of Parent has Knowledge of such fact or
other matter. The Company will be deemed to have "Knowledge" of a particular
fact or other matter if an officer or director of the Company has Knowledge of
such fact or other matter.
"Legal Requirements" means any federal, state, local, municipal, foreign or
other law, statute, constitution, principle, of common law, resolution,
ordinance, code, edict, decree, rule, regulation, ruling or requirement issued,
enacted, adopted, promulgated, implemented or otherwise put into effect by or
under the authority of any Governmental Body.
"Material Adverse Effect" shall mean as to either of Parent or the
Company, a material adverse effect on the current business, financial condition,
results of operations and assets of such Person taken as a whole (other than as
a result of (i) general economic or industry conditions or conditions in such
Person's Business, or (ii) performance by such Person of its obligations under,
or the taking of any actions contemplated or permitted by, this Agreement, (iii)
changes in law or generally accepted accounting principles, or (iv) the
announcement or pendency of any of the Contemplated Transactions).
"Merger Consideration" means shares of Parent Series F Preferred Stock
as of the date of computation equal to (the Parent Aggregate Diluted Number/.92)
- --Parent Aggregate Diluted Number.
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37) and
Code Sec. 414(f).
"Ordinary Course of Business": an action taken by either of Parent or
the Company will be deemed to have been taken in the "Ordinary Course of
Business" only if:
(a) such action is consistent with the past practices of such Party and is
taken in the ordinary course of the day-to-day operations of such Party; and
(b) such action is not required to be authorized by the board of directors
of such Party or any committee or delegee thereof.
-5-
<PAGE>
EXECUTION VERSION
"Parent Aggregate Diluted Number" means the sum of (A) the total
number of shares of capital stock of the Parent that are issued and outstanding
as of the date of computation and (B) the total number of shares of capital
stock of the Parent issuable upon conversion or exercise in full of all
convertible securities or options (vested and unvested), warrants or other
rights to acquire common stock of the Parent that are outstanding as of the date
of computation.
"Parent Disclosure Schedule" means the Parent Disclosure Schedule delivered
by the Parent to the Company concurrently with the execution and delivery of
this Agreement, which specifically references any exceptions to the
representations and warranties of Parent set forth in Section 6 hereof, and
containing paragraphs numbered to correspond to the subsections of Section 6 to
which the respective exceptions apply.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Qualifying Parent IPO" means a registered underwritten initial public
offering of the Parent with gross proceeds from the public of at least $50
million.
"Registered Intellectual Property Rights" means all United States,
international and foreign: (i) Patents, including applications therefor; (ii)
registered Trademarks, applications to register Trademarks, including intent-to-
use applications, or other registrations or applications related to Trademarks;
(iii) Copyright registrations and applications to register Copyrights; (iv) mask
work registrations and applications to register mask works; and (v) any other
Technology that is the subject of an application, certificate, filing,
registration or other document issued by, filed with, or recorded by, any state,
government or other public authority at any time.
"Representatives" means, with respect to a Person, that Person's officers,
directors, employees, accountants, counsel, investment bankers, financial
advisors, shareholders and other representatives.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money, (e) municipal and zoning ordinances, and
(f) easements of public utilities.
"SEC" means the United States Securities and Exchange Commission.
-6-
<PAGE>
EXECUTION VERSION
"Technology" shall mean any or all of the following: (i) works of
authorship including, without limitation, computer programs, source code and
executable code, whether embodied in software, firmware or otherwise,
documentation, designs, files, net lists, records, data and mask works; (ii)
inventions (whether or not patentable), improvements, and technology; (iii)
proprietary and confidential information, including technical data and customer
and supplier lists, trade secrets and know how; (iv) databases, data
compilations and collections and technical data; (v) logos, trade names, trade
dress, trademarks, service marks; (vi) World Wide Web addresses, domain names
and sites; (vii) tools, methods and processes; and (viii) all instantiations of
the foregoing in any form and embodied in any media.
2. The Merger.
2.1 Merger; Effective Time. Subject to the terms and conditions of
this Agreement and the applicable provisions of the Oklahoma General Corporation
Act ("Oklahoma Corporation Law"), the Company will be merged with and into Sub
(the "Merger"), the separate existence of the Company shall cease and Sub shall
continue as the surviving corporation and as a wholly owned subsidiary of
Parent. In accordance with the provisions of this Agreement, the Certificate of
Merger shall be filed with the Oklahoma Secretary of State in accordance with
Oklahoma Corporation Law and: (a) each issued and outstanding share of common
stock of the Company, each outstanding warrant for issuance of common stock of
the Company (it being acknowledged and agreed by the Parties that (i) warrants
for stock of the Company may be exercised at any time between the date of this
Agreement and the Effective Time, notwithstanding any provision applicable to
any such warrant that would otherwise prohibit exercise of the warrant during
that time period, and (ii) any warrant for stock of the Company that is not
exercised as of the Effective Time shall receive an amount of Merger
Consideration which reflects a discount for any unpaid exercise price applicable
to such warrant), and each issued and outstanding share of preferred stock of
the Company convertible into common stock of the Company (collectively "Company
Capital Stock"), shall be converted into shares of Series F Preferred Stock,
$0.0001 par value, of Parent ("Parent Series F Preferred Stock") in the manner
contemplated by Section 3; and (b) each share of the Company's Series A, Series
B and Series C Preferred Stock ("Company Redeemable Preferred Stock") shall be
converted into the promissory notes (the "Preferred Notes") in the aggregate
principal amount (the "PN Amount") of Three Million Dollars ($3,000,000.00) in
the form of Exhibit J. The Merger shall become effective at the time of the
acceptance of the Certificate of Merger by the Oklahoma Secretary of State (the
date of such acceptance being hereinafter referred to as the "Effective Date"
and the time of such acceptance being hereinafter referred to as the "Effective
Time"). The Parent Series F Preferred Stock shall have the rights and
preferences set forth in Exhibit H.
-7-
<PAGE>
EXECUTION VERSION
2.2 Closing. The closing of the Merger (the "Closing") will take
place at the offices of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, 650 Page Mill Road, Palo Alto, California 94304 (i) on April 1,
2000 at 10:00 a.m. California time or on a date and at a time as mutually agreed
to by Parent and the Company as soon as practicable (and in any event within two
business days) after the date on which the last condition set forth in Section 9
hereof shall have been satisfied or waived, or (ii) at such other time as Parent
and the Company may mutually agree (the date on which the Closing occurs being
referred to as the "Closing Date").
2.3 Effect of the Merger. At the Effective Time, (i) the separate
existence of the Company shall cease and the Company shall be merged with and
into Sub (Sub and the Company are sometimes referred to herein as the
"Constituent Corporations" and Sub after the Merger is sometimes referred to
herein as the "Surviving Corporation"), (ii) the Certificate of Incorporation of
Sub in effect immediately prior to the Effective Time shall be the Certificate
of Incorporation of the Surviving Corporation; provided, however, that (A)
Article I of the Certificate of Incorporation of the Surviving Corporation shall
be amended to read as follows: "The name of the corporation is webcasts.com,
Inc.," and (B) Article II of the Certificate of Incorporation of the Surviving
Corporation shall be amended to read as follows: "Registered Office: The name
and street address of the registered agent of this corporation in the State of
Oklahoma and the street address of the registered office of this corporation in
the State of Oklahoma, which is the same as the street address of its registered
agent, are: Scott Klososky, webcasts.com, Inc., 4100 Perimeter Center Drive,
Oklahoma City, Oklahoma 73112," (iii) the Bylaws of Sub in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation,
(iv) the directors of Sub shall be the directors of the Surviving Corporation
until their successors shall have been duly elected and qualified, (v) the
officers of Sub shall be the initial officers of the Surviving Corporation until
their successors have been duly appointed and qualified, and (vi) the Merger
shall, from and after the Effective Time, have all the effects provided by
applicable law.
3. Effect of Merger on the Capital Stock of the Constituent Corporations;
Exchange of Certificates; Additional Payments.
3.1 Exchange Ratio.
(a) Initial Exchange. As of the Effective Time: (i) each share
of Company Capital Stock (other than the Company's Series D Preferred Shares,
options or warrants convertible into the Company's Series D Preferred Shares,
and Company Options (as defined in Section 3.2, below) that is issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the Company Shareholders, be
converted into a number of shares of Parent Series F Preferred Stock equal to
the Exchange Ratio as of the Effective Time; (ii) each share of the Company's
Series D Preferred Shares and any warrant convertible into the Company's Series
D Preferred Shares that is issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the Company
-8-
<PAGE>
EXECUTION VERSION
Shareholders, be converted into a number of shares of Parent Series F Preferred
Stock equal to the Exchange Ratio as of the Effective Time multiplied by ten
(10) and reduced to reflect the applicable option or warrant exercise price; and
(iii) in lieu of any right of redemption, each share of Company Redeemable
Preferred Stock that is issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the Company Shareholders, be converted into a Preferred Note equal to a
proportionate share of the PN Amount based on the liquidation preference for
such shares of Company Redeemable Preferred Stock held by each holder.
Notwithstanding the foregoing, each warrant for Company stock which as of the
Effective Date has not been exercised, whether such warrant is for Company
common stock or any series of Company preferred stock, shall receive an amount
of Merger Consideration which reflects a discount for any unpaid exercise price
applicable to such warrant. The Parties agree that as of the date of this
Agreement the Exchange Ratio and the calculation thereof is as set forth in
Exhibit I. Before applying the Exchange Ratio for the Effective Time pursuant to
any provision of this Section 3, each component thereof which is defined in this
Agreement will, subject to the provisions of Section 3.3, be recalculated as of
such time to reflect changes in the amount of issued and outstanding capital
stock, options and warrants for capital stock of Parent and such Exchange Ratio
will be used to compute the initial Merger Shares to be issued to the holders of
the Company Capital Stock as of the Effective Time.
(b) Final Exchange. Within five (5) days after the IPO, the
parties will recalculate the Exchange Ratio as of the time immediately prior to
the IPO (the "Final Exchange Ratio"). The Parent will deliver by virtue of the
Merger and without any action by the Company Shareholders the number of
additional shares of the Parent's common stock necessary to cause each Company
Shareholder holding Company Capital Stock to receive shares of Common Stock
(including Common Stock received on the conversion of the Parent Series F
Preferred Stock) that such Company Shareholder would have received if the Final
Exchange Ratio had been used to compute the shares received under clauses (i)
and (ii) of Section 3(a).
(c) Calculations. Notwithstanding the provisions of Sections
3.1(a) and Section 3.1(b), in calculating the Exchange Ratio, options issued to
the employees of the Company or the Parent between the date of this Agreement
and the Effective Time will only be taken into account to the extent that such
options granted by the Parent exceed One Million Two Hundred Thousand
(1,200,000) shares with respect to options granted to a newly hired Chief
Operational Officer of Parent and Five Hundred Thousand (500,000) shares with
respect to other grants, and that such options granted by the Company exceed
Twenty Five Thousand (25,000) shares. Company hereby represents and warrants to
Parent and Sub that as of the Effective Time there shall be no capital stock of
Company, or any security convertible into capital stock of the Company, which
carries any right of redemption by the holder thereof with the exception of
Company's Redeemable Preferred Stock
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<PAGE>
EXECUTION VERSION
3.2 Company Options. In addition to the provisions of Section 3.1,
at the Effective Time, each of the then outstanding option to purchase Company
Capital Stock, whether vested or unvested, (collectively, the "Company Options")
(including all outstanding options granted under the Company's 1999 Plan (the
"Company Plan"), and any individual non-plan options not converted pursuant to
Section 3.1) and the Company Plan will by virtue of the Merger, and without any
further action on the part of any holder thereof, be assumed by Parent and
converted into options to purchase that whole number of shares of Parent Series
F Preferred Stock determined by multiplying the number of shares of Company
Capital Stock subject to such Company Option at the Effective Time by the
Exchange Ratio, at an exercise price per share of Parent Series F Preferred
Stock equal to the exercise price per share of such Company Option immediately
prior to the Effective Time divided by the Exchange Ratio, rounded up to the
nearest cent. If the foregoing calculation results in an assumed Company Option
being exercisable for a fraction of a share of Parent Series F Preferred Stock,
then the number of shares of Parent Series F Preferred Stock subject to such
option will be rounded to the nearest whole number of shares. Except as
expressly stated otherwise in this Agreement, the Parties agree that the term,
exercisability, vesting schedule, vesting commencement date, status as an
"incentive stock option" under Section 422 of the Code, if applicable, and all
other terms and conditions of the Company Options will otherwise be unchanged as
a result of the transactions contemplated by this Agreement. Without limiting
the foregoing, Company further hereby represents and warrants to Parent that no
Company Options shall vest, nor shall the vesting schedule of any Company
Options accelerate, as a result of the transactions contemplated by this
Agreement, except as follows (the "Accelerated Stock Rights"): (a) 75,000
Company Options held by Arthur Klebanoff; (b) 75,000 Company Options held by
Caroline Vanderlip; (c) 20,000 Company Options held by Allison Dollar; (d)
75,000 Company Options held by Michael Grandfield; (e) 250,000 Company Options
held by Robert Rankin; and (f) 250,000 Company Options held by Vaughn Rachal
(unless modified by amendment to Mr. Rachal's employment agreement). Company
hereby represents and warrants to Parent that none of the aforementioned
persons, other than Robert Rankin or Vaughn Rachal, is now or will be as of the
Effective Time an employee of Company. Parent agrees that for all Company
Options which, pursuant to the Merger are converted into options to acquire
Parent Series F Preferred Stock, the Common Stock into which the resulting
shares of Parent Series F Preferred Stock are convertible will be included by
Parent in any S-8 filing made by Parent with the SEC and as a result all of such
Common Stock will freely salable without restriction or further registration.
Within five (5) days after the IPO, Parent shall recalculate the conversion of
the Company Options by applying the Final Exchange Ratio, such that each Company
Option holder is in the same position such holder would have been in had the
Final Exchange Ratio been applied at Effective Time (including without
limitation an adjustment of the Exercise Price using the Final Exchange Ratio).
-10-
<PAGE>
EXECUTION VERSION
3.3 Adjustments to Parent Series F Preferred Stock. Subject to the
provisions of Section 3.1, the number of shares of Parent Series F Preferred
Stock issuable hereunder shall be adjusted to reflect fully the effect of any
stock split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into Parent Series F Preferred Stock or
Company Capital Stock), reorganization, recapitalization or other like change
with respect to Parent Series F Preferred Stock or Company Capital Stock
(exclusive of options) occurring after the date hereof.
3.4 Fractional Shares. No fractional shares of Parent Series F
Preferred Stock shall be issued in the Merger. In lieu thereof, any fractional
share shall be rounded up to the nearest whole share of Parent Series F
Preferred Stock.
3.5 Exchange of Certificates.
(a) Parent to Provide Parent Series F Preferred Stock. The
Secretary of Parent shall act as the exchange agent (the "Exchange Agent") in
the Merger. Promptly after the Effective Date, Parent shall make available for
exchange in accordance with this Section 3, through such reasonable procedures
as Parent may adopt, the shares of Parent Series F Preferred Stock issuable
pursuant to Section 3.1 hereof in exchange for outstanding shares of Company
Capital Stock.
(b) Exchange Procedures. Within ten (10) days after the
Effective Date, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Capital Stock (the "Certificates")
whose shares are being converted into the Merger Consideration pursuant to
Section 3.1 hereof, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and which
shall be in such form and have such other provisions as Parent may reasonably
specify) (the "Letter of Transmittal") and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger Shares.
Upon surrender of a Certificate for cancellation to the Exchange Agent or to
such other agent or agents as may be appointed by Parent, together with such
letter of transmittal and a Shareholder Certificate in the form of Exhibit D,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor the number of Merger Shares to which the holder of Company
Capital Stock is entitled pursuant to Section 3.1 hereof. The Certificates so
surrendered shall forthwith be canceled. Except as expressly provided in the
Preferred Notes, no interest will accrue or be paid to the holder of any
outstanding Company Capital Stock, other than as provided in the Preferred
Notes. From and after the Effective Date, until surrendered as contemplated by
this Section 3.5, each Certificate shall be deemed for all corporate purposes to
evidence the number of shares of Parent Series F Preferred Stock into which the
shares of Company Capital Stock represented by such Certificate have been
converted.
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<PAGE>
EXECUTION VERSION
(c) No Further Ownership Rights in Capital Stock of the Company.
Subject to Section 3.8 and Exhibit J, the Merger Shares and the Preferred Notes
delivered upon the surrender for exchange of shares of Company Capital Stock in
accordance with the terms hereof shall be deemed to have been delivered in full
satisfaction of all rights pertaining to such Company Capital Stock. There shall
be no further registration of transfers on the stock transfer books of the
Surviving Corporation of Company Capital Stock which were outstanding
immediately prior to the Effective Date. If, after the Effective Date,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Section 3.5, provided that
the presenting holder is listed on the Company's shareholder list set forth in
Section 5.3(a) of the Company Disclosure Schedule as a holder of Company Capital
Stock.
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the Effective Time with
respect to Parent Series F Preferred Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Series F Preferred Stock represented thereby
until the holder of record of such Certificate shall surrender such Certificate.
Subject to applicable law, following surrender of any such Certificate, there
shall be paid to the record holder of the certificates representing whole shares
of Parent Series F Preferred Stock issued in exchange therefor, without
interest, at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Parent Series F Preferred Stock.
(e) Transfers of Ownership. If any certificate for shares of
Parent Series F Preferred Stock is to be issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it will be
a condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the Person
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Parent Series F Preferred Stock in any name other than that of the
registered holder of the Certificate surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
(f) Lost, Stolen or Destroyed Certificates. In the event that
any Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof, such shares of
Parent Series F Preferred Stock as may be required pursuant to Sections 3.1 and
3.2 hereof; provided, however, that Parent may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against Parent
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<PAGE>
EXECUTION VERSION
or the Exchange Agent with respect to the Certificates alleged to have been
lost, stolen or destroyed. The foregoing bond requirements shall not apply to:
W World Investments, Ltd., Wincrest Ventures L.P., Thistle Hill Partners, Ltd.,
Chisholm Private Capital Partners, L.P.III, Chisholm Private Capital Partners,
L.P., Berthel SBIC, L.L.C., W World Investments, Ltd East Rivers Ventures, L.P.
(g) No Liability. Notwithstanding anything to the contrary in
this Section 3.5, none of the Exchange Agent, the Surviving Corporation or any
Party hereto shall be liable to a holder of shares of Parent Series F Preferred
Stock or Company Capital Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
3.6 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Capital Stock held by a holder who has demanded
and perfected appraisal or dissenters' rights for such shares in accordance with
Oklahoma Corporate Law and who, as of the Effective Time, has not effectively
withdrawn or lost such appraisal or dissenters' rights ("Dissenting Shares")
shall not be converted into or represent a right to receive Parent Series F
Preferred Stock pursuant to Section 2.1, but the holder thereof shall only be
entitled to such rights as are granted by Oklahoma Corporate Law.
(b) Notwithstanding the provisions of subsection (a), if any
holder of shares of Company Capital Stock who demands appraisal of such shares
under Oklahoma Corporate Law shall effectively withdraw or lose (through failure
to perfect or otherwise) the right to appraisal, then, as of the later of the
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive Parent
Series F Preferred Stock as provided in Section 2.1, without interest thereon,
upon surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any
written demands for appraisal of any shares of Company Capital Stock,
withdrawals of such demands, and any other instruments served pursuant to
Oklahoma Corporate Law and received by the Company and (ii) the opportunity to
participate in all negotiations and proceedings with respect to demands for
appraisal under Oklahoma Corporate Law. The Company shall not, except with the
prior written consent of Parent, voluntarily make any payment with respect to
any demands for appraisal of capital stock of the Company or offer to settle or
settle any such demands.
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<PAGE>
EXECUTION VERSION
3.7 Contingent Consideration.
(a) For purposes of this Agreement: (i) "Budgeted Revenue" shall
mean the budgeted revenue of the Company as projected in the "webcasts.com
revenue plan" dated as of January 10, 2000 attached hereto as Exhibit K (the
"Revenue Plan") earned between April 1, 2000 and April 1, 2001 (the "Earn Out
Date"), calculated in accordance with GAAP; and (ii) "Notice Representative"
shall mean that person designated in writing by the Company Shareholders as
their representative with respect to this Section 3.8. The Company hereby
designates John Frick as the Notice Representative until such time as the
Company Shareholders designate another person as the Notice Representative.
(b) If by the Earn Out Date, the Company achieves revenue,
calculated in accordance with GAAP, of at least seventy percent (70%) but less
than ninety five percent (95%) of Budgeted Revenue, then within twenty (20) days
after the Earn Out Date Parent shall issue, as additional Merger Consideration,
an aggregate number of shares of Parent Series F Preferred Stock equal to one
half of one percent (0.5%) of Parent's issued and outstanding capital stock on a
fully diluted basis as of the closing of Parent's IPO, including any investment
underwriter over-allotment shares sold in the IPO ("Over-allotment Shares").
Parent shall deliver such additional Merger Consideration to the Notice
Representative for delivery to the parties entitled to receive same. Such
delivery shall be accompanied by a reasonably detailed supporting calculation
regarding Company's achievement of such revenue target. If Parent determines
that Company has not achieved such revenue target, then within twenty (20) days
after the Earn Out Date Parent shall deliver to the Notice Representative a
reasonably detailed calculation establishing why Company has not achieved such
revenue target.
(c) If by the Earn Out Date, the Company achieves revenue,
calculated in accordance with GAAP, of at least ninety five percent (95%) of
Budgeted Revenue, then within twenty (20) days after the Earn Out Date, Parent
shall issue, as additional Merger Consideration, an aggregate number of shares
of Parent Series F Preferred Stock equal to one percent (1.0%) of Parent's
issued and outstanding capital stock on a fully diluted basis as of the closing
of Parent's IPO, including any Over-allotment Shares. Such issuance of
additional Merger Consideration shall be in lieu of and not in addition to the
additional Merger Consideration contemplated by Section 3.7(b). Parent shall
deliver such additional Merger Consideration to the Notice Representative for
delivery to the parties entitled to receive same. Such delivery shall be
accompanied by a reasonably detailed supporting calculation regarding Company's
achievement of such revenue target. If Parent determines that Company has not
achieved such revenue target, then within twenty (20) days after the Earn Out
Date Parent shall deliver to the Notice Representative a reasonably detailed
calculation establishing why Company has not achieved such revenue target.
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<PAGE>
EXECUTION VERSION
(d) The Notice Representative and/or any person claiming a right
to receive additional Merger Consideration pursuant to Section 3.7(b) or Section
3.7(c) shall have the right to audit, at such person's own expense and at a time
and place acceptable to Parent in its reasonable discretion, Parent's financial
information pertaining to the determinations made by Parent pursuant to Section
3.7(b) or Section 3.7(c), provided that such person executes a confidentiality
agreement acceptable to Parent in its reasonable discretion. If Parent
determines that no additional Merger Consideration is owed pursuant to Section
3.7(b) or Section 3.7(c), any Person who would be entitled to receive additional
Merger Consideration pursuant to such sections had the applicable revenue target
been achieved may object to the Parent's determination by delivering a written
notice of such objection to Parent setting forth in reasonable detail the basis
for such objection within forty five (45) days after the Earn Out Date. If such
objection is not resolved within sixty (60) days after the Earn Out Date, then
such objection shall be submitted to arbitration pursuant to the applicable
rules of the American Arbitration Association, such arbitration shall be
conducted in Sunnyvale, California. The results of such arbitration shall be
binding on the parties. If no timely objections are made, then the Parent's
determination of the Company's revenue for purposes of Section 3.7(b) and
Section 3.7(c) shall be deemed conclusive.
(e) If a Qualifying Parent IPO has not closed by May 31, 2000,
then within ten (10) business days after such date Parent shall issue, in lieu
of and not in addition to the issuances described in Section 3.7(b) and Section
3.7(c), as additional Merger Consideration an aggregate number of shares of
Parent Series F Preferred Stock equal to one percent (1.0%) of the Parent's
issued and outstanding capital stock as of May 31, 2000. Parent shall deliver
such additional Merger Consideration to the Notice Representative for delivery
to the parties entitled to receive same.
(f) The obligation of Parent to issue shares as additional Merger
Consideration pursuant to this Section 3.7 shall not be subject to set-off for
claims Parent has or may have against the Persons entitled to receive such
shares.
(g) In addition to the rights and obligations applicable to Parent
Series F Shares, Parent shall use its Best Efforts to register under applicable
Federal securities laws all shares issued pursuant to this Section 3.7.
(h) Parent and the Surviving Corporation shall make such
expenditures as are consistent with the Revenue Plan.
(i) To the extent that Parent Series F Preferred Stock has
converted to Parent common stock as of the date that any additional Merger
Consideration is issued pursuant to Section 3.7(b) or Section 3.7(c), such
additional Merger Consideration shall be issued in the form of Parent common
stock.
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<PAGE>
EXECUTION VERSION
(j) Any additional Merger Consideration to be delivered pursuant
to Section 3.7(b), Section 3.7(c), or Section 3.7(e) shall be allocated among
the Persons entitled to receive same in accordance with their respective
holdings of Company Capital Stock and Company Options as of the Effective Time.
Parent agrees to adjust the exercise price of any Company Options downward to
reflect any increase in the Merger Consideration pursuant to this Section 3.
3.8 Further Action. Parent, Sub and the Company shall take all such
actions as may be necessary or appropriate in order to effect the Merger as
promptly as possible. If, at any time after the Effective Date, any further
action is necessary or desirable to carry out the purposes of this Agreement and
to vest the Surviving Corporation with full right, title and possession to all
assets, property, rights, privileges, powers and franchises of the Company, the
officers and directors of such corporation are fully authorized in the name of
the corporation or otherwise to take, and shall take, all such action.
4. Securities Act Compliance. Parent intends that the shares of
Parent Series F Preferred Stock issued in connection with the Merger will be
issued in a transaction exempt from registration under the Securities Act of
1933, as amended (the "Securities Act"), by reason of Rule 506 of Regulation D
promulgated under Section 4(2) of the Securities Act. The certificates for the
shares of Parent Series F Preferred Stock to be issued in the Merger shall bear
appropriate legends to identify such privately placed shares as being restricted
under the Securities Act, to comply with applicable state securities laws and,
if applicable, to notice the restrictions on transfer of such shares. It is
acknowledged and understood that Parent is relying upon certain written
representations made by the Company Shareholders in the Shareholder Certificates
in substantially the form attached hereto as Exhibit D. In the event that Parent
and its representatives and advisers reasonably determine that Rule 506 of
Regulation D is unavailable to Parent to exempt the issuance of the Parent
Series F Preferred Stock in connection with the Merger from registration under
the Securities Act, Parent, in its sole discretion, may seek to exempt the
Series F Preferred Stock issued in connection with the Merger from the
requirements of the Securities Act pursuant to Section 3(a)(10) of the
Securities Act through a fairness hearing conducted in the State of California
(a "3(a)(10) Proceeding"). In the event that Parent succeeds in exempting the
Series F Preferred Stock through a 3(a)(10) proceeding, and as a result thereof
the Parent Series F Preferred Stock and any Common Stock to be received on
conversion of the Parent Series F Preferred Stock are and will not be subject to
restriction on resale or further registration requirements under Federal
securities laws, the rights of Company Shareholders under the Second Amended and
Restated Investors Rights Agreement shall terminate and be of no further force
and effect; provided however that Company Shareholders, who (i) at the Closing
are Affiliates of the Company, or (ii) become Affiliates of Parent after the
Closing and continue to be Affiliates of Parent, shall continue to have the
rights and obligations set forth in the Second Amended and Restated Investors
Rights Agreement under the terms of such Agreement.
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<PAGE>
EXECUTION VERSION
5. Representations and Warranties of the Company. The Company
represents and warrants to Parent that, except as disclosed in the Company
Disclosure Schedule, the statements contained in this Section 5 are correct and
complete in all material respects as of the date of this Agreement and will be
correct and complete in all material respects as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 5).
5.1 Organization, Qualification, and Corporate Power. The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Oklahoma. The Company is not and will not be subject
to any Material Adverse Effect or disability by reason of any failure to obtain
any qualification to do business in any other jurisdiction. There is no state
other than Oklahoma in which the Company owns any property or in which it has
any employees, offices or operations. The Company has full corporate power and
authority, and has all necessary material licenses and permits, to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it, except where the failure to have such power, license or permits
would not have individually or in the aggregate a Material Adverse Effect.
Section 5.1(b) of the Company Disclosure Schedule lists the directors and
officers of the Company as of the date of this Agreement. The operations now
being conducted by the Company have not been conducted under any other name
since its inception. The copies of the Company's Certificate of Incorporation,
Bylaws, minute books, stock transfer ledger, stock option ledger and warrant
ledger which have been delivered to Parent are accurate, correct and complete
as of the date hereof.
5.2 Authorization. The Company has full power and authority to
execute and deliver this Agreement and all agreements and instruments delivered
pursuant hereto (the "Ancillary Agreements") to which it is a party, and,
subject to receipt of the requisite approval of its shareholders, to consummate
the transactions contemplated hereunder and to perform its obligations
hereunder and no other proceedings on the part of the Company are necessary to
authorize the execution, delivery and performance of this Agreement and the
Ancillary Agreements to which the Company is a party. This Agreement and the
Ancillary Agreements to which the Company is a party and the Contemplated
Transactions have been approved by the unanimous vote of the Company's Board of
Directors. This Agreement and the Ancillary Agreements to which the Company is
a party constitute the valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their respective terms and
conditions. Other than (i) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable federal and state securities laws, and (ii) the filing of the
Certificate of Merger with the Secretary of State of the State of Oklahoma, the
Company need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any Governmental Body in order to
consummate the transactions contemplated by this Agreement.
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<PAGE>
EXECUTION VERSION
5.3 Capitalization.
(a) Capital Stock. The authorized capital stock of the Company
consists of (i) Fifty Million (50,000,000) shares of Common Stock of which, as
of the date hereof: (a) Ten Million One Hundred Thirty-One Thousand Five
Hundred and Fourteen (10,131,514) shares are issued and outstanding; (b) Two
Million Thirty-One Thousand Four Hundred and Forty-Six (2,031,446) shares are
issued and outstanding subject to certain rights of repurchase in favor of the
Company; (c) Two Million Thirty-Three Thousand Three Hundred and Ninety
(2,033,390) shares are reserved for issuance pursuant to the Company stock
option plans; (d) Six Million Three Hundred and Two Thousand Three Hundred and
Fifty-Nine (6,302,359) shares are reserved for issuance as Series A Warrant
Shares; (e) Eight Hundred Twelve Thousand Five Hundred and Seventy- Eight
(812,578) shares are reserved for issuance as Series B Warrant Shares; (f) Six
Hundred Eighty-Eight Thousand Seven Hundred and Ten (688,710) shares are
reserved for issuance as Series C Warrant Shares; (g) One Hundred and Twenty
Thousand (120,000) shares are reserved for issuance as Bridge Loan Warrant
Shares; and (h) Three Million Four Hundred Nine Thousand Nine Hundred and
Thirty (3,409,930) shares are reserved for issuance upon conversion of the
Series D Stock; and (ii) Two Million (2,000,000) shares of Preferred Stock, par
value $.0001 per share, of which, as of the date hereof, Thirty Thousand
(30,000) shares are designated as Series A Senior Preferred Stock ("Series A
Stock"), Three Thousand Nine Hundred (3,900) shares are designated as Series B
Senior Preferred Stock ("Series B Stock"), Five Thousand Two Hundred (5,200)
shares are designated as Series C Senior Preferred Stock ("Series C Stock") and
Three Hundred Sixty-one Thousand (361,000) shares are designated as Series D
Senior Convertible Preferred Stock. As of the date hereof, there are Three
Hundred Seventy-One Thousand and Ninety-Three (371,093) shares of Preferred
Stock issued and outstanding, divided as follows: (a) Twenty- Three Thousand
and Ninety-Three (23,093) shares of Series A Stock; (b) Three Thousand (3,000)
shares of Series B Stock; (c) Four Thousand (4,000) shares of Series C Stock;
and (d) Three Hundred Forty Thousand Nine Hundred and Ninety-Three (340,993)
shares of Series D Stock. An additional Twenty Thousand (20,000) shares of
Series D Stock are reserved for issuance pursuant to Stock Option Agreements.
(b) No Other Rights or Agreements. Section 5.3(b) of the
Company Disclosure Schedule lists (i) all of the options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights and other
rights that could require the Company to issue, sell or otherwise cause to
become outstanding any of its capital stock or other agreements or commitments
of any character to which the Company is a party relating to the issued or
unissued capital stock or other securities of the Company, including, without
limitation, any agreement or commitment obligating the Company to issue,
deliver or sell, or cause to be issued, delivered or sold, shares of capital
stock or other securities of the Company or obligating the Company to grant,
extend or enter into any subscription, option, warrant, right or convertible or
exchangeable security, right of first refusal, right to receive notification of
the transactions contemplated hereby or other similar agreement or commitment
with respect to the Company, or obligating the Company to make any
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<PAGE>
EXECUTION VERSION
payments pursuant to any stock based or stock related plan or award, in each
case other than any rights in favor of Parent or Sub (the "Stock Rights"), (ii)
the holders of such Stock Rights, or (iii) and the number and class of shares
of Company Capital Stock subject to such Stock Rights. As of the date of this
Agreement, there are no outstanding or authorized Stock Rights other than as
described above. Except for the Accelerated Stock Rights, there are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company. No terms
relating to the vesting or exercisability of any Stock Rights or restricted
shares of Company Capital Stock will be affected or accelerated by the
execution of this Agreement or the consummation of the transactions
contemplated hereby. Except as contemplated by this Agreement, there are no
voting trusts, proxies, or other agreements or understandings to which the
Company is a party with respect to the voting of the capital stock of the
Company. As of the Closing Date, there will be (i) no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to the Company and (ii) no voting trusts, proxies, or other agreements
or understandings with respect to the voting of the capital stock of the
Company. As a result of the Merger, Parent will be the sole beneficial owner
of all outstanding Company Capital Stock and all rights to acquire or receive
any Company Capital Stock, whether or not such Company Capital Stock is
outstanding.
(c) Valid Issuance. All outstanding shares of Company Capital
Stock and all outstanding Stock Rights, have been issued and granted in
compliance with (i) all applicable securities laws and other applicable Legal
Requirements in effect as of the time of grant and issuance and (ii) all
requirements set forth in applicable Company Agreements in effect as of the
time of grant and issuance.
5.4 Noncontravention. Neither the execution and the delivery of
this Agreement by the Company nor the consummation by the Company of the
Contemplated Transactions will (A) violate any Legal Requirement to which the
Company is subject or any provision of the Company's Certificate of
Incorporation or bylaws, or (B) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
or consent under, any agreement, contract, lease, license, instrument,
franchise, permit, mortgage, indenture or other arrangement to which the
Company is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets).
5.5 Fees. The Company has no liability or obligation to pay any fees
or commissions to any broker, finder, agent or attorney, with respect to the
transactions contemplated by this Agreement.
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<PAGE>
EXECUTION VERSION
5.6 Financial Statements. Section 5.6 of the Company Disclosure
Schedule contains the following financial statements of the Company
(collectively the "Financial Statements"): (i) audited balance sheets and
statements of income and cash flows as of and for the fiscal years ended
December 31, 1999 (the "Most Recent Fiscal Period End") and December 31, 1998;
and (ii) an unaudited balance sheet and statements of income and cash flows as
of and for the one month ended January 31, 2000 (the "Most Recent Financial
Statements") for the Company. The Financial Statements, (including the notes
thereto) have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
covered thereby and present fairly the financial condition of the Company as of
such dates and the results of operations of the Company for such periods except
that such financial statements do not contain footnotes which may be required
under GAAP; provided, however, that the Most Recent Financial Statements lack
footnotes and certain other presentation items and are subject to normal year
end adjustments which will not be material individually or in the aggregate.
The books of account of the Company reflect as of the dates shown thereon all
items of income and expenses, and all assets, liabilities and accruals of the
Company required to be reflected therein, except for entries which are not
material in value or amount.
5.7 Subsidiaries. The Company does not have, and never has had, any
subsidiaries or affiliated companies and does not otherwise own, and has not
otherwise owned, any shares in the capital of or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity. The Company has not agreed and is not
obligated to make, nor bound by any Company Agreement (as defined below) under
which it may become obligated to make, any future investment in or capital
contribution to any other entity. The Company has not, at any time, been a
general partner of any general partnership, limited partnership or other
entity.
5.8 Title to Assets. The Company has good and indefeasible title to,
or a valid leasehold interest in, or other valid right to use, the properties
and assets (excluding all Company Intellectual Property, title to which is
addressed in Section 5.14) used by it, located on its premises, shown on the
balance sheet contained within the Most Recent Financial Statements (the "Most
Recent Balance Sheet") or acquired after the date thereof, free and clear of
all Security Interests whether absolute, contingent or otherwise, except for
properties and assets disposed of in the Ordinary Course of Business since the
date of the Most Recent Balance Sheet. There are no existing contracts,
agreements, commitments or arrangements with any Person to acquire any of the
assets or properties of the Company (or any interest therein) except for this
Agreement.
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<PAGE>
EXECUTION VERSION
5.9 Events Subsequent to Most Recent Fiscal Period End. Between the
Most Recent Fiscal Period End and the date of this Agreement, there has not
been any change in the Business Condition of the Company that has had a
Material Adverse Effect on the Company. Without limiting the generality of the
foregoing, between the Most Recent Fiscal Period End and the date of this
Agreement:
(a) the Company has not sold, leased, transferred, or assigned
any material assets or properties, tangible or intangible, outside the Ordinary
Course of Business;
(b) the Company has not entered into, assumed or become bound
under or obligated by any written or oral agreement, contract, lease, binding
understanding, instrument, note, option, warranty purchase order, license,
policy or commitment (collectively a "Company Agreement") or extended or
modified the terms of any Company Agreement which (i) involves the payment of
greater than $10,000 per annum or which extends for more than one (1) year,
(ii) involves any payment or obligation to any Affiliate of the Company other
than in the Ordinary Course of Business, (iii) involves the sale of any
material assets, or (iv) involves any license of any Company Intellectual
Property;
(c) no Party (including the Company) has accelerated,
terminated, made modifications to, or canceled any agreement, contract, lease,
or license to which the Company is a party or by which it is bound, other than
in the Ordinary Course of Business and the Company has not modified, canceled
or waived or settled any debts or claims held by it, other than in the Ordinary
Course of Business, or waived or settled any rights or claims of a substantial
value, whether or not in the Ordinary Course of Business;
(d) none of the assets of the Company, tangible or intangible,
has become subject to any Security Interest;
(e) the Company has not made any capital expenditures other than
in the Ordinary Course of Business and not exceeding $50,000 in the aggregate
of all such capital expenditures;
(f) the Company has not made any capital investment in, or any
loan to, any other Person, except for Loans made in the Ordinary Course of
Business not in excess of $50,000 in the aggregate;
(g) the Company has not created, incurred, assumed, prepaid or
guaranteed any indebtedness for borrowed money and capitalized lease
obligations, or extended or modified any existing indebtedness for borrowed
money, except for indebtedness created, incurred, assumed prepaid or guaranteed
in the Ordinary Course of Business not in excess of $50,000 in the aggregate;
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<PAGE>
EXECUTION VERSION
(h) the Company has not granted any license or sublicense of any
rights under or with respect to any Company Intellectual Property;
(i) there has been no change made or authorized in the Articles
of Incorporation or bylaws of the Company;
(j) except as reflected in Section 5.3(a) or Section 5.3(b) of
the Company Disclosure Schedule, there has not been (i) any change in the
Company's authorized or issued capital stock, (ii) any grant of any stock
option or other right to purchase shares of capital stock of the Company, (iii)
the issuance of any security convertible into such capital stock, (iv) the
grant of any registration rights, (v) any purchase, redemption, retirement, or
other acquisition by the Company of any shares of any such capital stock or
(vi) any declaration or payment of any dividend or other distribution or
payment by the Company in respect of shares of capital stock;
(k) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property in excess of $10,000
in the aggregate of all such damage, destruction and losses;
(l) the Company has not suffered any repeated, recurring or
prolonged shortage, cessation or interruption of communications, customer
access, supplies or utility services;
(m) the Company has not made any loan to, or entered into any
other transaction with, or paid any bonuses in excess of an aggregate of
$10,000 to, any of its Affiliates, directors, officers, or employees or their
Affiliates, and, in any event, any such transaction was on fair and reasonable
terms no less favorable to the Company than would be obtained in a comparable
arm's length transaction with a Person which is not such a director, officer or
employee or Affiliate thereof;
(n) the Company has not entered into any employment contract
with respect to any employee who is not terminable at will by the Company or
collective bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement;
(o) the Company has not granted any increase in the base
compensation of any of its directors or officers, or, except in the Ordinary
Course of Business, any of its employees;
(p) the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors, officers, or
employees (or taken any such action with respect to any other Employee Benefit
Plan);
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<PAGE>
EXECUTION VERSION
(q) the Company has not made any other change in employment
terms for any of its directors or officers, and the Company has not made any
other change in employment terms for any other employees outside the Ordinary
Course of Business;
(r) the Company has not suffered any adverse change or any
threat of any material adverse change in its relations with, or any material
loss or threat of material loss of, any of its major customers, distributors or
partners;
(s) the Company has not suffered any material adverse change or
any threat of any material adverse change in its relations with, or any
material loss or threat of loss of, any of its major suppliers;
(t) the Company has not received notice and does not have
Knowledge of any actual or threatened labor trouble or strike, or any other
occurrence, event or condition of a similar character;
(u) the Company has not changed in any material respect any of
the accounting principles followed by it or the method of applying such
principles;
(v) the Company has not made a change in any of its banking or
safe deposit arrangements;
(w) the Company has not entered into any transaction other than
in the Ordinary Course of Business; and
(x) the Company has not become obligated to do any of the
foregoing.
5.10 Undisclosed Liabilities. To its Knowledge, the Company has no
liability, indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type (whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due, including any liability for taxes), except
for those which individually or in the aggregate (i) are reflected on the Most
Recent Balance Sheet or (ii) have arisen after the Most Recent Fiscal Period
End in the Ordinary Course of Business and which are not material individually
or in the aggregate.
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<PAGE>
EXECUTION VERSION
5.11 Legal Compliance. To its Knowledge, the Company is in
compliance with all material applicable laws (including rules, regulations,
codes, plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all agencies
thereof), except where the failure to be in compliance has not had a Material
Adverse Effect on the Company. No action, suit, or proceeding is pending, or
to the Company's Knowledge, threatened against the Company by any Governmental
Body alleging any failure to so comply. To its Knowledge, the Company has all
material licenses, permits, approvals, registrations, qualifications,
certificates and other governmental authorizations that are necessary for the
operations of the Company as they are presently conducted.
5.12 Tax Matters.
(a) For purposes of this Agreement, (i) "Tax" or,
collectively, "Taxes", means (i) any and all federal, state, local and foreign
taxes, assessments and similar governmental charges, duties, and impositions,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes,
together with all interest, penalties and additions imposed with respect to
such amounts; (ii) any liability for the payment of any amounts of the type
described in clause (i) as a result of being or ceasing to be a member of an
affiliated, consolidated, combined or unitary group for any period (including,
without limitation, any liability under Treas. Reg. Section 1.1502-6 or any
comparable provision of foreign, state or local law); and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) as a
result of any express or implied obligation to indemnify any other person or as
a result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) The Company has filed all reports and returns with respect
to any Taxes ("Company Tax Returns") that it was required to file. All such
Company Tax Returns were prepared in accordance with all applicable statutes,
rules and regulations. To the Company's Knowledge, no such Company Tax Returns
are currently the subject of audit or examination nor has the Company been
notified of any request for an audit or examination. All Taxes owed by the
Company (whether or not shown on any Company Tax Return) were paid in full when
due or are being contested in good faith and are supported by adequate reserves
on the Most Recent Financial Statements. The Company has provided adequate
reserves on its Financial Statements for the payment of any taxes accrued but
not yet due and payable as of the dates of such Financial Statements. The
Company is not currently the beneficiary of any extension of time within which
to file any Company Tax Return, and the Company has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to any Tax assessment or deficiency.
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EXECUTION VERSION
(c) There is no dispute, claim or proposed adjustment concerning
any Tax liability of the Company either (A) claimed or raised by any authority
in writing or (B) based upon personal contact with any agent of such authority.
The Company is not a party to nor has it been notified that it is the subject
of any pending, proposed or threatened action, investigation, proceeding,
audit, claim or assessment by or before the Internal Revenue Service or any
other governmental authority and no claim for assessment, deficiency or
collection of Taxes, or proposed assessment, deficiency or collection from the
Internal Revenue Service or any other governmental authority which has not been
satisfied, nor does the Company have any reason to believe that any such notice
will be received in the future. The Internal Revenue Service has never audited
any federal income tax return of the Company. The Company has not filed any
requests for rulings with the Internal Revenue Service. No power of attorney
has been granted by the Company or any of its Affiliates with respect to any
matter relating to Taxes of the Company. There are no tax liens of any kind
upon any property or assets of the Company, except for inchoate liens for taxes
not yet due and payable.
(d) The Company has not filed a consent under Sec. 341(f) of the
Code concerning collapsible corporations. The Company has not made any
payments, is not obligated to make any payments, and is not a party to any
agreement that under any circumstances could obligate it to make any payments
as a result of the consummation of the Merger that will not be deductible under
Code Sec. 280G. The Company has not been a United States real property holding
corporation within the meaning of Code Sec. 897(c)(2) during the applicable
period specified in Code Sec. 897(c)(1)(A)(ii). The Company is not a party to
any tax allocation or sharing agreement. The Company (A) has not been a member
of any affiliated group within the meaning of Code Sec. 1504 or any similar
group defined under a similar provision of state, local, or foreign law (an
"Affiliated Group") filing a consolidated federal Income Tax Return (other than
a group the common parent of which was the Company) and (B) has no liability
for the taxes of any Person (other than any of the Company) under Treas. Reg.
Section 1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract, or otherwise. The Company has not
requested or received a ruling from any taxing authority or signed a closing
agreement with any taxing authority. To the Company's Knowledge, no claim has
ever been made by a taxing authority in a jurisdiction where the Company does
not file Tax returns that the Company is or may be subject to taxation by such
jurisdiction.
(e) The unpaid Taxes of the Company (A) did not, as of the Most
Recent Fiscal Period End, exceed by any amount the reserve for Tax liability
(other than any reserve for deferred taxes established to reflect timing
differences between book and tax income) set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) and (B) will not exceed
that reserve as adjusted for operations and transactions through the Closing
Date in accordance with the past custom and practice of the Company in filing
the Company Tax Returns.
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5.13 Properties.
(a) The Company does not currently own and has never previously
owned any real property. Section 5.13 of the Company Disclosure Schedule lists
and describes briefly all real property leased or subleased to the Company as
of the date of this Agreement. The Company has delivered to Parent correct and
complete copies of the leases and subleases (as amended to the date of this
Agreement) listed in Section 5.13 of the Company Disclosure Schedule. With
respect to each lease and sublease listed in Section 5.13 of the Company
Disclosure Schedule:
(i) the lease or sublease is legal, valid, binding, and
in full force and effect and enforceable by the Company and, to the Company's
Knowledge, the other parties thereto;
(ii) neither the Company nor, to the Company's Knowledge,
any other party hereto is in breach or default, and, to the Company's
Knowledge, no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(iii) neither the Company nor, to the Company's Knowledge,
any other party thereto has repudiated any provision thereof;
there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease; the Company has not assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest
in the leasehold or subleasehold; and (vi) there is no provision in any
lease or sublease which would result in a breach, termination, default or
acceleration thereof solely as a result of the consummation of the transactions
contemplated by this Agreement
5.14 Intellectual Property.
(a) Section 5.14(a) of the Company Disclosure Schedule lists,
to the Company's Knowledge, all Registered Intellectual Property Rights owned
by, filed in the name of, or applied for, by the Company (the "Company
Registered Intellectual Property Rights") and lists any proceedings or actions
known to the Company before any court, tribunal (including the United States
Patent and Trademark Office (the "PTO") or equivalent authority anywhere in the
world) related to any of the Company Registered Intellectual Property Rights or
Company Intellectual Property.
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EXECUTION VERSION
(b) To the Company's Knowledge, the Company has paid all
necessary registration, maintenance and renewal fees in connection with such
Company Registered Intellectual Property Rights. To the Company's Knowledge,
all necessary documents and certificates in connection with such Company
Registered Intellectual Property Rights have been filed with the relevant
patent, copyright, trademark or other authorities in the United States for the
purposes of maintaining such Registered Intellectual Property Rights. To the
Company's Knowledge, it is not under notice that any Company Intellectual
Property or Company Registered Intellectual Property is infringed or infringing
of any third party right. To the Company's Knowledge, there are no actions that
must be taken by the Company within one hundred twenty (120) days of the
Closing Date with respect to such Company Registered Intellectual Property,
including the payment of any registration, maintenance or renewal fees but
excluding the filing of executed documents in connection with the patent
application listed in the Company Disclosure Schedule.(the "Patent
Application") Except for the Patent Application, for which an assignment from
the inventor has not yet been executed or recorded, to the Company's Knowledge,
in each case in which the Company has acquired ownership of any Technology or
Intellectual Property Right from any person, the Company has obtained an
assignment to irrevocably transfer all rights in such Technology and the
associated Intellectual Property Rights (including the right to seek damages
with respect to the past or future infringement thereof, to the extent that
such a right exists) to the Company. Notwithstanding the foregoing Company
undertakes to secure an assignment for the Patent Application such patent prior
to Closing, as provided in Section 7.10. The Company has claimed "Small Entity
Status" in the Patent Application and to the Company's Knowledge, such claim
will remain true and accurate despite the Closing.
(c) The Company has no Knowledge of any facts or circumstances
that would render any Company Intellectual Property invalid or unenforceable.
To the Company's Knowledge, each item of Company Intellectual Property is free
and clear of any Security Interests except for non-exclusive licenses granted
in the Ordinary Course of Business and the Company is the exclusive owner or
exclusive licensee (except for any rights reserved by the licensor) of all
Company Intellectual Property. To the Company's Knowledge, all Company
Intellectual Property, except with respect to those Intellectual Property
Rights which may be personal and non-transferable, will be fully transferable,
alienable or licensable by Surviving Corporation and/or Parent without
restriction and without payment of any kind to any third party.
(d) To the Company's Knowledge, to the extent that any Company
Technology has been developed or created by a third party for the Company, the
Company has a written agreement with such third party with respect thereto,
either (i) conveying ownership to the Company of such Intellectual Property,
except with respect to those Intellectual Property Rights which may be personal
and non-transferable, or (ii) granting a license to the Company of such
Registered Intellectual Property.
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EXECUTION VERSION
(e) To the Company's Knowledge, with exception of "shrink-wrap"
licenses, or other end-user licenses for third-party software technology used
in the conduct of Company's business as presently conducted by the Company was
written and created solely by either (i) employees of the Company acting within
the scope of their employment or (ii) by third parties from which the Company
has obtained an assignment which to the best of Company's Knowledge is valid.
(f) To the Company's Knowledge, all employees of the Company
have entered into a written agreement with the Company assigning to the Company
of all Technology, including all accompanying Intellectual Property Rights,
created by such employee in the scope of his or her employment with the
Company, subject to exceptions as may be specified in such agreements.
(g) To the Company's Knowledge, the Company has taken reasonable
steps to protect the Company's rights in confidential information and trade
secrets of the Company or provided by any other person to the Company. Without
limiting the foregoing, the Company has, and to its Knowledge enforces, a
policy requiring each employee, consultant and contractor to execute a
proprietary information, confidentiality and assignment agreement,
substantially in the forms attached hereto as Section 5.14(g) of the Company
Disclosure Schedule.
(h) To the Company's Knowledge, no person who has licensed
Technology or Intellectual Property Rights to the Company has ownership rights
or license rights to improvements made by the Company in such Technology or
Intellectual Property Rights.
(i) Except as provided elsewhere in this document, the Company
has not to its Knowledge transferred ownership of, or granted any exclusive
license of or right to use, or authorized the retention of any exclusive rights
to use or joint ownership of, any Company Intellectual Property, to any other
person.
(j) To the Company's Knowledge, other than inbound "shrink-wrap"
and similar publicly available commercial binary code end-user licenses and
outbound "shrink-wrap" licenses in the form set forth on Section 5.14(j) of the
Company Disclosure Schedule, Section 5.14(l) of the Company Disclosure Schedule
lists all contracts, licenses and agreements to which the Company is a party as
of the date of this Agreement. The Company has not received notice that it is in
breach in any material respect of nor has the Company received notice that it
has failed to perform in any material respect under, any of the foregoing
contracts, licenses or agreements and, to the Company's Knowledge, no other
party to any such contract, license or agreement is in breach thereof or has
failed to perform thereunder.
(k) To the Company's Knowledge, Section 5.14(m) of the Company
Disclosure Schedule lists all material contracts, licenses and agreements
between the Company and
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EXECUTION VERSION
any other person not listed on any other Section of the Company Disclosure
Schedule wherein or whereby the Company has agreed to, or assumed, any
obligation or duty to warrant, indemnify, reimburse, hold harmless, guaranty or
otherwise assume or incur any obligation or liability or provide a right of
rescission with respect to the infringement or misappropriation by the Company
or such other person of the Intellectual Property Rights of any person other
than the Company.
(l) To the Knowledge of the Company, there are no contracts,
licenses or agreements between the Company and any other person with respect to
Company Intellectual Property under which there is any dispute except as
provided elsewhere in this document (other than routine warranty claims)
regarding the scope of such agreement, or performance under such agreement,
including with respect to any payments to be made or received by the Company
thereunder.
(m) The Company has not received notice that the operation of the
business of the Company as it currently is conducted infringes or
misappropriates any Intellectual Property Right of any person, violates any
right of any person (including any right to privacy or publicity) or constitutes
unfair competition or trade practices under the laws of any jurisdiction, and
the Company has not received notice from any person claiming that such operation
or any act, product, technology or service (including products, technology or
services currently under development) of the Company infringes or
misappropriates any Intellectual Property Right of any person or constitutes
unfair competition or trade practices under the laws of any jurisdiction (nor
does the Company have Knowledge of any basis therefor).
(n) To the Company's Knowledge, no person is infringing or
misappropriating any material Company Intellectual Property.
(o) The Company has not received notice that any Intellectual
Property or product, or service or Technology of the Company is subject to any
proceeding or outstanding decree, order, judgment or settlement agreement or
stipulation that restricts in any manner the use, transfer or licensing thereof
by the Company or may affect the validity, use or enforceability of such Company
Intellectual Property.
(p) To the Company's Knowledge, the Company has the right to use
all material Intellectual Property Rights used in the conduct of the business of
the Company as it currently is conducted, including, without limitation, the
design, development, manufacturing, use, import and sale of products, technology
and services (including products, technology or services currently under
development).
(q) To the Company's Knowledge, neither this Agreement nor the
transactions contemplated by this Agreement, including the assignment to Parent
or Surviving Corporation, by operation of law or otherwise, of any contracts or
agreements to which the Company is a party, will
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EXECUTION VERSION
result in (i) either Parent's or the Surviving Corporation's granting to any
third party any right to or with respect to any Technology or Intellectual
Property Right owned by, or licensed to, either of them, (ii) either the
Parent's or the Surviving Corporation's being bound by, or subject to, any non-
compete or other restriction on the operation or scope of their respective
businesses except as provided elsewhere in this document, or (iii) either the
Parent's or the Surviving Corporation's being obligated to pay any royalties or
other amounts to any third party in excess of those payable by Parent or
Surviving Corporation, respectively, prior to the Closing.
(r) To the Company's Knowledge, there are no royalties, fees,
honoraria or other payments payable by the Company to any person or entity by
reason of the ownership, development, use, license, sale or disposition of the
Company Intellectual Property, other than salaries and sales commissions paid to
employees and sales agents in the Ordinary Course of Business.
5.15 Tangible Assets. The buildings, equipment, and other tangible
assets that the Company owns and leases have been maintained in accordance with
normal industry practice, and are in good operating condition and repair
(subject to normal wear and tear) and are usable in the Ordinary Course of
Business.
5.16 Operation of Service. The Company has operated its business
without disruption or interruption between April 1995 and the date of this
Agreement (other than routine scheduled maintenance periods and minor
unscheduled service interruptions which have not been material individually or
in the aggregate).
5.17 Contracts. Section 5.17 of the Company Disclosure Schedule lists
the following written or oral executory contracts, agreements, commitments and
other arrangements to which the Company is a party as of the date of this
Agreement or by which the Company or any of its assets is bound as of the date
of this Agreement:
(a) any agreement (or group of related agreements) for the lease
of personal property to or from any Person that involves aggregate annual
payments of more than $10,000;
(b) any agreement under which the consequences of a default or
termination would reasonably be expected to have a Material Adverse Effect on
the Company;
(c) any agreement (or group of related agreements) for the
purchase or sale of commodities, supplies, products, or other personal property,
or for the furnishing or receipt of services, the performance of which will
extend over a period of more than one year or involve consideration in excess of
$10,000;
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EXECUTION VERSION
(d) any agreement for the purchase of supplies, components,
products or services from single source suppliers, custom manufacturers or
subcontractors that involves aggregate annual payments of more than $10,000;
(e) any agreement creating, or concerning the operation of, a
partnership or joint venture;
(f) any agreement (or group of related agreements) under which the
Company has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or any capitalized lease obligation in excess of $10,000 in the
aggregate or under which a Security Interest has been imposed on any of the
Company's assets, tangible or intangible;
(g) any agreement with any Company Shareholder or any of such
shareholder's Affiliates (other than the Company) or with any Affiliate of the
Company;
(h) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or arrangement for
the benefit of its current or former directors, officers or employees (other
than stock option agreements substantially similar to the Company's standard
form of stock option agreement);
(i) any collective bargaining agreement;
(j) any agreement for the employment of any individual on a full-
time, part-time, consulting, or other basis (other than employment agreements
with respect to employees that are terminable at will by the Company without
payment of any penalty or severance benefit in excess of $5,000 individually or
$25,000 in the aggregate and other than consulting agreements that are
terminable on notice of 90 days or less);
(k) any agreement (other than agreements relating to expenses
incurred on behalf of the Company in the Ordinary Course of Business) under
which the Company has advanced or loaned any amount to any of its directors,
officers, and employees;
(l) any advertising services, e-commerce or other agreement
involving the promotion of products and services of third parties by the
Company;
(m) any agreement pursuant to which the Company is obligated to
provide maintenance, support or training for its services or products;
(n) any revenue or profit participation agreement which involves
aggregate annual payments of more than $10,000;
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EXECUTION VERSION
(o) any agreement for the purchase or sale of materials, supplies,
equipment, merchandise or services that contains an escalation clause or that
obligates the Company to purchase all or substantially all of its requirements
of a particular product or service from a supplier or to make periodic minimum
purchases of a particular product or service from a supplier, which is not
terminable on not more than 30 days notice (without penalty or premium);
(p) any agreement of surety, guarantee or indemnification, other
than agreements entered in the Ordinary Course of Business with respect to
obligations in an aggregate amount not in excess of $50,000;
(q) any agreement with customers or suppliers for the sharing of
fees, the rebating of charges or other similar arrangements;
(r) any agreement obligating the Company to deliver future product
enhancements or containing a "most favored nation" pricing clause;
(s) any agreement obligating the Company to provide source code to
any third party for any Company Intellectual Property;
(t) any agreement granting an exclusive license to any Company
Intellectual Property or granting any exclusive distribution rights;
(u) any agreement relating to the acquisition by the Company of
any operating business or the capital stock of any other person;
(v) any agreement requiring the payment to any person of a
brokerage or sales commission or a finder's or referral fee (other than
arrangements to pay commissions or fees to employees in the Ordinary Course of
Business); and
(w) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000 or which is
expected to continue for more than one (1) year from the date hereof.
The Company has delivered to Parent a correct and complete copy of each written
agreement (as amended to date) listed in Section 5.17 of the Company Disclosure
Schedule and a written summary setting forth the terms and conditions of each
oral agreement referred to in Section 5.17 of the Company Disclosure Schedule.
With respect to each such agreement: (A) the agreement, with respect to the
Company and, to the Company's Knowledge, all other parties thereto, is legal,
valid, binding, enforceable by each party, and in full force and effect in all
respects; (B) neither the Company nor, to the Company's Knowledge, any other
party is in breach or default, and to the Company's Knowledge, no event has
occurred, which with notice or lapse of time would constitute a
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EXECUTION VERSION
breach or default, or permit termination, modification, or acceleration, under
the agreement and (C) neither the Company nor, to the Company's Knowledge, any
other party has repudiated any provision of the agreement; and (D) the Company
does not have any reason to believe that the obligation of the Company
thereunder cannot be fulfilled in accordance with its terms and without
resulting in a loss to the Company. Following the Effective Time, the Company
will be permitted to exercise all of the Company's rights under such agreements
to the same extent the Company would have been able to had the Merger not
occurred and without the payment of any additional amounts or consideration
other than ongoing amounts or consideration which the Company would otherwise be
required to pay.
5.18 Notes and Accounts Receivable. All notes and accounts receivable
of the Company, all of which are reflected properly on the books and records of
the Company, are valid receivables subject to no setoffs, defenses or
counterclaims, are current and, to the Company's Knowledge, collectible subject
in each case only to the reserve for bad debts set forth on the face of the Most
Recent Balance Sheet as adjusted for operations and transactions through the
Closing Date in accordance with the past custom and practice of the Company.
5.19 Power of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company.
5.20 Insurance. The Company has delivered to Parent copies of each
insurance policy (including policies providing property, casualty, liability,
and workers' compensation coverage and bond and surety arrangements) with
respect to which the Company is a party, a named insured, or otherwise the
beneficiary of coverage. With respect to each such insurance policy: (A) the
policy is legal, valid, binding, enforceable, and in full force and effect (and
there has been no notice of cancellation or nonrenewal of the policy received by
the Company); (B) neither the Company nor, to the Company's Knowledge, any other
party to the policy is in breach or default under such policy (including with
respect to the payment of premiums or the giving of notices), and, to the
Company's Knowledge, no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; (C) no party to the policy has
repudiated any provision thereof; and (D) there has been no failure by the
Company to give any notice or present any claim under the policy in due and
timely fashion. Section 5.20 of the Company Disclosure Schedule describes any
self-insurance arrangements presently maintained by the Company.
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EXECUTION VERSION
5.21 Litigation. Section 5.21 of the Company Disclosure Schedule sets
forth each instance in which the Company (or any of its assets) (i) is subject
to any outstanding injunction, judgment, order, decree, ruling, or charge or
(ii) is or has been since its inception a Party, or, to the Knowledge of the
Company, is threatened to be made a Party, to any action, suit, proceeding,
hearing, arbitration, or investigation of, in, or before any court or quasi-
judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. To the Knowledge of the Company, there
are no facts or circumstances which would form the basis of any claim against
the Company. No Governmental Body has at any time challenged or questioned in a
writing delivered to the Company the legal right of the Company to design,
manufacture, offer or sell any of its products or services in the present manner
or style thereof.
5.22 Restrictions on Business Activities. Except as set forth in
Section 5.22 of the Disclosure Schedule, there is no agreement (not to compete
or otherwise), commitment, judgment, injunction, order or decree to which the
Company is a Party or which is otherwise binding upon the Company which has the
effect of prohibiting or restricting any business or any acquisition of property
(tangible or intangible) by the Company. Without limiting the foregoing, the
Company has not entered into any agreement under which the Company is restricted
from selling, licensing or otherwise distributing any of its technology
(including any Company Intellectual Property) or products to or providing
services to, customers or potential customers or any class of customers, in any
geographic area, or in any segment of the market.
5.23 Product Warranty. To its Knowledge, the technologies or products
licensed, sold, leased, and delivered and all services provided by the Company
have conformed in all material respects with all applicable contractual
commitments and all express and implied warranties, and the Company has no
liability (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due) for replacement or modification
thereof or other damages in connection therewith, other than in the Ordinary
Course of Business in an aggregate amount not exceeding $10,000.
5.24 Employees. No executive, key employee, or significant group of
employees has advised any executive officer of the Company that he, she or they
plan to terminate employment with the Company during the next 12 months. The
Company is not a Party to or bound by any collective bargaining agreement, nor
has it experienced any strike or grievance, claim of unfair labor practices, or
other collective bargaining dispute. To the Company's Knowledge, there is no
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of the Company.
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EXECUTION VERSION
5.25 Employee Matters and Benefits.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 5.25(a)(i) below (which definition shall apply
only to this Section 5.25), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder;
(ii) "Code" shall mean the Internal Revenue Code of 1986, as
amended, or any successor statute thereto;
(iii) "Company Employee Plan" shall mean any plan, program,
policy, practice, contract, agreement or other arrangement which is in effect
and pursuant to which the Company or any employee leasing company with which
Company has an arrangement regarding leased employees (a "Leasing Company") has
continuing obligations as of the date of this Agreement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written or unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any Employee, or with respect to which the Company
or any Affiliate has or would reasonably be expected to have any liability or
obligation;
(iv) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(v) "DOL" shall mean the Department of Labor;
(vi) "Employee" shall mean any current or former employee,
consultant or director of the Company or any Affiliate;
(vii) "Employee Agreement" shall mean each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or other agreement, contract or understanding between the
Company, a Leasing Company, or any Affiliate
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EXECUTION VERSION
and any Employee which is in effect and pursuant to which the Company has
continuing obligations as of the date of this Agreement;
(viii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(ix) "FMLA" shall mean the Family Medical Leave Act of 1993,
as amended;
(x) "International Employee Plan" shall mean each Company
Employee Plan that has been adopted or maintained by the Company or any
Affiliate, whether informally or formally, or with respect to which the Company
or any Affiliate will or may have any liability, for the benefit of Employees
who perform services outside the United States;
(xi) "IRS" shall mean the Internal Revenue Service;
(xii) "Multiemployer Plan" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA;
(xiii) "PBGC" shall mean the Pension Benefit Guaranty
Corporation; and
(xiv) "Pension Plan" shall mean each Company Employee Plan
which is an "employee pension benefit plan," within the meaning of Section 3(2)
of ERISA.
(b) Schedule. Section 5.25(b) of the Company Disclosure Schedule
contains an accurate and complete list of each Company Employee Plan and each
Employee Agreement. As of the date of this Agreement, neither the Company nor a
Leasing Company has any plan or commitment to establish any new Company Employee
Plan or Employee Agreement, to modify any Company Employee Plan or Employee
Agreement (except to the extent required by law or to conform any such Company
Employee Plan or Employee Agreement to the requirements of any applicable law,
in each case as previously disclosed to Parent in writing, or as required by
this Agreement), or to enter into any Company Employee Plan or Employee
Agreement.
(c) Documents. The Company has provided or made available to
Parent: (i) correct and complete copies of all documents embodying each Company
Employee Plan and each Employee Agreement including (without limitation) all
amendments thereto and all related trust documents; (ii) the most recent annual
actuarial valuations, if any, prepared for each Company Employee Plan; (iii) the
three (3) most recent annual reports (Form Series 5500 and all schedules and
financial statements attached thereto), if any, required under ERISA or the Code
in connection with each Company Employee Plan; (iv) if the Company Employee Plan
is funded, the most recent annual
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and periodic accounting of Company Employee Plan assets; (v) the most recent
summary plan description together with the summary(ies) of material
modifications thereto, if any, required under ERISA with respect to each Company
Employee Plan; (vi) all IRS determination, opinion, notification and advisory
Schedules, and all applications and correspondence to or from the IRS or the DOL
with respect to any such application or letter; (vii) all material written
agreements and contracts relating to each Company Employee Plan, including, but
not limited to, administrative service agreements, group annuity contracts and
group insurance contracts; (viii) all correspondence to or from any governmental
agency relating to any Company Employee Plan (ix) all COBRA forms and related
notices; (x) all policies pertaining to fiduciary liability insurance covering
the fiduciaries for each Company Employee Plan; (xi) all discrimination tests
for each Company Employee Plan for the most recent plan year; and (xii) all
registration statements, annual reports (Form 11-K and all attachments thereto)
and prospectuses prepared in connection with each Company Employee Plan.
(d) Employee Plan Compliance. Neither the Company nor a Leasing
Company is in default or violation of any Company Employee Plan, and has no
Knowledge of any default or violation by any other party to each Company
Employee Plan, and each Company Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code. Each Company Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code has either received a favorable
determination, opinion, notification or advisory letter from the IRS with
respect to each such Plan as to its qualified status under the Code, including
all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation, or has remaining a period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such a letter and make
any amendments necessary to obtain a favorable determination as to the qualified
status of each such Company Employee Plan. No "prohibited transaction," within
the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and
not otherwise exempt under Section 408 of ERISA, has occurred with respect to
any Company Employee Plan. There are no actions, suits or claims pending, or, to
the Knowledge of the Company, threatened or reasonably anticipated (other than
routine claims for benefits) against any Company Employee Plan or against the
assets of any Company Employee Plan. Each Company Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance with
its terms, without liability to the Parent, Company or any of its Affiliates
(other than ordinary administration expenses). There are no audits, inquiries or
proceedings pending or, to the Knowledge of the Company or any Affiliates,
threatened by the IRS or DOL with respect to any Company Employee Plan. Neither
the Company nor any Affiliate is subject to any penalty or tax with respect to
any Company Employee Plan under Section 502(i) of ERISA or Sections 4975 through
4980 of the Code.
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(e) Pension Plan. Neither the Company nor any Affiliate has ever
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company or any
Affiliate contributed to or been obligated to contribute to any Multiemployer
Plan.
(g) No Post-Employment Obligations. No Company Employee Plan
provides, or reflects or represents any liability to provide, retiree life
insurance, retiree health or other retiree employee welfare benefits to any
Person for any reason, except as may be required by COBRA or other applicable
Legal Requirements, and the Company has never represented, promised or
contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) or any other Person that such
Employee(s) or other Person would be provided with retiree life insurance,
retiree health or other retiree employee welfare benefit, except to the extent
required by applicable Legal Requirements.
(h) COBRA etc. Neither the Company nor any Affiliate has, prior to
the Effective Time and in any material respect, violated any of the health care
continuation requirements of COBRA, the requirements of FMLA, the requirements
of the Women's Heath and Cancer Rights Act, the requirements of the Newborns'
and Mothers' Health Protection Act of 1996, or any similar provisions of state
law applicable to its Employees.
(i) Effect of Transaction.
(i) The execution of this Agreement and the consummation of
the transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events contemplated by this
Agreement) constitute an event under any Company Employee Plan, Employee
Agreement, trust or loan that will or would reasonably be expected to result in
any payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any Employee.
(ii) Except as set forth on Section 5.25(i) of the Company
Disclosure Schedule, no payment or benefit which will or may be made by the
Company or its Affiliates with respect to any Employee as a result of the
transactions contemplated by this Agreement or otherwise will be characterized
as a "parachute payment," within the meaning of Section 280G(b)(2) of the Code
(but without regard to clause (ii) thereof).
(j) Employment Matters. The Company: (i) is in compliance in all
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in
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EXECUTION VERSION
each case, with respect to Employees; (ii) has withheld and reported all amounts
required by law or by agreement to be withheld and reported with respect to
wages, salaries and other payments to Employees; (iii) is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing; and (iv) is not liable for any payment to any trust or other fund
governed by or maintained by or on behalf of any governmental authority, with
respect to unemployment compensation benefits, social security or other benefits
or obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice). There are no
pending, reasonably anticipated or to the Company's Knowledge, threatened claims
or actions against the Company under any worker's compensation policy or long-
term disability policy.
(k) Labor. No work stoppage or labor strike against the Company is
pending, reasonably anticipated, or, to the Knowledge of the Company,
threatened. The Company does not have Knowledge of any activities or proceedings
of any labor union to organize any Employees. There is no litigation pending,
or, to the Knowledge of the Company, threatened relating to any labor, safety or
discrimination matters involving any Employee, including, without limitation,
charges of unfair labor practices or discrimination complaints, which, if
adversely determined, would, individually or in the aggregate, result in any
material liability to the Company. The Company has not engaged in any unfair
labor practices within the meaning of the National Labor Relations Act. The
Company is not a party to, or bound by, any collective bargaining agreement or
union contract with respect to Employees and no collective bargaining agreement
is being negotiated by the Company.
(l) International Employee Plan. The Company does not now, nor has
it ever had the obligation to, maintain, establish, sponsor, participate in, or
contribute to any International Employee Plan.
5.26 Guaranties. The Company is not a guarantor or otherwise
responsible for any liability or obligation (including indebtedness) of any
other Person.
5.27 Environment, Health, and Safety.
(a) For purposes of this Agreement, the following terms have the
following meanings:
"Environmental, Health, and Safety Laws" means any and all
federal, state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, plans, injunctions, judgments, decrees, requirements or
rulings now or hereafter in effect, imposed by any governmental authority
regulating, relating to, or imposing liability or standards of conduct relating
to pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
public health and safety, or employee health and
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EXECUTION VERSION
safety, concerning any Hazardous Materials or Extremely Hazardous Substances, as
such terms are defined herein, or otherwise regulated, under any Environmental,
Health and Safety Laws. The term "Environmental, Health and Safety Laws" shall
include, without limitation, the Clean Water Act (also known as the Federal
Water Pollution Control Act), 33 U.S.C. Section 1251 et seq., the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq., the Clean Air Act, 42
U.S.C. Section 7401 et seq., the Federal Insecticide, Fungicide and Rodenticide
Act, 7 U.S.C. Section 136 et seq., the Safe Drinking Water Act, 42 U.S.C.
Section 300f et seq., the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq., the Superfund Amendment and
Reauthorization Act of 1986, Public Law 99-4, 99, 100 Stat. 1613, the Emergency
Planning and Community Right to Know Act, 42 U.S.C. Section 11001 et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., and the
Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq., all as
amended, together with any amendments thereto, regulations promulgated
thereunder and all substitutions thereof.
"Extremely Hazardous Substance" means a substance on the list
described in Section 302 (42 U.S.C. Section 11002(a)(2)) of the Emergency
Planning and Community Right to Know Act, 42 U.S.C. Section 11001 et seq., as
amended.
"Hazardous Material" means any material or substance that, whether
by its nature or use, is now or hereafter defined as a pollutant, dangerous
substance, toxic substance, hazardous waste, hazardous material, hazardous
substance or contaminant under any Environmental, Health and Safety Laws, or
which is toxic, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic, mutagenic or otherwise hazardous and which is now or hereafter
regulated under any Environmental, Health and Safety Laws, or which is or
contains petroleum, gasoline, diesel fuel or other petroleum hydrocarbon
product.
(b) To its Knowledge, the Company (A) has complied with the
Environmental, Health, and Safety Laws (and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, directive or notice
has been filed or commenced against any of them alleging any such failure to
comply), (B) has obtained and been in substantial compliance with all of the
terms and conditions of all permits, licenses, certificates and other
authorizations which are required under the Environmental, Health, and Safety
Laws, and (C) has complied in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables applicable to the Company which are contained in the
Environmental, Health, and Safety Laws.
(c) To its Knowledge, the Company has not taken any action that
would reasonably be expected to give rise to any material liability (whether
known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due), and the Company has not handled or
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EXECUTION VERSION
disposed of any Hazardous Materials or Extremely Hazardous Substances, arranged
for the disposal of any Hazardous Materials or Extremely Hazardous Substances,
exposed any employee or other individual to any Hazardous Materials or Extremely
Hazardous Substances, or owned or operated any property or facility in any
manner that would reasonably be expected to give rise to any material liability,
for damage to any site, location, surface water, groundwater, land surface or
subsurface strata, for any illness of or personal injury to any employee or
other individual, or for any reason under any Environmental, Health, and Safety
Law.
(d) To its Knowledge, no Extremely Hazardous Substances are
currently, or have been, located at, on, in, under or about all properties and
equipment used in the business of the Company.
(e) To its Knowledge, no Hazardous Materials are currently located
at, on, in, under or about all properties and equipment used in the business of
the Company in a manner which violates any Environmental, Health and Safety Laws
or which requires cleanup or corrective action of any kind under any
Environmental, Health and Safety Laws.
5.28 Certain Business Relationships With the Company. To the Company's
Knowledge, no Person holding more that five percent (5.0%) of the Company's
issued and outstanding capital stock calculated on a fully-diluted basis, nor
any director or officer of the Company, nor any member of their immediate
families, nor any Affiliate of any of the foregoing, owns, directly or
indirectly, or has an ownership interest in (a) any business (corporate or
otherwise) which is a party to, or in any property which is the subject of, any
business arrangement or relationship of any kind with the Company, or (b) any
business (corporate or otherwise) which conducts the same business as, or a
business similar to, that conducted by the Company.
5.29 No Adverse Developments. There is no development (exclusive of
general economic factors affecting business in general or the Internet sector in
particular) or, to the Company's Knowledge, threatened development affecting the
Company (or affecting customers, suppliers, employees, and other Persons which
have relationships with the Company) that (i) is having or is reasonably likely
to have a Material Adverse Effect on the Company, or (ii) would prevent Parent
from conducting the business of the Surviving Corporation following the Closing
in the manner in which it was conducted by the Company prior to the Closing.
5.30 Private Placement Memorandum. The factual statements in the
private placement memorandum of Company pertaining to its proposed Series E
round of preferred stock financing were true and complete in all materials
respects as of the date of such private placement memorandum.
5.31 Dividends. The aggregate amount of dividends declared, accrued, or
accumulated with respect to any outstanding security of the Company as of the
date of this
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EXECUTION VERSION
Agreement is set forth in Section 5.31 of the Company Disclosure Schedule.
Company shall not declare any dividend between the date of this Agreement and
the Effective Time.
5.32 Borrowings. Company shall not, between the date of this Agreement
and the earlier of the Effective Time or June 1, 2000, borrow or commit to
borrow in the aggregate an amount in excess of the Company's outstanding
borrowings on the date of this Agreement.
5.33 Full Disclosure. No representation or warranty in this Section 5
or in any document delivered by the Company or its Representatives pursuant to
the transactions contemplated by this Agreement, and no statement, list,
certificate or instrument furnished to Parent pursuant hereto or in connection
with this Agreement, when taken as a whole, contains any untrue statement of a
material fact, or omits to state a material fact necessary to make the statement
herein or therein, in light of the circumstances in which they were made, not
misleading. The Company has delivered to Parent true, correct and complete
copies of all documents, including all amendments, supplements and modifications
thereof or waivers currently in effect thereunder, described in the Company
Disclosure Schedule.
6. Representations and Warranties of Parent and Sub. Parent and Sub
represent and warrant to the Company that, except as disclosed in the Parent
Disclosure Schedule, the statements contained in this Section 6 are correct and
complete in all material respects as of the date of this Agreement and will be
correct and complete in all material respects as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 6).
6.1 Organization, Qualification, and Corporate Power. Parent and Sub
are corporations duly organized, validly existing, and in good standing under
the laws of the State of Delaware and the State of Oklahoma, respectively.
Parent and Sub are duly authorized to conduct business and are in good standing
under the laws of each other jurisdiction where such qualification is required
and in which the failure to so qualify is reasonably likely to have a Material
Adverse Effect on Parent. Parent and Sub have full corporate power and
authority, and have all necessary licenses and permits, to carry on the
businesses in which they are engaged and to own and use the properties owned and
used by them.
6.2 Authorization. Parent and Sub have full power and authority to
execute and deliver this Agreement and the Ancillary Agreements to which they
are parties, and to consummate the Contemplated Transactions and to perform
their obligations hereunder and thereunder, and no other proceedings on the part
of Parent or Sub are necessary to authorize the execution, delivery and
performance of this Agreement and the Ancillary Agreements to which they are
parties. This Agreement and the Ancillary Agreements to which they are parties
and the Contemplated Transactions have been approved by Parent's and Sub's Board
of Directors. The consummation of the Contemplated Transactions does not require
the approval or consent of the shareholders of
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EXECUTION VERSION
Parent. This Agreement and the Ancillary Agreements to which they are parties
constitute the valid and legally binding obligations of Parent and/or Sub,
enforceable against Parent and/or Sub in accordance with their respective terms
and conditions. Other than (i) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws, and (ii) the filing of the
Certificate of Merger with the Secretary of State of the State of Oklahoma,
neither Parent nor Sub need give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any Governmental Body in order to
consummate the Contemplated Transactions.
6.3 Capitalization.
(a) As of the date hereof, the authorized capital stock of Parent
consists of 120,000,000 shares of Common Stock, of which 5,545,875 shares are
issued and outstanding, and 20,000,000 shares of Preferred Stock, of which
1,350,000 shares have been designated Series A Preferred Stock, of which
1,333,333 shares are issued and outstanding, 3,380,000 shares have been
designated Series B Preferred Stock, of which 3,248,904 shares are issued and
outstanding, 3,650,000 shares of which have been designated Series C Preferred
Stock of which 3,591,816 shares are issued and outstanding, 7,500,000 shares
have been designated Series D Preferred, of which 7,072,732 shares are issued
and outstanding, and 3,000,000 have been designated Series E Preferred of which
2,545,454 shares are issued and outstanding. All such outstanding shares have
been duly authorized and validly issued, and are fully paid and nonassessable.
Assuming the accuracy and completeness of representations made by the purchasers
of such outstanding shares in connection with the issuance of such securities,
all such outstanding shares were issued in material compliance with applicable
U.S. federal and state securities laws. The Company has reserved (i) of
48,285,810 shares of Common Stock for issuance upon conversion of the
outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock, (ii)
17,504,625 shares of Common Stock for issuance upon exercise of stock options
pursuant to the Company's 1998 Stock Option Plan, and (iii) 1,275,676 shares of
Common Stock for issuance upon exercise and conversion of warrants for 92,208
shares of Series B Preferred Stock, warrants for 6,396 shares of Series C
Preferred Stock, warrants for 243,288 shares of Series D Preferred Stock, and
warrants for 250,000 shares of Series E Preferred Stock. As of the date of this
Agreement, the Series A Preferred, Series B Preferred, Series C Preferred, and
Series D Preferred Stock are convertible into Common Stock on a 1-to-3 basis and
have the rights, preferences, privileges and restrictions set forth in the
Parent's Restated Certificate of Incorporation. As of the date of this
Agreement, the Series E Preferred Stock is convertible into Common Stock on a 1-
to-1 basis and has the rights, preferences, privileges and restrictions set
forth in the Parent's Restated Certificate of Incorporation. Except as set forth
above and except for outstanding options to purchase shares of Common Stock as
of the date of this Agreement granted to employees and service providers under
the Company's 1998 Stock Plan, there are no other options, warrants, conversion
privileges or other rights presently outstanding to purchase or otherwise
acquire any
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EXECUTION VERSION
authorized but unissued shares of capital stock or other securities of the
Company. The shares of Parent Series F Preferred Stock to be issued pursuant to
Section 3.1 of this Agreement are duly authorized and reserved for issuance, and
upon issuance thereof in accordance with this Agreement and the Agreement of
Merger will be validly issued, fully paid and nonassessable.
(b) No Other Rights or Agreements. Section 6.3(b) of the Parent
Disclosure Schedule lists (i) all of the options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights and other rights that
could require Parent to issue, sell or otherwise cause to become outstanding any
of its capital stock or other agreements or commitments of any character to
which Parent is a party relating to the issued or unissued capital stock or
other securities of Parent, including, without limitation, any agreement or
commitment obligating Parent to issue, deliver or sell, or cause to be issued,
delivered or sold, shares of capital stock or other securities of parent or
obligating Parent to grant, extend or enter into any subscription, option,
warrant, right or convertible or exchangeable security, right of first refusal,
right to receive notification of the transactions contemplated hereby or other
similar agreement or commitment with respect to Parent, or obligating Parent to
make any payments pursuant to any stock based or stock related plan or award, in
each case other than any rights in favor of the Company (the "Stock Rights"),
(ii) the holders of such Stock Rights, or (iii) and the number and class of
shares of Parent Capital Stock subject to such Stock Rights. As of the date of
this Agreement, there are no outstanding or authorized Stock Rights other than
as described above. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to Parent.
No terms relating to the vesting or exercisability of any Stock Rights or
restricted shares of Parent Capital Stock will be affected or accelerated by the
execution of this Agreement or the consummation of the transactions contemplated
hereby. Except as contemplated by this Agreement, there are no voting trusts,
proxies, or other agreements or understandings to which Parent is a party with
respect to the voting of the capital stock of Parent. As of the Closing Date,
there will be (i) no outstanding or authorized stock appreciation, phantom
stock, profit participation, or similar rights with respect to Parent and (ii)
no voting trusts, proxies, or other agreements or understandings with respect to
the voting of the capital stock of Parent.
6.4 Noncontravention. Neither the execution and the delivery of this
Agreement nor the consummation of the Contemplated Transactions, will (A)
violate any Legal Requirements of any Governmental Body, or court to which
Parent or Sub is subject or any provision of their respective charters or
bylaws, or (B) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under, any material
agreement, contract, lease, license, instrument, or other arrangement to which
Parent or Sub is a party or by which either is bound or to which any of their
assets is subject which is required to be filed by the Parent as an exhibit to
its Registration Statement on Form S-1 (File No. 333-95833).
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EXECUTION VERSION
6.5 Parent Financial Statements. Section 6.5 of the Parent Disclosure
Schedule contains the following financial statements of Parent (collectively the
"Financial Statements"): (i) audited balance sheets and statements of income and
cash flows as of and for the fiscal years ended December 31, 1999 (the "Most
Recent Fiscal Period End") and December 31, 1998; and (ii) an unaudited balance
sheet and statements of income and cash flows as of and for the one month ended
January 31, 2000 (the "Most Recent Financial Statements") for Parent. The
Financial Statements, (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby and present fairly the financial condition of Parent as of such
dates and the results of operations of Parent for such periods except that such
financial statements do not contain footnotes which may be required under GAAP;
provided, however, that the Most Recent Financial Statements lack footnotes and
certain other presentation items and are subject to normal year end adjustments
which will not be material individually or in the aggregate. The books of
account of Parent reflect as of the dates shown thereon all items of income and
expenses, and all assets, liabilities and accruals of Parent required to be
reflected therein, except for entries which are not material in value or amount.
6.6 Patents, Trademarks, etc. To its Knowledge, Parent owns or has the
right, or prior to the Closing will own or have the right, to use, free and
clear of all liens, charges, claims and restrictions, all patents, trademarks,
service marks, trade names, copyrights, licenses, processes and rights necessary
to its business as now conducted, and, to its knowledge, is not infringing upon
or otherwise acting adversely to the right or claimed right of, any person under
or with respect to any of the foregoing. Parent has not received any
communications alleging that Parent has violated any patent, trademark, service
mark, trade name, copyright or trade secret or other proprietary right of any
other person or entity. Parent is not bound by or a party to any material
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses and
processes of any other person or entity, except, in either case, for standard
end-user, object code, internal-use software licenses and support/maintenance
agreements. Parent is not aware that any of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with Parent's employment of such
employees.
6.7 Material Contracts and Commitments. Parent is not in material
default under any material mortgage, indenture, contract, agreement, instrument,
judgment or decree to which Parent is a party or by which it is bound and the
Contemplated Transactions will not result in such default, except for such
defaults as shall have been waived prior to the Closing.
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EXECUTION VERSION
6.8 Litigation. Section 6.8 of the Parent Disclosure Schedule sets
forth each instance in which Parent (or any of its assets) (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is or
has been since its inception a Party, or, to the Knowledge of Parent, is
threatened to be made a Party, to any action, suit, proceeding, hearing,
arbitration, or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator. To the Knowledge of Parent, there are no facts or
circumstances which would form the basis of any claim against Parent. No
Governmental Body has at any time challenged or questioned in a writing
delivered to Parent the legal right of Parent to design, manufacture, offer or
sell any of its products or services in the present manner or style thereof.
6.9 Brokers' Fees. Parent does not have any liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
Contemplated Transactions
6.10 Intellectual Property.
(a) Section 6.10(a) of the Parent Disclosure Schedule lists all
Registered Intellectual Property Rights owned by, filed in the name of, or
applied for, by the Company (the "Parent Registered Intellectual Property
Rights") and lists any proceedings or actions before any court, tribunal
(including the PTO or equivalent authority anywhere in the world) related to any
of the Parent Registered Intellectual Property Rights or Parent Intellectual
Property.
(b) Each item of Parent Registered Intellectual Property Rights is
valid and subsisting, and all necessary registration, maintenance and renewal
fees in connection with such Parent Registered Intellectual Property Rights have
been paid and all necessary documents and certificates in connection with such
Parent Registered Intellectual Property Rights have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property Rights. There are no actions that must be taken
by the Parent within one hundred twenty (120) days of the Closing Date,
including the payment of any registration, maintenance or renewal fees or the
filing of any responses to PTO office actions, documents, applications or
certificates for the purposes of obtaining, maintaining, perfecting or
preserving or renewing any Registered Intellectual Property Rights. In each case
in which the Company has acquired ownership of any Technology or Intellectual
Property Right from any person, the Parent has obtained a valid and enforceable
assignment sufficient to irrevocably transfer all rights in such Technology and
the associated Intellectual Property Rights (including the right to seek damages
with respect to the past or future infringement thereof) to the Parent. To the
maximum extent provided for by, and in
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EXECUTION VERSION
accordance with, applicable laws and regulations, the Parent has recorded each
such assignment of a Registered Intellectual Property Right assigned to the
Parent with the relevant Governmental Body, including the PTO, the U.S.
Copyright Office, or their respective equivalents in any relevant foreign
jurisdiction, as the case may be. The Parent has claimed "Small Entity Status"
in the patent application and to the Parent's Knowledge, such claim will remain
true and accurate despite the Closing.
(c) The Parent has no Knowledge of any facts or circumstances that
would render any Company Intellectual Property invalid or unenforceable. To the
Parent's knowledge, each item of Company Intellectual Property is free and clear
of any Security Interests except for non-exclusive licenses granted in the
Ordinary Course of Business and the Parent is the exclusive owner or exclusive
licensee (except for any rights reserved by the licensor) of all Parent
Intellectual Property. To the Parent's Knowledge, all Parent Intellectual
Property, except with respect to those Intellectual Property Rights which may be
personal and non-transferable, will be fully transferable, alienable or
licensable by Surviving Corporation and/or Parent without restriction and
without payment of any kind to any third party.
(d) To the Parent's Knowledge, to the extent that any Parent
Technology has been developed or created by a third party for the Parent, the
Parent has a written agreement with such third party with respect thereto,
either (i) conveying ownership to the Parent of such Intellectual Property,
except with respect to those Intellectual Property Rights which may be personal
and non-transferable, or (ii) granting a license to the Parent of such
Registered Intellectual Property.
(e) To the Parent's Knowledge, with exception of "shrink-wrap"
licenses, or other end-user licenses for third-party software technology used in
the conduct of Parent's business as presently conducted by the Parent was
written and created solely by either (i) employees of the Parent acting within
the scope of their employment or (ii) by third parties from which the Parent has
obtained an assignment which to the best of Parent's Knowledge is valid.
(f) To the Parent's Knowledge, all employees of the Parent have
entered into a written agreement with the Parent assigning to the Parent of all
Technology, including all accompanying Intellectual Property Rights, created by
such employee in the scope of his or her employment with the Parent, subject to
exceptions as may be specified in such agreements.
(g) To the Parent's Knowledge, the Parent has taken reasonable
steps to protect the Parent's rights in confidential information and trade
secrets of the Parent or provided by any other person to the Parent. Without
limiting the foregoing, the Parent has, and to its knowledge enforces, a policy
requiring each employee, consultant and contractor to execute a proprietary
information, confidentiality and assignment agreement, substantially in the
forms attached hereto as Section 6.10(i) of the Parent Disclosure Schedule.
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(h) To the Parent's Knowledge, no person who has licensed
Technology or Intellectual Property Rights to the Parent has ownership rights or
license rights to improvements made by the Parent in such Technology or
Intellectual Property Rights.
(i) Except as provided elsewhere in this document, the Parent has
not to its Knowledge transferred ownership of, or granted any exclusive license
of or right to use, or authorized the retention of any exclusive rights to use
or joint ownership of, any Parent Intellectual Property, to any other person.
(j) To the Parent's Knowledge, other than inbound "shrink-wrap"
and similar publicly available commercial binary code end-user licenses and
outbound "shrink-wrap" licenses in the form set forth on Section 6.10(l) of the
Parent Disclosure Schedule, Section 6.10(l) of the Parent Disclosure Schedule
lists all contracts, licenses and agreements to which the Company is a party as
of the date of this Agreement. The Parent has not received notice that it is in
breach in any material respect of nor has the Parent received notice that it has
failed to perform in any material respect under, any of the foregoing contracts,
licenses or agreements and, to the Parent's Knowledge, no other party to any
such contract, license or agreement is in breach thereof or has failed to
perform thereunder.
(k) To the Parent's Knowledge, Section 6.10(m) of the Parent
Disclosure Schedule lists all material contracts, licenses and agreements
between the Parent and any other person not listed on any other Section of the
Parent Disclosure Schedule wherein or whereby the Parent has agreed to, or
assumed, any obligation or duty to warrant, indemnify, reimburse, hold harmless,
guaranty or otherwise assume or incur any obligation or liability or provide a
right of rescission with respect to the infringement or misappropriation by the
Parent or such other person of the Intellectual Property Rights of any person
other than the Parent.
(l) To the Knowledge of the Parent, there are no contracts,
licenses or agreements between the Parent and any other person with respect to
Parent Intellectual Property under which there is any dispute except as provided
elsewhere in this document (other than routine warranty claims) regarding the
scope of such agreement, or performance under such agreement, including with
respect to any payments to be made or received by the Parent thereunder.
(m) The Parent has not received notice that the operation of the
business of the Parent as it currently is conducted infringes or misappropriates
any Intellectual Property Right of any person, violates any right of any person
(including any right to privacy or publicity) or constitutes unfair competition
or trade practices under the laws of any jurisdiction, and the Parent has not
received notice from any person claiming that such operation or any act,
product, technology or service (including products, technology or services
currently under development) of the Parent infringes or misappropriates any
Intellectual Property Right of any person or constitutes unfair
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competition or trade practices under the laws of any jurisdiction (nor does the
Parent have Knowledge of any basis therefor).
(n) To the Parent's Knowledge, no person is infringing or
misappropriating any material Parent Intellectual Property.
(o) The Parent has not received notice that any Intellectual
Property or product, or service or Technology of the Parent is subject to any
proceeding or outstanding decree, order, judgment or settlement agreement or
stipulation that restricts in any manner the use, transfer or licensing thereof
by the Parent or may affect the validity, use or enforceability of such Parent
Intellectual Property.
(p) To the Parent's Knowledge, the Parent has the right to use all
material Intellectual Property Rights used in the conduct of the business of the
Parent as it currently is conducted, including, without limitation, the design,
development, manufacturing, use, import and sale of products, technology and
services (including products, technology or services currently under
development).
(q) To the Parent's Knowledge, neither this Agreement nor the
transactions contemplated by this Agreement, including the assignment to Parent
or Surviving Corporation, by operation of law or otherwise, of any contracts or
agreements to which the Parent is a party, will result in (i) either Parent's or
the Surviving Corporation's granting to any third party any right to or with
respect to any Technology or Intellectual Property Right owned by, or licensed
to, either of them, (ii) either the Parent's or the Surviving Corporation's
being bound by, or subject to, any non-compete or other restriction on the
operation or scope of their respective businesses except as provided elsewhere
in this document, or (iii) either the Parent's or the Surviving Corporation's
being obligated to pay any royalties or other amounts to any third party in
excess of those payable by Parent or Surviving Corporation, respectively, prior
to the Closing.
(r) To the Parent's Knowledge, there are no royalties, fees,
honoraria or other payments payable by the Parent to any person or entity by
reason of the ownership, development, use, license, sale or disposition of the
Parent Intellectual Property, other than salaries and sales commissions paid to
employees and sales agents in the Ordinary Course of Business.
6.11 Subsidiaries. Parent does not have, and never has had, any
subsidiaries or affiliated companies and does not otherwise own, and has not
otherwise owned, any shares in the capital of or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity. Parent has not agreed and is not obligated to
make, nor bound by any agreement under which it may become obligated to make,
any future investment in or capital contribution to any other entity. Parent has
not, at any time, been a general partner of any general partnership, limited
partnership or other entity.
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6.12 Tax Matters.
(a) Parent has filed all reports and returns with respect to any
Taxes ("Parent Tax Returns") that it was required to file. All Parent Tax
Returns were prepared in accordance with all applicable statutes, rules and
regulations. To Parent's Knowledge, no Parent Tax Returns are currently the
subject of audit or examination nor has Parent been notified of any request for
an audit or examination. All Taxes owed by Parent (whether or not shown on any
Parent Tax Return) were paid in full when due or are being contested in good
faith and are supported by adequate reserves on the Parent Financial Statements.
Parent has provided adequate reserves on the Parent Financial Statements for the
payment of any taxes accrued but not yet due and payable as of the dates of the
Parent Financial Statements. Parent is not currently the beneficiary of any
extension of time within which to file any Parent Tax Return, and Parent has not
waived any statute of limitations in respect of Taxes or agreed to any extension
of time with respect to any Tax assessment or deficiency.
(b) There is no dispute, claim or proposed adjustment concerning
any Tax liability of Parent either (i) claimed or raised by any authority in
writing or (ii) based upon personal contact with any agent of such authority.
Parent is not a party to nor has it been notified that it is the subject of any
pending, proposed or threatened action, investigation, proceeding, audit, claim
or assessment by or before the Internal Revenue Service or any other
governmental authority and no claim for assessment, deficiency or collection of
Taxes, or proposed assessment, deficiency or collection from the Internal
Revenue Service or any other governmental authority which has not been
satisfied, nor does Parent have any reason to believe that any such notice will
be received in the future. The Internal Revenue Service has never audited any
federal income tax return of Parent. Parent has not filed any requests for
rulings with the Internal Revenue Service. No power of attorney has been granted
by Parent or any of its Affiliates with respect to any matter relating to Taxes
of Parent. There are no tax liens of any kind upon any property or assets of
Parent, except for inchoate liens for taxes not yet due and payable.
(c) Parent has not filed a consent under Sec. 341(f) of the Code
concerning collapsible corporations. Parent has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
any circumstances could obligate it to make any payments as a result of the
consummation of the Merger that will not be deductible under Code Sec. 280G.
Parent has not been a United States real property holding corporation within the
meaning of Code Sec. 897(c)(2) during the applicable period specified in Code
Sec. 897(c)(1)(A)(ii). Parent is not a party to any tax allocation or sharing
agreement. Parent (i) has not been a member of any Affiliated Group filing a
consolidated federal Income Tax Return (other than a group the common parent of
which Parent) and (ii) has no liability for the taxes of any Person (other than
any of Parent) under Treas. Reg. Section 1.1502-6 (or any similar provision of
state, local, or foreign law), as a
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transferee or successor, by contract, or otherwise. Parent has not requested or
received a ruling from any taxing authority or signed a closing agreement with
any taxing authority. To Parent's Knowledge, no claim has ever been made by a
taxing authority in a jurisdiction where Parent does not file Tax returns that
Parent is or may be subject to taxation by such jurisdiction.
(d) The unpaid Taxes of Parent (i) did not, as of the close of
Parent's most recent taxable year, exceed by any amount the reserve for Tax
liability (other than any reserve for deferred taxes established to reflect
timing differences between book and tax income) set forth on the face of
Parent's Financial Statements (rather than in any notes thereto) and (ii) will
not exceed that reserve as adjusted for operations and transactions through the
Closing Date in accordance with the past custom and practice of Parent in filing
its Tax Returns.
6.13 Tangible Assets. The buildings, equipment, and other tangible
assets that Parent owns and leases have been maintained in accordance with
normal industry practice, and are in good operating condition and repair
(subject to normal wear and tear) and are usable in the Ordinary Course of
Business.
6.14 Notes and Accounts Receivable. All notes and accounts receivable
of Parent, all of which are reflected properly on the books and records of
Parent, are valid receivables subject to no setoffs, defenses or counterclaims,
are current and, to Parent's Knowledge, collectible subject in each case only to
the reserve for bad debts set forth on the face of the Parent's Financial
Statements as adjusted for operations and transactions through the Closing Date
in accordance with the past custom and practice of Parent.
6.15 Power of Attorney. There are no outstanding powers of attorney
executed on behalf of Parent.
6.16 Insurance. Parent has delivered to the Company copies of each
insurance policy (including policies providing property, casualty, liability,
and workers' compensation coverage and bond and surety arrangements) with
respect to which Parent is a party, a named insured, or otherwise the
beneficiary of coverage. With respect to each such insurance policy: (A) the
policy is legal, valid, binding, enforceable, and in full force and effect (and
there has been no notice of cancellation or nonrenewal of the policy received by
Parent); (B) neither Parent nor, to Parent's Knowledge, any other party to the
policy is in breach or default under such policy (including with respect to the
payment of premiums or the giving of notices), and, to Parent's Knowledge, no
event has occurred which, with notice or the lapse of time, would constitute
such a breach or default, or permit termination, modification, or acceleration,
under the policy; (C) no party to the policy has repudiated any provision
thereof; and (D) there has been no failure by Parent to give any notice or
present any claim under the policy in due and timely fashion. Section 6.16 of
the Parent Disclosure Schedule describes any self-insurance arrangements
presently maintained by Parent.
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6.17 Restrictions on Business Activities. Except as set forth in
Section 6.17 of the Parent Disclosure Schedule, there is no agreement (not to
compete or otherwise), commitment, judgment, injunction, order or decree to
which Parent is a party or which is otherwise binding upon Parent which has the
effect of prohibiting or restricting any business or any acquisition of
property (tangible or intangible) by Parent. Without limiting the foregoing,
Parent has not entered into any agreement under which Parent is restricted from
selling, licensing or otherwise distributing any of its technology (including
any Company Intellectual Property) or products to or providing services to,
customers or potential customers or any class of customers, in any geographic
area, or in any segment of the market.
6.18 Product Warranty. To its Knowledge, the technologies or
products licensed, sold, leased, and delivered and all services provided by
Parent have conformed in all material respects with all applicable contractual
commitments and all express and implied warranties, and Parent has no liability
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due) for replacement or modification thereof or
other damages in connection therewith, other than in the Ordinary Course of
Business in an aggregate amount not exceeding $10,000.
6.19 Employees. No executive, key employee, or significant group of
employees has advised any executive officer of Parent that he, she or they plan
to terminate employment with Parent during the next 12 months. Parent is not a
Party to or bound by any collective bargaining agreement, nor has it
experienced any strike or grievance, claim of unfair labor practices, or other
collective bargaining dispute. To Parent's Knowledge, there is no
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of Parent.
6.20 Employee Matters and Benefits.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 6.20(a)(i) below (which definition shall apply
only to this Section 6.20), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity
under common control with Parent within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder;
(ii) "Code" shall mean the Internal Revenue Code of 1986,
as amended, or any successor statute thereto;
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(iii) "Parent Employee Plan" shall mean any plan, program,
policy, practice, contract, agreement or other arrangement which is in effect
and pursuant to which Parent has continuing obligations as of the date of this
Agreement providing for compensation, severance, termination pay, deferred
compensation, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits or remuneration of any kind, whether
written or unwritten or otherwise, funded or unfunded, including without
limitation, each "employee benefit plan," within the meaning of Section 3(3) of
ERISA which is or has been maintained, contributed to, or required to be
contributed to, by Parent or any Affiliate for the benefit of any Employee, or
with respect to which Parent or any Affiliate has or would reasonably be
expected to have any liability or obligation;
(iv) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(v) "DOL" shall mean the Department of Labor;
(vi) "Employee" shall mean any current or former employee,
consultant or director of Parent or any Affiliate;
(vii) "Employee Agreement" shall mean each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or other agreement, contract or understanding between Parent
or any Affiliate and any Employee which is in effect and pursuant to which
Parent has continuing obligations as of the date of this Agreement;
(viii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(ix) "FMLA" shall mean the Family Medical Leave Act of
1993, as amended;
(x) "International Employee Plan" shall mean each
Parent Employee Plan that has been adopted or maintained by Parent or any
Affiliate, whether informally or formally, or with respect to which Parent or
any Affiliate will or may have any liability, for the benefit of Employees who
perform services outside the United States;
(xi) "IRS" shall mean the Internal Revenue Service;
(xii) "Multiemployer Plan" shall mean any "Pension Plan"
(as defined below) which is a "multiemployer plan," as defined in Section 3(37)
of ERISA;
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EXECUTION VERSION
(xiii) "PBGC" shall mean the Pension Benefit Guaranty
Corporation; and
(xiv) "Pension Plan" shall mean each Company Employee Plan
which is an "employee pension benefit plan," within the meaning of Section 3(2)
of ERISA.
(b) Schedule. Section 6.20(b) of the Parent Disclosure
Schedule contains an accurate and complete list of each Parent Employee Plan
and each Employee Agreement. As of the date of this Agreement, Parent does not
have any plan or commitment to establish any new Parent Employee Plan or
Employee Agreement, to modify any Parent Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Parent Employee
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to Parent in writing, or as required by this
Agreement), or to enter into any Parent Employee Plan or Employee Agreement.
(c) Documents. Parent has provided or made available to the
Company: (i) correct and complete copies of all documents embodying each Parent
Employee Plan and each Employee Agreement including (without limitation) all
amendments thereto and all related trust documents; (ii) the most recent annual
actuarial valuations, if any, prepared for each Parent Employee Plan; (iii) the
three (3) most recent annual reports (Form Series 5500 and all schedules and
financial statements attached thereto), if any, required under ERISA or the
Code in connection with each Parent Employee Plan; (iv) if Parent Employee Plan
is funded, the most recent annual and periodic accounting of Parent Employee
Plan assets; (v) the most recent summary plan description together with the
summary(ies) of material modifications thereto, if any, required under ERISA
with respect to each Parent Employee Plan; (vi) all IRS determination, opinion,
notification and advisory letters, and all applications and correspondence to
or from the IRS or the DOL with respect to any such application or letter;
(vii) all material written agreements and contracts relating to each Company
Employee Plan, including, but not limited to, administrative service
agreements, group annuity contracts and group insurance contracts; (viii) all
correspondence to or from any governmental agency relating to any Parent
Employee Plan (ix) all COBRA forms and related notices; (x) all policies
pertaining to fiduciary liability insurance covering the fiduciaries for each
Parent Employee Plan; (xi) all discrimination tests for each Parent Employee
Plan for the most recent plan year; and (xii) all registration statements,
annual reports (Form 11-K and all attachments thereto) and prospectuses
prepared in connection with each Parent Employee Plan.
(d) Employee Plan Compliance. Parent is not in default or
violation of any Parent Employee Plan, and has no Knowledge of any default or
violation by any other party to each Parent Employee Plan, and each Parent
Employee Plan has been established and maintained in all material respects in
accordance with its terms and in compliance with all applicable laws, statutes,
orders, rules and regulations, including but not limited to ERISA or the Code.
Each Parent
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EXECUTION VERSION
Employee Plan intended to qualify under Section 401(a) of the Code and each
trust intended to qualify under Section 501(a) of the Code has either received
a favorable determination, opinion, notification or advisory letter from the
IRS with respect to each such Plan as to its qualified status under the Code,
including all amendments to the Code effected by the Tax Reform Act of 1986 and
subsequent legislation, or has remaining a period of time under applicable
Treasury regulations or IRS pronouncements in which to apply for such a letter
and make any amendments necessary to obtain a favorable determination as to the
qualified status of each such Parent Employee Plan. No "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406
and 407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has
occurred with respect to any Parent Employee Plan. There are no actions, suits
or claims pending, or, to the Knowledge of Parent, threatened or reasonably
anticipated (other than routine claims for benefits) against any Parent
Employee Plan or against the assets of any Parent Employee Plan. Each Parent
Employee Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to the Parent or
any of its Affiliates (other than ordinary administration expenses). There are
no audits, inquiries or proceedings pending or, to the Knowledge of Parent or
any Affiliates, threatened by the IRS or DOL with respect to any Parent
Employee Plan. Neither Parent nor any Affiliate is subject to any penalty or
tax with respect to any Parent Employee Plan under Section 502(i) of ERISA or
Sections 4975 through 4980 of the Code.
(e) Pension Plan. Neither Parent nor any Affiliate has ever
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has Parent or any
Affiliate contributed to or been obligated to contribute to any Multiemployer
Plan.
(g) No Post-Employment Obligations. No Parent Employee Plan
provides, or reflects or represents any liability to provide, retiree life
insurance, retiree health or other retiree employee welfare benefits to any
Person for any reason, except as may be required by COBRA or other applicable
Legal Requirements, and Parent has never represented, promised or contracted
(whether in oral or written form) to any Employee (either individually or to
Employees as a group) or any other Person that such Employee(s) or other Person
would be provided with retiree life insurance, retiree health or other retiree
employee welfare benefit, except to the extent required by applicable Legal
Requirements.
(h) COBRA etc. Neither Parent nor any Affiliate has, prior to
the Effective Time and in any material respect, violated any of the health care
continuation requirements of COBRA, the requirements of FMLA, the requirements
of the Women's Heath and Cancer Rights Act, the requirements of the Newborns'
and Mothers' Health Protection Act of 1996, or any similar provisions of state
law applicable to its Employees.
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EXECUTION VERSION
(i) Effect of Transaction.
(i) The execution of this Agreement and the consummation
of the transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events contemplated by this
Agreement) constitute an event under any Parent Employee Plan, Employee
Agreement, trust or loan that will or would reasonably be expected to result in
any payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any Employee.
(ii) Except as set forth on Section 6.20(i) of the Parent
Disclosure Schedule, no payment or benefit which will or may be made by Parent
or its Affiliates with respect to any Employee as a result of the transactions
contemplated by this Agreement or otherwise will be characterized as a
"parachute payment," within the meaning of Section 280G(b)(2) of the Code (but
without regard to clause (ii) thereof).
(j) Employment Matters. Parent: (i) is in compliance in all
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld and reported all amounts required by law or by
agreement to be withheld and reported with respect to wages, salaries and other
payments to Employees; (iii) is not liable for any arrears of wages or any
taxes or any penalty for failure to comply with any of the foregoing; and (iv)
is not liable for any payment to any trust or other fund governed by or
maintained by or on behalf of any governmental authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the normal
course of business and consistent with past practice). There are no pending,
reasonably anticipated or to Parent's Knowledge, threatened claims or actions
against Parent under any worker's compensation policy or long-term disability
policy.
(k) Labor. No work stoppage or labor strike against Parent is
pending, reasonably anticipated, or, to the Knowledge of Parent, threatened.
Parent does not have Knowledge of any activities or proceedings of any labor
union to organize any Employees. There is no litigation pending, or, to the
Knowledge of Parent, threatened relating to any labor, safety or discrimination
matters involving any Employee, including, without limitation, charges of
unfair labor practices or discrimination complaints, which, if adversely
determined, would, individually or in the aggregate, result in any material
liability to Parent. Parent has not engaged in any unfair labor practices
within the meaning of the National Labor Relations Act. Parent is not a party
to, or bound by, any collective bargaining agreement or union contract with
respect to Employees and no collective bargaining agreement is being negotiated
by Parent.
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EXECUTION VERSION
(l) International Employee Plan. Parent does not now, nor has
it ever had the obligation to, maintain, establish, sponsor, participate in, or
contribute to any International Employee Plan.
6.21 Guaranties. Parent is not a guarantor or otherwise responsible
for any liability or obligation (including indebtedness) of any other Person.
6.22 Environment, Health, and Safety.
(a) To its Knowledge, Parent (A) has complied with the
Environmental, Health, and Safety Laws (and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, directive or notice
has been filed or commenced against any of them alleging any such failure to
comply), (B) has obtained and been in substantial compliance with all of the
terms and conditions of all permits, licenses, certificates and other
authorizations which are required under the Environmental, Health, and Safety
Laws, and (C) has complied in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables applicable to Parent which are contained in the
Environmental, Health, and Safety Laws.
(b) To its Knowledge, Parent has not taken any action that
would reasonably be expected to give rise to any material liability (whether
known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due), and Parent has not handled or disposed of
any Hazardous Materials or Extremely Hazardous Substances, arranged for the
disposal of any Hazardous Materials or Extremely Hazardous Substances, exposed
any employee or other individual to any Hazardous Materials or Extremely
Hazardous Substances, or owned or operated any property or facility in any
manner that would reasonably be expected to give rise to any material
liability, for damage to any site, location, surface water, groundwater, land
surface or subsurface strata, for any illness of or personal injury to any
employee or other individual, or for any reason under any Environmental,
Health, and Safety Law.
(c) To its Knowledge, no Extremely Hazardous Substances are
currently, or have been, located at, on, in, under or about all properties and
equipment used in the business of Parent.
(d) To its Knowledge, no Hazardous Materials are currently
located at, on, in, under or about all properties and equipment used in the
business of Parent in a manner which violates any Environmental, Health and
Safety Laws or which requires cleanup or corrective action of any kind under
any Environmental, Health and Safety Laws.
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6.23 Certain Business Relationships With Parent. To Parent's
Knowledge, neither the shareholders of Parent nor any director or officer of
Parent, nor any member of their immediate families, nor any Affiliate of any of
the foregoing, owns, directly or indirectly, or has an ownership interest in
(a) any business (corporate or otherwise) which is a party to, or in any
property which is the subject of, any business arrangement or relationship of
any kind with Parent, or (b) any business (corporate or otherwise) which
conducts the same business as, or a business similar to, that conducted by
Parent.
6.24 Federal Securities Filings. The factual statements in Parent's
S-1 registration statement were true and correct in all material respects as of
the date of its filing with the SEC. All amendments of such S-1 filed between
the date of this Agreement and the Effective Date shall be true and correct in
all material respects as of the date that any such amendment is filed with the
SEC.
6.25 Undisclosed Liabilities. To its Knowledge, Parent has no
liability, indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type (whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due, including any liability for taxes), except
for those which individually or in the aggregate (i) are reflected on the Most
Recent Balance Sheet or (ii) have arisen after the Most Recent Fiscal Period
End in the Ordinary Course of Business and which are not material individually
or in the aggregate.
6.26 Full Disclosure. No representation or warranty in this Section
6 or in any document delivered by the Parent or its Representatives pursuant to
the transactions contemplated by this Agreement, and no statement, list,
certificate or instrument furnished to Parent pursuant hereto or in connection
with this Agreement, when taken as a whole, contains any untrue statement of a
material fact, or omits to state a material fact necessary to make the
statement herein or therein, in light of the circumstances in which they were
made, not misleading. Parent has delivered to Parent true, correct and complete
copies of all documents, including all amendments, supplements and
modifications thereof or waivers currently in effect thereunder, described in
the Parent Disclosure Schedule.
7. Pre-Closing Covenants. With respect to the period between the
execution of this Agreement and the earlier of the termination of this
Agreement and the Effective Time:
7.1 General. Each of the Parties will use reasonable efforts to take
all actions and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
as soon as reasonably practicable (including satisfaction, but not waiver, of
the closing conditions set forth in Section 9 below).
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7.2 Notices and Consents. The Company will give any notices to third
parties and will use reasonable efforts to obtain any third party consents that
are required in connection with the matters identified in Section 5.4 of the
Company Disclosure Schedule or otherwise required in connection with the Merger
so as to preserve all material rights of or benefits to the Company. Each of
the Parties will give any notices to, make any filings with, and use its
reasonable efforts to obtain any authorizations, consents, and approvals of
Governmental Bodies in connection with the matters identified in Section 5.4 of
the Company Disclosure Schedule or as otherwise required in connection with the
Merger.
7.3 Operation of Business. Each Party will (a) conduct its business
only in the Ordinary Course of Business, (b) use reasonable efforts to (i)
preserve intact its current business organization, (ii) use reasonable efforts
to keep available the services of its current officers, employees, and agents,
and (iii) use reasonable efforts to maintain the relations and good will of
its suppliers, customers, landlords, creditors, employees, agents, and others
with which it has business relationships, (c) confer with the other Party
concerning operational matters of a material nature, (d) not hire or engage any
new employee or contractor under a contract that is not terminable on notice of
90 days or less, or enter into any binding commitment to do so, without the
prior written consent of the other Party, which consent shall not be
unreasonably withheld or delayed, and (e) otherwise report periodically to the
other Party concerning the status of the business, operations, and finances of
such Party. In addition, except as otherwise expressly permitted or
contemplated by this Agreement, the Company will not, without the prior consent
of Parent, take any affirmative action, or fail to take any reasonable action
within its control, as a result of which any of the changes or events listed in
Section 5.9 is likely to occur. Notwithstanding the foregoing or any other
provision of this Agreement, the Company acknowledges and agrees that Parent
shall have no obligation to disclose or obtain the consent of the Company with
respect to any matter to the extent that any such disclosure or consent would
be prohibited by the rules and regulations of the SEC or any other laws, rules,
or regulations pertaining to the Parent's contemplated initial public offering.
Company further acknowledges and agrees that for purposes of this Agreement,
Parent's initial public offering process and Parent's pursuit and consummation
of strategic investments, partnerships, and joint ventures shall all be deemed
to be in the Ordinary Course of Business of the Parent.
7.4 Access to Information. Each of the Company and Parent will
permit the other Party and its Representatives to have access at all reasonable
times, and in a manner so as not to interfere with its normal business
operations, to its business and operations (subject, in the case of Parent, to
compliance with applicable securities laws). Neither such access, nor any
investigation by any Party and its Representatives, shall in any way diminish
or otherwise affect such Party's right to rely on any representation or
warranty made by the other Parties hereunder.
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7.5 Notice of Developments. Each of the Company and Parent will use
reasonable efforts to give prompt written notice to the other Party of any
material development causing a breach of any of its own representations and
warranties in Section 5 or Section 6 above, as the case may be. No disclosure
pursuant to this Section 7.5, however, shall be deemed to amend or supplement
the Company Disclosure Schedule, or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant. Company shall have right to amend
the Company Disclosure Schedule between the date of this Agreement and the
Effective Date, provided, however, that Parent shall have the right to
terminate this Agreement if any such amendment is material. Parent shall have
the right to amend the Parent Disclosure Schedule between the date of this
Agreement and the Effective Date, provided, however, that the Company shall
have the right to terminate this Agreement if any such amendment is material.
7.6 Shareholder Approval. As promptly as practicable after the date
hereof, the Company shall take all actions necessary in accordance with
Oklahoma Corporate Law and its Certificate of Incorporation and bylaws to
obtain the consent of its shareholders. The Board of Directors will
unanimously recommend approval of the proposal to approve the principal terms
of the Merger by the Company Shareholders, and will not withdraw or modify such
recommendation or recommend or endorse in any manner any alternative
Acquisition Proposal (as defined in Section 7.7). The materials submitted to
the Company Shareholders shall include information regarding the Company and
Parent, the terms of the Merger and this Agreement and the unanimous
recommendation of the Board of Directors of the Company regarding the Merger
and this Agreement. The Company shall deliver to Parent, as soon as possible
and in no event more than five (5) business days after the date of this
Agreement, executed Voting Agreements from holders with beneficial ownership of
at least seventy percent (70%) of the outstanding shares of Company Common and
Series D Preferred Stock, voting as a single class, and thirty percent (30%) of
the Series A, B, and C Preferred Stock voting as a single class.
7.7 No Solicitation.
(a) From and after the date hereof and until the earlier of the
Effective Time or the termination of this Agreement pursuant to Section 11.1
hereof, the officers and directors of the parties shall not, and, the parties
shall instruct their respective legal and financial advisors not to, directly
or indirectly, solicit, initiate or knowingly encourage (including by way of
furnishing non-public information) any proposal which constitutes or may
reasonably be expected to lead to an Acquisition Proposal (as defined below),
from any Person, or engage in any discussion or negotiations relating thereto
or enter into any agreement with any Person providing for or contemplating any
Acquisition Proposal.
(b) Each Party shall immediately cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any Party or Parties conducted
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heretofore by such party, or its Representatives with respect to any
Acquisition Proposal. Each Party shall notify the other orally and in writing
of any Acquisition Proposal and any amendments thereto with respect to such
Party or any other transaction, the consummation of which would reasonably be
expected to prevent or materially interfere with or materially delay the Merger
(including the material terms and conditions of any such Acquisition Proposal
and the identity of the Person making it and any subsequent modifications
thereto), promptly, but in any event within 48 hours, after receipt by such
party. The Parties agree that irreparable damage would occur in the event that
the provisions of this Section 7.7 were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed by the
Parties that each shall be entitled to seek an injunction or injunctions to
prevent breaches of the provisions of this Section 7.7 and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which such Party may be entitled at law or in equity.
(c) As used in this Section 7.7, "Acquisition Proposal" shall,
with respect to the Company, mean:
(i) a bona fide proposal or offer for a merger,
consolidation or other business combination involving an acquisition of the
Company, any subsidiary of the Company or any material asset of the Company or,
any subsidiary of the Company;
(ii) a bona fide proposal or offer to acquire all or
substantially all of the assets of the Company; or
(iii) any proposal to acquire in any manner any of the
Company's Capital Stock (other than upon the exercise of options outstanding on
the date hereof and listed in Section 5.3(b) of the Company Disclosure
Schedule).
(d) As used in this Section 7.7, "Acquisition Proposal" shall,
with respect to Parent, mean a bona fide proposal or offer to acquire by
merger, consolidation or other business combination a business entity
substantially similar to the Company.
7.8 Confidentiality. Each of the Parties hereto hereby agrees to
keep such information or Knowledge obtained in any due diligence or other
investigation pursuant to the negotiation and execution of this Agreement or
the effectuation of the transactions contemplated hereby, confidential, except
to the extent that such information is or becomes publicly known or available
or is independently acquired or developed. Each of the Parties hereto agrees
to keep the terms of the discussions among the Parties hereto, confidential.
The Company and its employees and agents, acknowledge and agree not to engage
in any transactions in Parent's Common Stock in violation of applicable insider
trading laws.
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7.9 FIRPTA Compliance. On the Closing Date, the Company shall
deliver to Parent a properly executed statement in a form reasonably acceptable
to Parent for purposes of satisfying Parent's obligations under U.S. Treasury
Regulation Section 1.1445-2(c)(3).
7.10 Confidentiality and Assignment Compliance. Company must, prior
to Closing, complete the following: i) an audit of the Company's confidentiality
and assignment agreements determining that all employees of Company, past and
present, are subject to a valid confidentiality and assignment agreements, and
ii) all required assignment agreements needed to assign the filed patent(s)of
Company have been executed.
7.11 Additional Documents and Further Assurances. Each Party hereto,
at the request of another Party hereto, shall execute and deliver such other
instruments and do and perform such other reasonable acts and things as may be
necessary or desirable for effecting completely the consummation of the
Contemplated Transactions.
8. Post-Closing Covenants. With respect to the period following the
Effective Time:
8.1 General. In case at any time after the Effective Time any
further action is necessary to carry out the purposes of this Agreement, each
of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting
Party.
8.2 Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction (A) on or
prior to the Effective Time involving the Company or (B) arising out of
Parent's operation of the business of the Surviving Corporation following the
Effective Time in the manner in which it is presently conducted and planned to
be conducted, each of the other Parties will cooperate with the Party and its
counsel in the contest or defense, make available their personnel, and provide
such testimony and access to their books and records as shall be reasonably
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party.
8.3 Release of Guaranty. Parent shall use its best efforts to
obtain a release of the guaranty of the Company with Stillwater National Bank
and if such a release is not obtained within thirty (30) days after the
Effective Date, Parent shall pay-off said loan, up to a maximum amount of
$1,200,000, provided that such payment does not violate any other agreement by
which the Company is bound or accelerate any debt or other obligation of the
Company.
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8.4 Statutory Indemnification. Parent shall not terminate any
indemnification obligation owed by Company or the Surviving Corporation to any
employee, officer or director thereof in effect under Oklahoma law as of the
Effective Date. In addition, Parent (a) hereby assumes and agrees to perform
and be liable for such indemnification of each such employee, officer or
director of the Company to the same extent if the Parent were the Company or
the Surviving Corporation, and (b) shall maintain in effect the Company's
director's and officer's liability insurance policy or a policy substantially
similar to such policy.
8.5 Directed Share Program. Parent agrees that it shall use
reasonable commercial efforts to allow Scott Klososky and John Frick to direct
a portion of the total number of shares offered pursuant to any directed share
program undertaken by the Parent in connection with any initial public offering
of the Parent's Common Stock (an "IPO"). The Parent shall have sole discretion
to determine whether to undertake any directed shares program and the size of
any directed share program so undertaken. Scott Klososky and John Frick shall
be entitled to allocate 8% of the aggregate number of shares offered by the
Parent in its directed share program. The inclusion of persons designated by
Scott Klososky and John Frick in any directed share program shall be subject to
(i) compliance with federal and state securities laws and the directives of the
Securities and Exchange Commission, (ii) compliance by such persons with the
rules and regulations of the National Association of Securities Dealers, Inc.,
(iii) the consent of the underwriters of such IPO, and (iv) the allocation of
such shares to directors, officers, employees, business associates and related
persons of the Company in a manner substantially similar to the allocation by
the Parent.
9. Conditions to Obligations to Close.
9.1 Conditions to Parent's and Sub's Obligation to Close. The
obligations of Parent and Sub to consummate the transactions to be consummated
by them in connection with the Closing is subject to satisfaction or waiver of
the following conditions:
(a) Representations and Warranties. The representations and
warranties set forth in Section 5 above shall be true and correct in all
material respects when made and shall be true and correct in all material
respects on and as of the Closing Date as though such representations and
warranties were made on and as of the Closing Date (it being understood that,
for purposes of determining the accuracy of such representations and
warranties, any update of or modification to the Company Disclosure Schedule
made or purported to have been made after the execution of this Agreement shall
be disregarded);
(b) Covenants. The Company shall have performed and complied
with all of its covenants hereunder in all material respects through the
Closing.
(c) Consents. The Company shall have procured all of the third
party consents specified in Section 5.4 of the Company Disclosure Schedule.
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(d) No Actions. No action, suit, or proceeding shall be
pending before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, (C) affect materially the right of Parent to
control the Company following the Effective Time, or (D) affect materially the
right of Parent or the Company to own the Company's assets (including without
limitation its Intellectual Property) and to operate the Company's businesses
(and no such injunction, judgment, order, decree, ruling or charge shall be in
effect) and no law, statute, ordinance, rule, regulation or order shall have
been enacted, enforced or entered which has caused, or would reasonably be
expected to cause, any of the effects under clause (A), (B), (C), or (D) of
this Section 9.1(d) to occur.
(e) Certificates. The CEO and the Secretary of the Company
shall have delivered to Parent a certificate to the effect that each of the
conditions specified above in Section 9.1(a) to 9.1(d) (inclusive) is satisfied
in all respects.
(f) Governmental Authorizations. The Parties shall have
received all authorizations, consents and approvals of governments and
governmental agencies referred to in Section 5.4 or Section 7.2 above or
disclosed in a corresponding section in the Company Disclosure Schedule.
(g) Employment Agreements. Scott Klososky, Robert Rankin, Tim
Carruthers, Paul Emmons, Vaughn Rachal, Stan Chase, and Marshall Presnell ("Key
Employees") shall each (i) continue to serve as full-time employees of the
Company, (ii) shall have executed and delivered to Parent an amendment and
ratification of his existing Employment Agreement with the Company, in form and
substance acceptable to Parent, and such Employment Agreements shall be in full
force and effect (it being acknowledged and agreed that Robert Rankin's
employment shall end effective July 31, 2000), and (iii) have delivered to
Parent an amendment to his stock option agreement providing that as of the
Effective Time, and notwithstanding the vesting of his stock options prior to
such time, his options (A) shall be deemed to be forty percent (40%) vested as
of the Effective Date, (B) shall vest thirty percent (30%) on the first
anniversary of the Effective Date, and (C) shall vest two and one-half percent
(2.5%) per month during the twelve-month period following such anniversary,
except as provided in the amended in the Amendment to Employment Agreement and
Stock Option Agreement for Robert Rankin."
(h) Shareholder Certificate. Each Company Shareholder shall
have executed and delivered to Parent a Shareholder Certificate in
substantially the form attached hereto as Exhibit D.
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(i) Legal Opinion. Parent shall have received from Phillips
McFall McCaffrey McVay & Murrah, P.C., counsel to the Company, an opinion in
form and substance as set forth in Exhibit E attached hereto, addressed to
Parent, and dated as of the Closing Date.
(j) Shareholder Vote. This Agreement and the Merger shall have
been approved by the shareholders of the Company by the requisite vote under
applicable law and the Company's Certificate of Incorporation.
(k) No Material Adverse Effect. There shall not have occurred
any event having a Material Adverse Effect on the Company since the Most Recent
Fiscal Period End.
(l) Resignation of Directors. Each of the directors of the
Company shall have resigned.
(m) Releases. Each Key Employee shall have executed and
delivered a Release in substantially the form attached hereto as Exhibit F.
(n) Closing Balance Sheet. The Company shall have delivered to
Parent a balance sheet of the Company dated as of February 29, 2000 (the
"Closing Balance Sheet"), accompanied by a letter executed by the CEO and the
Chief Financial Officer of the Company certifying the accuracy of such Closing
Balance Sheet in all material respects.
(o) Due Diligence Investigation. Parent shall have completed
its due diligence investigation of the Company to Parent's satisfaction,
provided that no information or knowledge obtained in such investigation shall
affect or be deemed to modify any representation or warranty of the Company
contained herein.
(p) Market Stand-Off Agreement. All Company Shareholders,
officers, directors and 1% shareholders of Parent shall have executed a 180-day
market stand- off agreement, in the form requested by the underwriters of the
Parent's initial public offering, covering all securities of the Parent
received by such Company Shareholders in connection with the Contemplated
Transactions. Parent shall use its Best Efforts to ensure that a release by the
underwriters of market stand-off agreements operates as a pro-rata release of
all person subject to such market stand-off agreements.
(q) Parent Shareholder Consent. Parent shall have obtained all
necessary consents of its shareholders with respect to the Second Amended and
Restated Investors Rights Agreement and the Parent's Restated Certificate of
Incorporation.
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(r) No Dissenters. Holders of more than ten percent (10)% of
the outstanding shares of Company Capital Stock shall not have exercised, nor
shall they have any continued right to exercise, appraisal, dissenters' or
similar rights under applicable law with respect to their shares by virtue of
the Merger.
Parent may waive any condition (in whole or in part) specified in this
Section 9.1 if it executes a writing so stating at or prior to the Closing.
9.2 Conditions to the Company's Obligations. The obligation of the
Company to consummated the transactions to be performed by it in connection
with the Closing is subject to satisfaction or waiver of the following
conditions:
(a) Representations and Warranties. The representations and
warranties set forth in Section 6 above shall be true and correct in all
material respects when made and shall be true and correct in all material
respects on and as of the Closing Date as though such representations and
warranties were made on and as of the Closing Date (it being understood that,
for purposes of determining the accuracy of such representations and
warranties, any update of or modification to the Parent Disclosure Schedule
made or purported to have been made after the execution of this Agreement shall
be disregarded).
(b) Covenants. Parent and Sub shall have performed and
complied with all of their covenants hereunder in all material respects through
the Closing.
(c) No Actions. No action, suit, or proceeding shall be
pending before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement
or (B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect).
(d) Certificate. The CEO or other duly authorized officer of
Parent shall have delivered to the Company a certificate to the effect that
each of the conditions specified above in Section 9.2(a) to 9.2(c) (inclusive)
is satisfied in all respects.
(e) Legal Opinion. The Company shall have received from Wilson
Sonsini Goodrich & Rosati, Professional Corporation, counsel to Parent an
opinion in form and substance as set forth in Exhibit G attached hereto,
addressed to the Company, and dated as of the Closing Date.
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EXECUTION VERSION
(f) Second Amended and Restated Investors Rights Agreement.
The Second Amended and Restated Investors Rights Agreement in the form attached
hereto in Exhibit C shall have been executed by Parent and the Company
Shareholders, and a sufficient number of the existing holders of registration
rights with respect to the Parent's securities shall have executed consents
permitting the granting of such rights under Parent's Amended and Restated
Investors' Rights Agreement dated February 15, 2000 ("Investors' Rights
Agreement").
(g) Restated Certificate of Incorporation. Parent shall have
received sufficient consents from its shareholders to file a Restated
Certificate of Incorporation in the form of Exhibit H hereto with the Secretary
of State of the State of Delaware which authorizes the issuance of the Series F
Preferred Stock.
(h) Vesting. The vesting schedules for the Company Options
held by the Key Employees and assumed by the Parent pursuant to the Merger
shall have been modified as set forth in Section 9.1(g).
(i) Exhibit J. Parent shall have executed and delivered that
certain promissory note, the form of which is attached to this Agreement as
Exhibit J.
The Company may waive any condition (in whole or in part) specified in
this Section 9.2 if it executes a writing so stating at or prior to the Closing.
10. Survival of Representations, Warranties and Covenants. Survival of
Representations and Warranties. All covenants of the Company, Parent, or Sub
contained in this Agreement to be performed prior to the Effective Time, and
all representations and warranties of the Company, Parent, or Sub contained in
this Agreement or in any instrument delivered by the Company pursuant to this
Agreement, shall survive the Merger for a period ending one (1) year from the
Effective Time.
11. Termination.
11.1 Termination of the Agreement. The Parties may terminate this
Agreement as provided below:
(a) Parent and the Company may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(b) Parent or the Company may terminate this Agreement by
written notice to the other Parties if: (i) the Closing has not occurred by
(A) June 30, 2000; provided, however, that the right to terminate this
Agreement under this Section 11.1(b)(i) shall not be available to any Party
whose action or failure to act has been a principal cause of or resulted in the
failure of the Merger to occur on or before such date and such action or
failure to act constitutes a breach of this Agreement;
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EXECUTION VERSION
(ii) there shall be a final nonappealable order of a court of competent
jurisdiction in effect preventing consummation of the Merger, (iii) there shall
be any statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the Merger by any Governmental Body that would make
consummation of the Merger illegal; or (iv) such party reasonably believes that
the initial public offering of the Parent will not be completed by June 30
2000.
(c) Parent or Company may terminate this Agreement by written
notice if there shall be any action taken, or any statute, rule, regulation or
order enacted, promulgated or issued or deemed applicable to the Merger by any
Governmental Body, which would (i) prohibit Parent's or the Company's ownership
or operation of all or a portion of the business of the Company or (ii) compel
Parent or the Company to dispose of or hold separate all or a portion of the
business or assets of Parent or the Company as a result of the Merger;
(d) Parent may terminate this Agreement by written notice to
the Company if neither it nor Sub is in breach of any representation, warranty,
covenant or agreement under this Agreement in a manner which would cause the
conditions to Closing set forth in Section 9.2(a) or 9.2(b) not to be
satisfied, and there has been a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of the Company
which would cause the conditions to Closing set forth in Section 9.1(a) or
9.1(b) not to be satisfied, and such breach has not been cured within twenty
(20) calendar days after written notice to the Company; provided, however,
that, no cure period shall be required for a breach which by its nature cannot
be cured; and
(e) Company may terminate this Agreement by written notice to
the Parent if Company is not in breach of any representation, warranty,
covenant or agreement under this Agreement in a manner which would cause the
conditions to Closing set forth in Section 9.1(a) or 9.1(b) not to be
satisfied, and there has been a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of the Parent
which would cause the conditions to Closing set forth in Section 9.2(a) or
9.2(b) not to be satisfied, and such breach has not been cured within twenty
(20) calendar days after written notice to the Parent; provided, however, that,
no cure period shall be required for a breach which by its nature cannot be
cured; and
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11.2 Notice of Termination; Effect of Termination. Any termination
of this Agreement under Section 11.1 above will be effective immediately upon
the delivery of written notice of the terminating party to the other parties
hereto. In the event of the termination of this Agreement as provided in
Section 11.1, this Agreement shall be of no force or effect, except (i) Section
11.2, Section 11.3 (Fees and Expenses), Section 7.8 (Confidentiality) and
Section 12 (Miscellaneous), will survive the termination of this Agreement, and
(ii) nothing herein shall relieve any Party from liability due to breach by
such Party of any of its representations, warranties or covenants set forth in
this Agreement.
11.3 Fees and Expenses.
(a) General. Each Party will bear its own costs and expenses
(including legal and accounting fees and expenses) incurred in connection with
this Agreement and the Contemplated Transactions. In the event the Merger is
consummated, the Parent will bear the costs and expenses (including accounting
and legal fees and expenses and those of FBR) of the Company incurred in
connection with this Agreement and the Contemplated Transactions.
(b) Company Break-Up Fee. If (i) the Board of Directors of the
Company shall have withheld, withdrawn or modified in a manner adverse to the
Parent, its recommendation in favor of adoption and approval of this Agreement
and approval of the Merger, (ii) the Company enters into an alternative
Acquisition Proposal, or (iii) the Company terminates this Agreement for a
reason or in a manner other than as specified in Section 11.1 hereof, the
Company shall pay to Parent an amount equal to $10 million within one business
day after written notice of such event. Notwithstanding the foregoing, no
amount shall be due and owing to the Parent from the Company based on the terms
of this Section 11.3(b) in the event that the Company fully complies with the
provisions of Section 7.6 of this Agreement (Shareholder Approval), but the
vote or consent of a sufficient amount of the Company Shareholders necessary to
approve this Agreement and the Merger is not obtained by April 1, 2000.
Further, Parent shall not be entitled to such break-up fee if the conduct of
the Company which is the basis of such break-up fee results from a breach of
this Agreement by Parent.
(c) Parent Break-Up Fee. If (i) the Board of Directors of the
Parent shall have withheld, withdrawn or modified in a manner adverse to the
Company, its recommendation in favor of adoption and approval of this Agreement
and approval of the Merger, (ii) the Parent enters into an alternative
Acquisition Proposal, or (iii) Parent terminates this Agreement for a reason or
in a manner other than as specified in Section 11.1 hereof, Parent shall pay
Company $10 million within one business day of delivery of written notice of
such termination. Notwithstanding the foregoing, no amount shall be due and
owing to the Company from the Parent based on the terms of this Section
11.3(c), in the event that the Parent is unable to obtain the votes of its
stockholders necessary to (i) amend its Restated Certificate of Incorporation
to authorize the issuance of the Series F
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EXECUTION VERSION
Preferred Stock or (ii) amend its Investors' Rights Agreement to provide for
the granting of registration rights to the Company Shareholders. Further, the
Company shall not be entitled to such break-up fee if the conduct of Parent
which is the basis of such break-up fee results from a breach of this Agreement
by the Company.
12. Miscellaneous.
12.1 Press Releases and Public Disclosure. No Party shall issue any
press release or make any public disclosure relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
other Party; provided, however, that Parent may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its securities (in which case Parent will use its Best
Efforts to advise the Company prior to making the disclosure), securities laws
or exchange requirements, then Parent shall use its Best Efforts to provide the
Company prior notice of such disclosure.
12.2 No Third-Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties, the Company
Shareholders and their respective successors and permitted assigns.
12.3 Entire Agreement and Modification. This Agreement (including
the exhibits hereto) constitute the entire agreement among the Parties with
respect to the subject matter hereof and supersede any prior understandings,
agreements, or representations by or among the Parties, written or oral, to the
extent they related in any way to the subject matter hereof. This Agreement
may not be amended prior to the Effective Time except by a written agreement
executed by all Parties and after the Effective Time except by a written
agreement signed by Parent.
12.4 Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior
written approval of the other Parties; provided, however, that Parent may (i)
assign any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder.
12.5 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original but all of which together will
constitute one and the same instrument.
12.6 Headings. The Section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
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12.7 Notices. All notices and other communications required or
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given upon receipt or, if earlier, (a) five
(5) days after deposit with the U.S. Postal Service or other applicable postal
service, if delivered by first class mail, postage prepaid, (b) upon delivery,
if delivered by hand, (c) one business day after the business day of deposit
with Federal Express or similar overnight courier, freight prepaid or (d) one
business day after the business day of facsimile transmission, if delivered by
facsimile transmission with receipt of transmission confirmation and with copy
by first class mail, postage prepaid, and shall be addressed to the intended
recipient as set forth below:
If to Parent:
iBEAM Broadcasting Corporation
645 Almanor Avenue, Suite 100
Sunnyvale, California 94086
Attention: Dan Sroka
Facsimile: 408-524-0567
Copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Rd.
Palo Alto, CA 94304
Attention: Barry Taylor
Facsimile: 650-845-5000
If to the Company:
Webcasts.com, Inc.
4100 Perimeter Center Drive
Oklahoma City, OK 73112
Attention: Scott Klososky
Facsimile: (405) 717-4810
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<PAGE>
EXECUTION VERSION
Copy to:
Phillips McFall McCaffrey
McVay & Murrah, P.C.
Twelfth Floor
One Leadership Square
211 North Robinson
Oklahoma City, OK 73102
Attention: Douglas A. Branch, Esq.
Facsimile: (405) 235-4562
and
Chisholm Private Partners Capital
211 North Robinson
Oklahoma City, Oklahoma 73012
Attention: John Frick
Facsimile: (405) 416-1035
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties ten (10) days' advance written notice to the other Parties pursuant to
the provisions above.
12.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of California
without giving effect to any choice or conflict of law provision or rule
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California.
12.9 Forum Selection; Consent to Jurisdiction. All disputes arising
out of or in connection with this Agreement (other than matters subject to
arbitration pursuant to the terms of this Agreement or the other agreements
delivered by the Parties pursuant hereto) shall be solely and exclusively
resolved by a court of competent jurisdiction in the [State of California].
The Parties hereby consent to the jurisdiction of the Courts of the [State of
California] and the United States District Court of the [Northern District of
California] and waive any objections or rights as to forum nonconvenience, lack
of personal jurisdiction or similar grounds with respect to any dispute
relating to this Agreement.
12.10 Waivers. The rights and remedies of the Parties to this
Agreement are cumulative and not alternative. Neither the failure nor any
delay by any Party in exercising any right, power or privilege under this
Agreement or the documents referred to in this Agreement will operate
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<PAGE>
EXECUTION VERSION
as a waiver of such right, power or privilege, and no single or partial
exercise of such right, power, or privilege will preclude any other or further
exercise of such right, power, or privilege or the exercise of any other right,
power, or privilege. To the maximum extent permitted by applicable law, (a) no
claim or right arising out of this Agreement or the documents referred to in
this Agreement can be discharged by one Party, in whole or in part, by a waiver
or renunciation of the claim or right unless in writing signed by the other
Party; (b) no waiver that may be given by a Party will be applicable except in
the specific instance for which it is given; and (c) no notice to or demand on
one Party will be deemed to be a waiver of any obligation of such Party or of
the right of the Party giving such notice or demand to take further action
without notice or demand as provided in this Agreement or the documents
referred to in this Agreement.
12.11 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
12.12 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof
shall arise favoring or disfavoring any Party by virtue of the authorship of
any of the provisions of this Agreement. Any reference to any federal, state,
local, or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
12.13 Disclosure Schedules. In the event of any inconsistency
between the statements by the Company in the body of this Agreement and those
in the Company Disclosure Schedule (other than an exception expressly set forth
as such in the Company Disclosure Schedule with respect to a specifically
identified representation or warranty), the statements in the body of this
Agreement will control. In the event of any inconsistency between the
statements by Parent or Sub in the body of this Agreement and those in the
Parent Disclosure Schedule (other than an exception expressly set forth as such
in the Parent Disclosure Schedule with respect to a specifically identified
representation or warranty), the statements in the body of this Agreement will
control.
12.14 Attorneys' Fees. If any legal proceeding or other action
relating to this Agreement is brought or otherwise initiated, the prevailing
party shall be entitled to recover reasonable attorneys fees, costs and
disbursements (in addition to any other relief to which the prevailing party
may be entitled).
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<PAGE>
EXECUTION VERSION
12.15 Further Assurances. The Parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other Party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
12.16 Time of Essence. With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on of
the date first above written.
Parent: iBEAM BROADCASTING CORPORATION
By: ______________________________
Name: ____________________________
Title: ___________________________
Sub: WAC ACQUISITION CORPORATION
By: ______________________________
Name: ____________________________
Title: ___________________________
Company: WEBCASTS.COM, INC.
By: ______________________________
Name: ____________________________
Title: ___________________________
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
<PAGE>
Exhibit A Certificate of Merger - Attached
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
<PAGE>
Exhibit B Form of Voting Agreement - Attached
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
<PAGE>
Exhibit C Form of Second Amended and Restated Investors Rights
Agreement - Attached
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
<PAGE>
Exhibit D Shareholder Certificate - Attached
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
<PAGE>
Exhibit E Opinion of Company Counsel - Attached
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
<PAGE>
Exhibit F Form of Release - Attached
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
<PAGE>
Exhibit G Opinion of Parent Counsel - Attached
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
<PAGE>
Exhibit H Restated Certificate of Incorporation of Parent
authorizing Series F Preferred Stock Attached
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
<PAGE>
Exhibit I Exchange Ratio Calculation - Attached
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
<PAGE>
Exhibit J Promissory Note - Attached
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
<PAGE>
Exhibit K Revenue Plan - Attached
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
<PAGE>
Company Disclosure Schedule - Attached
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
<PAGE>
Parent Disclosure Schedule - Attached
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
<PAGE>
EXHIBIT 10.16
iBEAM BROADCASTING CORPORATION
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is effective as of the 25th day of
January, 2000 (the "Effective Date") by and between iBEAM Broadcasting
Corporation, a Delaware corporation (the "Company"), and Frederic Seegal
("Consultant"). The Company desires to retain Consultant as an independent
contractor to perform consulting services for the Company and Consultant is
willing to perform such services, on terms set forth more fully below. In
consideration of the mutual promises contained herein, the parties agree as
follows:
1. SERVICES AND COMPENSATION
(a) Consultant agrees to perform for the Company the services
("Services") described in Exhibit A, attached hereto.
(b) The Company agrees to pay Consultant the compensation set forth
in Exhibit A for the performance of the Services.
2. CONFIDENTIALITY
(a) "Confidential Information" means any Company proprietary
information, technical data, trade secrets or know-how, including, but not
limited to, research, product plans, products, services, customers, customer
lists, markets, software, developments, inventions, processes, formulas,
technology, designs, drawings, engineering, hardware configuration information,
marketing, finances or other business information disclosed by the Company
either directly or indirectly in writing, orally or by drawings or inspection
of parts or equipment.
(b) Consultant will not, during or subsequent to the term of this
Agreement, use the Company's Confidential Information for any purpose
whatsoever other than the performance of the Services on behalf of the Company
or disclose the Company's Confidential Information to any third party, and it
is understood that said Confidential Information shall remain the sole property
of the Company. Consultant further agrees to take all reasonable precautions
to prevent any unauthorized disclosure of such Confidential Information
including, but not limited to, having each employee of Consultant, if any, with
access to any Confidential Information, execute a nondisclosure agreement
containing provisions in the Company's favor substantially similar to Sections
2, 3 and 4 of this Agreement. Upon Company's request, Consultant shall provide
copies of such non-disclosure agreements to Company. Confidential Information
does not include information which (i) is known to Consultant at the time of
disclosure to Consultant by the Company as evidenced by written records of
Consultant, (ii) has become publicly known and made generally available through
no wrongful act of Consultant, or (iii) has been rightfully received by
Consultant from a third party who is authorized to make such disclosure.
(c) Consultant agrees that Consultant will not, during the term of
this Agreement, improperly use or disclose any proprietary information or trade
secrets of any former or current employer or other person or entity with which
Consultant has an agreement or duty to keep in confidence information acquired
by Consultant in confidence, if any, and that Consultant will not bring onto
the premises of the Company any unpublished document or proprietary information
belonging to such employer, person or entity unless consented to in writing by
such employer, person or entity.
(d) Consultant recognizes that the Company has received and in the
future will receive from third parties their confidential or proprietary
information subject to a duty on the Company's part to
<PAGE>
maintain the confidentiality of such information and to use it only for certain
limited purposes. Consultant agrees that Consultant owes the Company and such
third parties, during the term of this Agreement and thereafter, a duty to hold
all such confidential or proprietary information in the strictest confidence
and not to disclose it to any person, firm or corporation or to use it except
as necessary in carrying out the Services for the Company consistent with the
Company's agreement with such third party.
(e) Upon the termination of this Agreement, or upon Company's
earlier request, Consultant will deliver to the Company all of the Company's
property or Confidential Information in tangible form that Consultant may have
in Consultant's possession or control (including without limitation,
Confidential Information in the possession or control of Consultant's
employees).
3. OWNERSHIP
(a) Consultant agrees that all copyrightable material, notes,
records, drawings, designs, inventions, improvements, developments, discoveries
and trade secrets (collectively, "Inventions") conceived, made or discovered by
Consultant, solely or in collaboration with others, during the period of this
Agreement which relate in any manner to the business of the Company that
Consultant may be directed to undertake, investigate or experiment with, or
which Consultant may become associated with in work, investigation or
experimentation in the line of business of Company in performing the Services
hereunder, are the sole property of the Company. In addition, any Inventions
which constitute copyrightable subject matter shall be considered "works made
for hire" as that term is defined in the United States Copyright Act.
Consultant further agrees to assign (or cause to be assigned) and does hereby
assign fully to the Company all such Inventions and any copyrights, patents,
mask work rights or other intellectual property rights relating thereto.
(b) Consultant agrees to assist Company, or its designee, at the
Company's expense, in every proper way to secure the Company's rights in the
Inventions and any copyrights, patents, mask work rights or other intellectual
property rights relating thereto in any and all countries, including the
disclosure to the Company of all pertinent information and data with respect
thereto, the execution of all applications, specifications, oaths, assignments
and all other instruments which the Company shall deem necessary in order to
apply for and obtain such rights and in order to assign and convey to the
Company, its successors, assigns and nominees the sole and exclusive rights,
title and interest in and to such Inventions, and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto. Consultant
further agrees that Consultant's obligation to execute or cause to be executed,
when it is in Consultant's power to do so, any such instrument or papers shall
continue after the termination of this Agreement.
(c) Consultant agrees that if the Company is unable because of
Consultant's unavailability, dissolution, mental or physical incapacity, or for
any other reason, to secure Consultant's signature to apply for or to pursue
any application for any United States or foreign patents or mask work or
copyright registrations covering the Inventions assigned to the Company above,
then Consultant hereby irrevocably designates and appoints the Company and its
duly authorized officers and agents as Consultant's agent and attorney in fact,
to act for and in Consultant's behalf and stead to execute and file any such
applications and to do all other lawfully permitted acts to further the
prosecution and issuance of patents, copyright and mask work registrations
thereon with the same legal force and effect as if executed by Consultant.
4. CONFLICTING OBLIGATIONS
(a) Consultant certifies that Consultant has no outstanding
agreement or obligation that is in conflict with any of the provisions of this
Agreement, or that would preclude Consultant from complying with the provisions
hereof, and further certifies that Consultant will not enter into any such
conflicting Agreement during the term of this Agreement.
-2-
<PAGE>
(b) In view of Consultant's access to the Company's trade secrets
and proprietary know-how, Consultant further agrees that Consultant will not,
without Company's prior written consent, perform identical or substantially
similar Services as those under this Agreement for any third party during the
term of this Agreement.
(c) Consultant agrees not to solicit the services of or employ of any
of the Company's employees during the term of this Agreement and for a period of
one (1) year thereafter without the Company's prior written consent.
5. TERM AND TERMINATION
(a) This Agreement will commence on the date first written above and
will continue until final completion of the Services or termination as provided
below.
(b) Either the Company or Consultant may terminate this Agreement
upon two (2) days prior written notice thereof to the other party for any
reason or no reason, with or without cause. Any such notice shall be addressed
to Consultant at such facsimile address as either party may notify the other of
and shall be deemed given upon delivery when delivered by facsimile with
confirmation by mail. The Company may terminate this Agreement immediately and
without prior notice if Consultant refuses to or is unable to perform the
Services or is in breach of any material provision of this Agreement.
(c) Upon such termination all rights and duties of the parties
toward each other shall cease except Sections 2 (Confidentiality), 3
(Ownership) and 7 (Independent Contractors) shall survive termination of this
Agreement.
6. ASSIGNMENT
Neither this Agreement nor any right hereunder or interest herein may
be assigned or transferred by Consultant without the express written consent of
the Company.
7. INDEPENDENT CONTRACTOR
Nothing in this Agreement shall in any way be construed to constitute
Consultant as an agent, employee or representative of the Company, but
Consultant shall perform the Services hereunder as an independent contractor.
8. GOVERNING LAW
This Agreement shall be governed by and construed under the laws of
the State of California, without reference to its conflict of law principles.
9. ENTIRE AGREEMENT
This Agreement is the entire agreement of the parties and supersedes
any prior agreements between them, whether written or oral, with respect to the
subject matter hereof. No waiver, alteration, or modification of any of the
provisions of this Agreement will be binding unless in writing and signed by
duly authorized representatives of the parties hereto. In the event of any
conflict between the terms of this Agreement and any exhibit hereto, the terms
of this Agreement shall govern.
-3-
<PAGE>
10. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement,
or any terms thereof, will not affect the validity of this Agreement as a whole,
which will at all times remain in full force and effect.
IN WITNESS WHEREOF, the duly authorized representatives of the parties have
executed this Agreement below to indicate their acceptance of its terms.
iBEAM BROADCASTING CORPORATION FREDERIC SEEGAL ("CONSULTANT")
By: /s/ Peter Desnoes /s/ Frederic Seegal
-------------------------- --------------------------------
Name: Peter Desnoes
------------------------
Title: Chief Executive Office
-----------------------
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<PAGE>
EXHIBIT A
SERVICES AND COMPENSATION
1. Contact. Consultant's principal Company contact:
-------
Name: Peter Desnoes
Title: President and Chief Executive Officer
2. Services. Consultant will render to the Company the following Services to
--------
the reasonable satisfaction of the Company:
Consultant agrees to assist the Company in financing plans and
strategies and perform such other business and marketing services as
may from time to time be reasonably requested by the Company.
3. Compensation.
------------
As the only consideration due to the Consultant for the Services,
Consultant shall have the right to purchase 660,000 shares of common
stock of the Company at a purchase price of $6.66 per share. Such
shares shall be subject to the Company's right of repurchase as
further set forth in that certain Restricted Stock Purchase Agreement
dated as of January 25, 2000.
<PAGE>
EXHIBIT 10.17
iBEAM BROADCASTING CORPORATION
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement (the "Agreement") is made as of
the 25th day of January, 2000 by and between iBEAM Broadcasting Corporation, a
Delaware corporation (the "Company"), and Frederic Seegal (the "Purchaser").
RECITALS
--------
WHEREAS, Mr. Seegal and the Company have entered into a Consulting
Agreement of even date herewith, pursuant to which Mr. Seegal will provide
consulting services to Company from time to time as reasonably requested by the
Company;
NOW, THEREFORE, In consideration of the mutual covenants and
representations herein set forth, the Company and Purchaser agree as follows:
1. Purchase and Sale of the Shares. Subject to the terms and conditions
of this Agreement, the Company hereby agrees to sell to Purchaser, and
Purchaser agrees to purchase from the Company, 660,000 shares of the Company's
Common Stock (the "Shares") at a per share price of $6.66 (the "Purchase
Price") for an aggregate purchase price of $4,395,600 (the "Aggregate Purchase
Price").
2. Payment of the Purchase Price at the Closing. The purchase and sale of
the Shares shall occur at a closing (the "Closing") to be held as of January
25, 2000. At the Closing, Purchaser shall pay the Aggregate Purchase Price by
(a) delivering the promissory note (the "Note") in the form attached hereto as
Exhibit A, in the amount of $1,999,998, together with the execution and
delivery by the Purchaser of the Security Agreement attached hereto as Exhibit
B and (b) delivering cash by check or wire transfer in the amount of
$2,395,602. The Company will, promptly after payment of the Aggregate Purchase
Price, issue a stock certificate representing the Shares registered in the name
of the Purchaser.
3. Repurchase Option.
(a) In the event that Purchaser's Continuous Status as a Service
Provider (as defined below) terminates for any or no reason, including
resignation, involuntary termination, death or Disability (as defined below)
(collectively, a "Termination"), the Company shall upon the date of such
Termination (as reasonably fixed and determined by the Company) (the
"Termination Date") have an irrevocable right (the "Repurchase Option") to
repurchase all or a portion of the Unvested Shares (as defined in Section 4
below) at the Purchase Price per Unvested Share (subject to adjustment as set
forth in Section 11 hereof) (the "Repurchase Price").
<PAGE>
(b) The Repurchase Option shall be exercisable by the Company within
thirty (30) days following the Termination Date by delivering or mailing to
Purchaser or Purchaser's executor (i) written notice in the manner provided for
in Section 14 hereof, and (ii) a check and/or cancellation of the Note in the
amount of the aggregate Repurchase Price. Upon delivery of such notice and the
payment of the aggregate Repurchase Price as described above, the Company shall
become the legal and beneficial owner of the Shares being repurchased and all
rights and interests therein or relating thereto, and the Company shall have
the right to retain and transfer to its own name the number of Shares being
repurchased by the Company.
(c) Nothing in this Agreement shall affect in any manner whatsoever
the right or power of the Company, or a parent or subsidiary of the Company, or
their respective stockholders from removing or otherwise terminating
Purchaser's service provider relationship with the Company.
(d) The Company may assign its rights and delegate its duties under
this Agreement, including the Repurchase Option. Accordingly, whenever the
Company shall have the right to repurchase Shares hereunder, the Company may
designate and assign one or more employees, officers, directors or stockholders
of the Company or other persons or organizations to exercise all or a part of
the Company's Repurchase Option under this Agreement.
(e) "Continuous Status as a Service Provider" means that the
Purchaser's relationship with the Company or any subsidiary of the Company as a
service provider is not interrupted or terminated. Continuous Status as a
Service Provider shall not be considered interrupted in the case of (i) any
leave of absence approved by the Company, or (ii) transfers between locations
of the Company or between the Company, its Parent, any Subsidiary, or any
successor. Service as a director of the Company without a contemporaneous
services relationship shall not be sufficient to maintain Purchaser's
Continuous Status as a Service Provider.
4. Release of Shares From Repurchase Option. As of January 25, 2000 (the
"Vesting Commencement Date"), all of the Shares shall be Unvested Shares. Six
forty-eighth (6/48th) of the Shares shall become Vested Shares six (6) months
after the Vesting Commencement Date and one forty-eighth (1/48th) of the
Unvested Shares shall become Vested Shares each month thereafter, provided in
each case that the Purchaser's Continuous Status as a Service Provider has not
terminated for any reason or for no reason prior to the date of any such
release.
5. Company's Right of First Refusal. Before any Shares held by Purchaser
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation
of law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii)
the name of each proposed purchaser or other transferee ("Proposed
Transferee"); (iii) the number of Shares to be transferred to each Proposed
Transferee; and (iv) the bona fide cash price or other consideration for which
the Holder proposes to transfer the
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<PAGE>
Shares (the "Offered Price"), and the Holder shall offer the Shares at the
Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(c) Purchase Price. The purchase price for the Shares purchased by
the Company or its assignee(s) under this Section shall be the Offered Price.
If the Offered Price includes consideration other than cash, the cash
equivalent value of the non-cash consideration shall be determined by the Board
in good faith.
(d) Payment. Payment of the purchase price shall be made, at the
option of the Company or its assignee(s), in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the
Company (or, in the case of repurchase by an assignee, to the assignee), or by
any combination thereof within 30 days after receipt of the Notice or in the
manner and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee(s) as provided in this Section, then the Holder
may sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer
is consummated within 120 days after the date of the Notice, that any such sale
or other transfer is effected in accordance with any applicable securities laws
and that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Purchaser's lifetime or on the Purchaser's death by will or
intestacy to the Purchaser's immediate family or a trust for the benefit of the
Purchaser's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the provisions of this Section, and there shall be no further
transfer of such Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
shall terminate as to any Shares upon the first sale of Common Stock of the
Company to the general public pursuant to a registration statement filed with
and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
-3-
<PAGE>
6. Representations of Purchaser. In connection with the Purchaser's
purchase of the Shares, Purchaser hereby represents and warrants to the Company
as follows:
(a) Investment Intent; Capacity to Protect Interests. The Purchaser
is purchasing the Shares solely for his own account for investment and not with
a view to or for sale in connection with any distribution of the Shares or any
portion thereof and not with any present intention of selling, offering to sell
or otherwise disposing of or distributing the Shares or any portion thereof in
any transaction other than a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"). The Purchaser also
represents that the entire legal and beneficial interest of the Shares is being
purchased, and will be held, for the Purchaser's account only, and neither in
whole or in part for any other person. The Purchaser either has a pre-existing
business or personal relationship with the Company or one or more of its
officers, directors or controlling persons or by reason of the Purchaser's
business or financial experience or the business or financial experience of the
Purchaser's professional advisors who are unaffiliated with and who are not
compensated by the Company or any affiliate or selling agent of the Company,
directly or indirectly, could be reasonably assumed to have the capacity to
evaluate the merits and risks of an investment in the Company and to protect
the Purchaser's own interests in connection with this transaction.
(b) Residence. The Purchaser's principal residence is New York.
(c) Information Concerning Company. The Purchaser is knowledgeable
about the Company's plans, operations and financial condition, knows that the
Company is a highly speculative business and has heretofore received all such
information as the Purchaser has deemed necessary and appropriate to enable the
Purchaser to evaluate the financial risk inherent in making an investment in
the Shares, and the Purchaser has satisfactory and complete information
concerning the business and financial condition of the Company.
(d) Economic Risk. The Purchaser realizes that the purchase of the
Shares will be a highly speculative investment and involves a high degree of
risk, and the Purchaser is able, without impairing his financial condition, to
hold the Shares for an indefinite period of time and to suffer a complete loss
on the Purchaser's investment.
(e) Restricted Securities. The Purchaser understands and acknowledges
that:
(i) The sale of the Shares has not been registered under the
Securities Act, and the Shares must be held indefinitely unless subsequently
registered under the Securities Act or an exemption from such registration is
available (such as Rule 144 or the resale provisions of Rule 701 under the
Securities Act) and the Company is under no obligation to register the Shares;
(ii) The Purchaser understands that the share certificate
representing the Shares will be stamped with the legends specified in Section 9
hereof; and
(iii) The Purchaser understands that the Company will make a
notation in its records of the aforementioned restrictions on transfer and
legends.
(f) Disposition under the Securities Act. The Purchaser understands
that the Shares are restricted securities within the meaning of Rule 144
promulgated under the Securities
-4-
<PAGE>
Act; that the exemption from registration under Rule 144 will not be available
in any event for at least one year from the date of purchase and payment of the
Shares (unless Rule 701 promulgated under the Securities Act is available), and
even then will not be available unless (i) a public trading market then exists
for the Common Stock of the Company, (ii) adequate information concerning the
Company is then available to the public, and (iii) other terms and conditions
of Rule 144 are complied with; and that any sale of the Shares may be made only
in limited amounts in accordance with such terms and conditions. The Purchaser
further understands that the resale provisions of Rule 701, if available, will
not apply until 90 days after the Company becomes subject to the reporting
obligations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). There can be no assurance that the requirements of Rule 144
or Rule 701 will be met, or that the stock will ever be saleable.
(g) Further Limitations on Disposition. Without in any way limiting
the representations set forth above, the Purchaser further agrees that he shall
in no event make any disposition of all or any portion of the Shares unless and
until:
(i) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with said Registration Statement; (B) the resale provisions of
Rule 701 or Rule 144 are available in the opinion of counsel to the Company; or
(C)(1) the Purchaser shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, (2) the Purchaser shall
have furnished the Company with an opinion of the Purchaser's counsel to the
effect that such disposition will not require registration of such Shares under
the Securities Act, and (3) such opinion of the Purchaser's counsel shall have
been concurred with by counsel for the Company and the Company shall have
advised the Purchaser of such concurrence; and,
(ii) Any transferee of the Shares agrees in writing to be bound
by all terms of this Agreement, including the "market stand-off" provisions set
forth in Section 10 hereof.
(h) Valuation of Common Stock. The Purchaser understands that the
Shares have been valued by the Board of Directors and that the Company believes
this valuation represents a fair attempt at reaching an accurate appraisal of
their worth. The Purchaser understands, however, that the Company can give no
assurances that such price is in fact the fair market value of the Shares.
(i) Section 83(b) Election. The Purchaser understands that
Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"), taxes
as ordinary income the difference between the amount paid for the Shares and
the fair market value of the Shares as of the date any restrictions on the
Shares lapse. In this context, "restriction" means the right of the Company to
buy back the Unvested Shares pursuant to the Repurchase Option. The Purchaser
understands that he may elect to be taxed at the time the Unvested Shares are
purchased rather than when and as the Repurchase Option expires by filing an
election under Section 83(b) of the Code with the Internal Revenue Service
within 30 days from the date of purchase. Even if the fair market value of the
Unvested Shares equals the amount paid for the Unvested Shares, the election
must be made to avoid adverse tax consequences in the future. The form for
making this election is attached as Exhibit C hereto. The Purchaser
understands that failure to make this filing timely will result in the
-5-
<PAGE>
recognition of ordinary income by the Purchaser, as the Repurchase Option
lapses, on the difference between the purchase price and the fair market value
of the Unvested Shares at the time such restrictions lapse.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY
AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF
THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON
THE PURCHASER'S BEHALF.
7. Rights as Stockholder. Subject to the terms and conditions of this
Agreement, the Purchaser shall have all of the rights of a stockholder of the
Company with respect to the Shares from and after the date that the Purchaser
delivers full payment for the Shares until such time as the Purchaser disposes
of the Shares or the Company and/or its assignee(s) exercises the Repurchase
Option hereunder. Upon such exercise or disposition, the Purchaser shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and the Purchaser shall forthwith cause the certificate(s)
evidencing the Shares so purchased to be surrendered to the Company for transfer
or cancellation.
8. Escrow. As security for the faithful performance of this Agreement, the
Purchaser agrees, immediately upon receipt of the certificate(s) evidencing the
Shares, to deliver such certificate(s), together with a stock power in the form
of Exhibit D attached hereto, executed by the Purchaser and by the Purchaser's
spouse, if any (with the date and number of Shares left blank), to the Secretary
of the Company or its designee ("Escrow Agent"); said documents are to be held
by the Escrow Agent pursuant to the Joint Escrow Instructions of the Company and
the Purchaser set forth in Exhibit E attached hereto and incorporated by this
reference, which instructions shall also be delivered to the Escrow Agent after
the Closing.
9. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. The Purchaser 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 other agreements
and by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED 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 IS IN
COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF
REPURCHASE AND A RIGHT OF FIRST
-6-
<PAGE>
REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AND A 180-DAY MARKET
STANDOFF PROVISION, AS SET FORTH IN THE RESTRICTED STOCK PURCHASE
AGREEMENT 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 MARKET STANDOFF PROVISION IS BINDING ON TRANSFEREES OF
THESE SHARES.
(b) Stop-Transfer Notices. The Purchaser 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 Stand-off Agreement. The Purchaser hereby agrees, to the extent
requested by the managing underwriters in the initial public offering of the
Company's capital stock, that, without the prior written consent of such
managing underwriters, the Purchaser will not offer, sell, contract to sell,
grant any option to purchase, make any short sale or otherwise dispose of, make
a distribution of, or otherwise reduce the economic risk of owning any capital
stock of the Company held by or on behalf of the Purchaser or beneficially owned
by the Purchaser in accordance with the rules and regulations of the Securities
and Exchange Commission for a period of up to 180 days after the date of the
final prospectus relating to the Company's initial public offering. This
restriction shall be binding on any transferee of shares from the Purchaser.
11. Adjustment for Stock Split. All references to the number of Shares,
the Purchase Price and the Repurchase Price of the Shares in this Agreement
shall be appropriately adjusted to reflect any stock split, stock dividend,
combination, reclassification or the like applicable to the Shares which may be
made by the Company after the date of this Agreement.
12. 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 the Purchaser and his or her heirs, executors, administrators, successors
and assigns.
13. Governing Law; Severability, Arbitration of Disputes. 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 to be illegal or unenforceable,
the other provisions shall nevertheless remain effective and shall remain
enforceable. Any dispute under this Agreement shall be resolved by binding
arbitration pursuant to the Commercial Arbitration Rules of the American
Arbitration Association to be held in Palo Alto, California.
-7-
<PAGE>
14. Notices. Any notice, demand, offer or request required or permitted
to be given by either the Company or the Purchaser pursuant to the terms of
this Agreement shall be in writing and shall be deemed effectively given the
earlier of (i) when received, (ii) when delivered personally, (iii) one (1)
business day after being delivered by facsimile (with receipt of appropriate
confirmation), (iv) one (1) business day after being deposited with an
overnight courier service or (v) four (4) days after being deposited in the
U.S. mail, First Class with postage prepaid, and addressed to the parties at
the addresses provided to the Company (which the Company agrees to disclose to
the other parties upon request) or such other address as a party may request by
notifying the other in writing.
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. Entire Agreement. This Agreement and the Consulting Agreement dated
this date constitute the entire agreement of the parties and supersedes in its
entirety all prior undertakings and agreements of the Company and the Purchaser
with respect to the subject matter hereof and thereof.
17. Counterparts. This Agreement may be executed in counterparts, each of
which will be deemed an original, but all of which together will constitute one
and the same agreement.
18. No Assurance of Service Provider Relationship. Nothing in this
Agreement shall limit or restrict in any way the Company's ability or
Purchaser's ability to terminate the Service Provider Relationship for any
reason or no reason, with or without cause.
[Signature Page Follows]
-8-
<PAGE>
By the Purchaser's signature below, the Purchaser represents that the
Purchaser hereby accepts this Agreement subject to all of the terms and
provisions thereof. The Purchaser understands that Wilson Sonsini Goodrich &
Rosati, P.C. is acting as counsel to the Company and not as counsel to the
Purchaser. The Purchaser has reviewed this Agreement in its entirety, has had
an opportunity to obtain the advice of the Purchaser's own counsel prior to
executing this Agreement and fully understands all provisions of this
Agreement.
THE PURCHASER iBEAM BROADCASTING
a Delaware corporation
/s/ Fredric Seegal /s/ Peter Desnoes
- ---------------------------------- ----------------------------------
Signature Signature of Authorized Signatory
Frederic Seegal Peter Desnoes
- ---------------------------------- ----------------------------------
Print Name Print Name and Title
Address:
[SIGNATURE PAGE TO RESTRICTED STOCK PURCHASE AGREEMENT]
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<PAGE>
EXHIBIT A
NOTE
----
$1,999,998.00 Sunnyvale, California
January 25, 2000
FOR VALUE RECEIVED, Frederic Seegal promises to pay to iBEAM Broadcasting
Corporation, a Delaware corporation (the "Company"), or order, at its principal
office the principal sum of $1,999,998 together with interest on the unpaid
principal hereof from the date hereof at the rate of six and one-half percent
(6.5%) per annum, compounded semiannually.
Principal and interest shall be due and payable on the earlier of (i)
January 25, 2004, (ii) from any proceeds from the sale of the Company's
securities by the undersigned (net of taxes) which shall be used to repay the
principal and interest owing hereunder immediately upon receipt of such proceeds
by the undersigned and (iii) ninety (90) days after termination of the
undersigned as a service provider of the Company for any reason or no reason,
provided such 90-day period shall be increased to 180 days if the Company's
securities are publicly traded and the undersigned is restricted from selling
such securities under applicable securities laws or an affiliate's agreement.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Restricted Stock Purchase
Agreement, dated as of January 25, 2000. This Note is secured in part by a
pledge of the Company's common stock under the terms of a Security Agreement of
even date herewith and is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
Signature: _______________________________
Name: ____________________________________
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<PAGE>
EXHIBIT B
SECURITY AGREEMENT
------------------
This Security Agreement is made as of January 25, 2000 between iBEAM
Broadcasting Corporation, a Delaware corporation ("Pledgee"), and Frederic
Seegal ("Pledgor").
RECITALS
Pursuant to Pledgor's purchase of shares of Pledgee's common stock ("Common
Stock") under the Restricted Stock Purchase Agreement dated January 25, 2000
(the "Purchase Agreement"), between Pledgor and Pledgee, Pledgee has agreed to
accept delivery of a promissory note (the "Note"), relating to Pledgor's
purchase of 300,300 shares of Pledgee's Common Stock (the "Pledged Shares") at a
per share price of $6.66 per share, for a total purchase price of $1,999,998.
The Note and the obligations thereunder are as set forth in Exhibit A to the
---------
Purchase Agreement.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of the
---------------------------------------------
transfer of the Shares to Pledgor under the Purchase Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Pledged
Shares (herein sometimes referred to as the "Collateral") represented by
certificate number ______, duly endorsed in blank or with executed stock powers,
and herewith delivers said certificate to the Secretary of Pledgee
("Pledgeholder"), who shall hold said certificate subject to the terms and
conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Pledged Shares to Pledgee if, as and
when required pursuant to this Security Agreement) shall be held by the
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the
Purchase Agreement, and the Pledgeholder shall not encumber or dispose of such
Pledged Shares except in accordance with the provisions of this Security
Agreement and the Purchase Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum of
-----------------------
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(b) Encumbrances. The Pledged Shares are free of all other
------------
encumbrances, defenses and liens, and Pledgor will not further encumber the
Pledged Shares without the prior written consent of Pledgee.
-11-
<PAGE>
(c) Margin Regulations. In the event that Pledgee's Common Stock is
------------------
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207
of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees
to cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Pledged Shares
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
-----------------
any stock dividend, reclassification, readjustment or other changes are
declared or made in the capital structure of Pledgee, all new, substituted and
additional shares or other securities issued by reason of any such change shall
be delivered to and held by the Pledgee under the terms of this Security
Agreement in the same manner as the Pledged Shares originally pledged
hereunder. In the event of substitution of such securities, Pledgor, Pledgee
and Pledgeholder shall cooperate and execute such documents as are reasonable
so as to provide for the substitution of such Collateral and, upon such
substitution, references to "Pledged Shares" in this Security Agreement shall
include the substituted shares of capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this pledge,
------------------
subscription options or other rights shall be issued in connection with the
Pledged Shares, such rights or options shall be the property of Pledgor and, if
exercised by Pledgor, all new stock or other securities so acquired by Pledgor
as it relates to the Pledged Shares then held by Pledgeholder shall be
immediately delivered to Pledgeholder, to be held under the terms of this
Security Agreement in the same manner as the Pledged Shares.
6. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Purchase Agreement or contained in this Security Agreement for a period of 10
days after written notice thereof from Pledgee.
In the case of an event of default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
---------------------
Regulation G, there shall be released from this pledge a portion of Pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of Pledged Shares which shall be released shall be that number
of full shares which bears the same proportion to the initial number of Pledged
Shares hereunder as the payment of principal bears to the initial full principal
amount of the Note.
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<PAGE>
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. This pledge of shares shall continue until the payment of all
----
indebtedness secured hereby, at which time the remaining pledged stock shall be
promptly delivered to Pledgor, subject to the provisions for prior release of a
portion of the Collateral as provided in paragraph 7 above and subject to the
terms of the Purchase Agreement.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for
the property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due
and payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
----------------------
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the enforceability or invalidity of any provision or provisions of this
Security Agreement shall not render any other provision or provisions herein
contained unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
---------------------
terms of this Security Agreement shall be binding on their respective
successors and assigns, and that the term "Pledgor" and the term "Pledgee" as
used herein shall be deemed to include, for all purposes, the respective
designees, successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the internal substantive laws, but not the choice of law rules,
of California.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PLEDGOR
----------------------------------------
Signature
Frederic Seegal
----------------------------------------
Print Name
Address:
----------------------------------------
----------------------------------------
PLEDGEE iBEAM BROADCASTING
CORPORATION
a Delaware corporation
----------------------------------------
Signature
----------------------------------------
Print Name
----------------------------------------
Title
PLEDGEHOLDER
----------------------------------------
Secretary of
iBEAM Broadcasting Corporation
-14-
<PAGE>
EXHIBIT C
ELECTION UNDER SECTION 83(b) OF
--------------------------------
THE INTERNAL REVENUE CODE OF 1986
---------------------------------
The undersigned taxpayer hereby elects, pursuant to the above-referenced
Federal Tax Code, to include in taxpayer's gross income for the current taxable
year, the amount of any compensation taxable to taxpayer in connection with his
receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
NAME: TAXPAYER: Frederic Seegal
SPOUSE: [__________________]
ADDRESS:
IDENTIFICATION NUMBER: TAXPAYER: [__________________]
SPOUSE: [__________________]
TAXABLE YEAR: 2000
2. The property with respect to which the election is made is described as
follows: 660,000 shares of Common Stock (the "Shares") of iBEAM Broadcasting
Corporation (the "Company").
3. The date on which the property was transferred is: January 25, 2000.
4. The property is subject to the following restrictions: The Shares
may be repurchased by the Company, or its assignee, on certain events. This
right lapses over time based on the continued performance of services by the
taxpayer.
5. The fair market value at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms will
never lapse, of such property is: $4,395,600.
6. The amount (if any) paid for such property is: Contribution to the
Company of intellectual property valued at $4,395,600.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: _________, 2000 ______________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: _________, 2000 ______________________________________
Spouse of Taxpayer
-15-
<PAGE>
INFORMATION LETTER RE: SECTION 83(b) ELECTION
This information is supplied to you in connection with your recent purchase
of shares of Common Stock of iBEAM Broadcasting Corporation (the "Company"), at
a purchase price equal to the current fair market value of the stock and subject
to an Agreement for purchase of shares that gives the Company the right to
repurchase the shares under the terms stated in the Agreement in the event that
you terminate your continuous status as an employee, consultant or director of
the Company prior to the full vesting.
Section 83 of the Internal Revenue Code taxes as ordinary income the
difference between the amount paid for the stock and its fair market value as of
the date any restrictions on that stock lapse. In this context, a restriction
means the right of the Company to buy back the stock at less than its fair
market value, in connection with the termination of your continuous status as an
employee, consultant or director of the Company, which right expires as your
stock vests pursuant to the Agreement. Thus, if the Shares are worth $12.50 per
share at the time the first 50% of the Shares becomes fully vested (no longer
subject to repurchase) and if you purchased such Shares for $0.01 per share,
then you would be required to report ordinary income in the amount of $12.49 for
each such Share in the first year that such Shares are first vested (no longer
subject to repurchase). Upon the vesting of the final portion of the Shares and
if the fair market value of the Shares at that time is $15.00 per share, then
you would be required to report ordinary income in the amount of $14.99 per
share for the tax year in which such final portion of the Shares is no longer
subject to repurchase.
To avoid the assessment of ordinary income tax at the time the restrictions
end, there is an election that can be filed under Section 83(b). This is an
election to include in income in the year the stock is purchased the difference
between what is paid for the stock and its then fair market value. Even though
in your case the fair market value of the stock may equal the amount paid and
therefore there may be no income at this time, the Internal Revenue Service
nonetheless requires that the election be filed in order to avoid adverse tax
consequences in the future.
One executed copy of the 83(b) election form must be filed with the
----------------------
Internal Revenue Service within 30 days of the purchase of the shares. One
- ---------------------------------------------------------------------
executed copy should be placed with the Company's records and one executed copy
should be filed along with your federal income tax return for this year.
For your information, the address of the IRS is as follows:
Internal Revenue Service
5045 East Butler Avenue
Fresno, California 93888
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<PAGE>
EXHIBIT D
STOCK POWER AND ASSIGNMENT
--------------------------
SEPARATE FROM CERTIFICATE
-------------------------
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase
Agreement dated as of January 25, 2000, the undersigned hereby sells, assigns
and transfers unto ___________________________________, ______________________
(______) shares of Common Stock of iBEAM Broadcasting Corporation, a Delaware
corporation (the "Company"), standing in the undersigned's name on the books of
said Company represented by certificate number _______ delivered herewith, and
does hereby irrevocably constitute and appoint _________________________ as
attorney-in-fact, with full power of substitution, to transfer said stock on the
books of said Company.
Spouse of Purchaser Purchaser
- ---------------------------------- ----------------------------------
(Signature) (Signature)
Frederic Seegal
- ---------------------------------- ----------------------------------
(Please Print Name) (Please Print Name)
This Assignment Separate From Certificate was executed in conjunction with the
terms of a Restricted Stock Purchase Agreement between the above assignor iBEAM
Broadcasting Corporation dated as of January 25, 2000.
Instruction: Please do not fill in any blanks other than the signature line.
-17-
<PAGE>
EXHIBIT E
JOINT ESCROW INSTRUCTIONS
-------------------------
January 25, 2000
Secretary
iBEAM Broadcasting Corporation
165 Almanor, Suite 100
Sunnyvale, CA 94086
Dear Mr. Secretary:
As Escrow Agent for both iBEAM Broadcasting Corporation, a Delaware
corporation (the "Company"), and Frederic Seegal ("Purchaser"), you are hereby
authorized and directed to hold the documents delivered to you pursuant to the
terms of that certain Restricted Stock Purchase Agreement (the "Agreement"),
dated as of January 25, 2000, to which a copy of these Joint Escrow Instructions
is attached, in accordance with the following instructions:
1. In the event that the Company and/or any assignee of the Company
(referred to collectively for convenience herein as the "Company") exercises
the Repurchase Option set forth in the Agreement, the Company shall give to
Purchaser and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice
in accordance with the terms of said notice.
2. At the closing, you are directed to (a) date the stock assignments
necessary for the transfer in question, (b) fill in the number of shares being
transferred, and (c) deliver the same, together with the certificate evidencing
the shares of stock to be transferred, to the Company against the simultaneous
delivery to you of the purchase price (by check or such other form of
consideration mutually agreed to by the parties) for the number of shares of
stock being purchased pursuant to the exercise of the Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his attorney-in-
fact and agent for the term of this escrow to execute with respect to such
securities all documents necessary or appropriate to make such securities
negotiable and to complete any transaction herein contemplated.
4. Upon written request of Purchaser after each successive one year
period from the date of the Agreement, unless the Repurchase Option has been
exercised and subject to the terms of the Security Agreement dated January 25,
2000 (the "Security Agreement") between Purchaser, Company and Escrow Agent,
you will deliver to Purchaser a certificate or certificates representing
-18-
<PAGE>
so many shares of stock as are not then subject to the Repurchase Option.
Ninety days after the date Purchaser ceases to be either an employee,
consultant or director of the Company, subject to the terms of the Security
Agreement, you will deliver to Purchaser a certificate or certificates
representing the aggregate number of shares sold and issued pursuant to the
Agreement and not purchased by the Company or its assignees pursuant to
exercise of the Repurchase Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
subject to the terms of the Security Agreement, you shall deliver all of same to
Purchaser and shall be discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith and in the exercise of your own good judgment, and any act done or
omitted by you pursuant to the advice of your own attorneys shall be conclusive
evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or Company, excepting
only orders or process of courts of law, and are hereby expressly authorized to
comply with and obey orders, judgments or decrees of any court. In case you
obey or comply with any such order, judgment or decree, you shall not be liable
to any of the parties hereto or to any other person, firm or Company by reason
of such compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the expiration of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall resign by written notice to each party. In the event of any such
termination, the Company shall appoint a successor Escrow Agent.
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<PAGE>
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or
defend any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or four (4) days
following deposit in the United States Post Office, by registered or certified
mail with postage and fees prepaid, addressed to each of the other parties
thereunto entitled at the following addresses, or at such other addresses as a
party may designate by written notice to each of the other parties hereto.
COMPANY: iBEAM Broadcasting Corporation
165 Almanor, Suite 100
Sunnyvale, CA 94086
PURCHASER:
ESCROW AGENT: Secretary, iBEAM Broadcasting Corporation
165 Almanor, Suite 100
Sunnyvale, CA 94086
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
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<PAGE>
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
Very truly yours,
iBEAM BROADCASTING CORPORATION
a Delaware corporation
--------------------------------
Name:
Title:
PURCHASER:
--------------------------------
Name: Frederic Seegal
ESCROW AGENT:
- -----------------------------------------
Secretary, iBEAM Broadcasting Corporation
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EXHIBIT 10.18
Note: Information in this document marked with an "[*]" has been omitted
and filed separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
Excite@Home - iBEAM
Internet Services Agreement
This Internet Services Agreement (this "Agreement") is made and entered
into as of April 5, 2000 (the "Effective Date") by and between At Home
Corporation, a Delaware corporation, with principal offices located at 450
Broadway Street, Redwood City, California 94063, by and through its @Work
division ("Excite@Home"), and iBEAM Broadcasting Corporation, a Delaware
corporation, with principal offices located at 645 Almanor Avenue, Suite 100,
Sunnyvale, California 94086 ("iBEAM").
WHEREAS, Excite@Home is in the business of, among other things, the
provision of various Internet data connectivity and co-location services;
and
WHEREAS, iBEAM desires to purchase certain connectivity services from
Excite@Home, and, once Excite@Home's new National Data Centers ("NDCs") are
completed, co-locate its equipment in those NDCs; and
WHEREAS, Excite@Home and iBEAM both desire that Excite@Home provide
such services to iBEAM according to the terms and conditions of this
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and for other good and valuable consideration
the receipt and sufficiency of which is hereby acknowledged, the parties
agree as follows:
1. Definitions.
1.1 "Co-location Services" means the co-location services to be provided
by Excite@Home to iBEAM hereunder, as described in Exhibit B.
1.2 "Connectivity Services" means the Internet data connectivity services
to be provided by Excite@Home to iBEAM hereunder, as described in Exhibit A.
1.3. "iBEAM Equipment" means the equipment and software to be provided by
iBEAM hereunder, as further described in Exhibit C.
1.4 "Services" means, collectively, the Connectivity Service and the Co-
location Services.
2. Connectivity Services.
2.1 Connectivity Services and Equipment
(a) Provision of Services. Subject to the terms and conditions of this
Agreement, Excite@Home will provide iBEAM with the Connectivity Services during
the term of this Agreement until such time as the Co-location Services commence.
(b) iBEAM-Provided Equipment. In order to utilize the Connectivity
Services, iBEAM understands that it shall be required to provide and maintain
the iBEAM Equipment.
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(c) Circuit Provider
(i) The Local Circuit Link to be used for the Connectivity Services
will be provided by a third party circuit provider ("Circuit Provider").
Except as otherwise agreed between the parties, Excite@Home will select the
Circuit Provider, order the Local Circuit Link and coordinate the
installation with the Circuit Provider. In addition, the Local Circuit
Link(s) will be in Excite@Home's name. Excite@Home will arrange for the
Circuit Provider to install and terminate a Local Circuit Link within close
proximity of the planned location of the iBEAM equipment. Excite@Home will
charge iBEAM for, and iBEAM shall pay under Net 30 day terms, all one-time
and recurring Local Circuit Link usage charges, including any inside wiring
charges associated with extending the Local Circuit Link from the site's
normal telco demarcation point to the iBEAM equipment location (see
Attachment A).
(ii) Excite@Home requires at least sixty (60) days prior written
notice should the iBEAM desire to move (re-terminate) the Local Circuit
Link or upgrade the Local Circuit Link for any reason. iBEAM will be
responsible for certain Excite@Home and Circuit Provider company fees
relating to any move or upgrade of the Local Circuit Link, including, if
applicable, Local Circuit Provider charges for the full committed term of
the Local Circuit. Excite@Home is not responsible for Connectivity Services
disruptions caused by any move or upgrade of a Local Circuit Link, provided
that Excite@Home will make reasonable efforts to minimize Connectivity
Services disruptions.
(d) Third Party Data Centers. Co-location of iBEAM Equipment during the
initial period of this Agreement (prior to commencement of the Co-location
Services) will be provided by [*], a third party provider. iBEAM is solely
responsible for its relationship with [*] and for arranging and maintaining co-
location of iBEAM Equipment during such time.
2.2 iBEAM Equipment and Network Security.
Excite@Home is not responsible to iBEAM for the cost or expense of
administrative, technical, emergency and support personnel at [*] location
necessary for activities relating to the Service or iBEAM Equipment. iBEAM shall
be responsible for use access security and network access, such as control over
which users use the Services. Excite@Home is not responsible for any breaches of
security with iBEAM's Service.
2.3 Restrictions and Acceptable Use Policy.
iBEAM may not resell any portion of the Connectivity Services to any other
party; provided, however, that iBEAM may provide content aggregation services
for third parties by utilizing the Services to help provide such content
aggregation services. iBEAM shall be responsible for any software and content
displayed and distributed by iBEAM or iBEAM's content aggregation customers, if
any. Excite@Home's acceptable use policies apply and may, in fact, limit use by
iBEAM (and its customers). Excite@Home may terminate iBEAM's Connectivity
Services for violation of such policies (e.g. unsolicited advertising via
broadcasted e-mail). If Excite@Home becomes aware of inappropriate or illegal
use by iBEAM (or its customers, if any) of the Connectivity Services or other
networks accessed through the Connectivity Services, Excite@Home
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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may terminate Connectivity Services immediately. Excite@Home has provided the
current version of its acceptable use policies to iBEAM prior to the date of
this Agreement and shall promptly provide any future amendments thereof to
iBEAM.
2.4 Performance.
iBEAM agrees and acknowledges that Excite@Home does not own or control the
Local Circuit Link, [*] facilities, other networks outside of the Connectivity
Services, nor is Excite@Home responsible for performance (or non-performance)
within such networks or within non-Excite@Home operated interconnection points
between the Connectivity Services and other networks.
3. Co-location Services.
3.1 Provision of Services; Facility Availability.
The parties agree and acknowledge that, as of the Effective Date,
Excite@Home plans to build out National Data Centers ("NDCs"), [*]. Commencing
on Excite@Home's completion of the NDCs, and during the remainder of the term of
this Agreement, Excite@Home will provide iBEAM with the Co-location Services
designated on Exhibit B and as more fully described herein. iBEAM will have the
right to install, and Excite@Home will cooperate to allow iBEAM to install,
iBEAM equipment within thirty (30) days of appropriate Excite@Home NDC space
becoming operational for third-party use (i.e., in either a new facility or an
expansion of an existing Excite@Home NDC that can accommodate the iBEAM
installation).
3.2 Co-location Services.
(a) Co-location Space. Excite@Home shall provide to iBEAM sufficient
physical space (the "Co-location Space") within the Excite@Home NDC facilities
for iBEAM Equipment. iBEAM and Excite@Home will jointly determine appropriate
size of the Co-Location Space prior to providing to provide Co-Location
Services. Excite@Home shall decide upon the specific location and configuration
of the Co-location Space within the NDC.
(b) Facility Services. Excite@Home shall provide routine cleaning
services, environmental systems maintenance, power plant services at the same
level as it provides these services to other co-location customers in its NDCs
(the "Facility Services"). Excite@Home will use commercially reasonable efforts
to inform iBEAM of scheduled interruptions in the Facility Services, but cannot
guarantee that such services will be free from interruption.
(c) Insurance. Excite@Home shall not be responsible for any theft, loss or
damage to the co-located iBEAM Equipment, including damage caused by fire, flood
or earthquake, except that Excite@Home shall be responsible for damage to or
loss of iBEAM Equipment caused by the negligent acts or omissions of
Excite@Home, its employees, contractors, or agents. iBEAM understands that it is
responsible for any such theft, loss or damage and that Excite@Home encourages
iBEAM to insure the iBEAM Equipment against such risks.
(d) No Sublease. iBEAM may not assign or sublease its rights to the Co-
location Space without the prior written consent of Excite@Home.
3.3 License Grant.
Excite@Home hereby grants to iBEAM a license to use and occupy the Co-
location Space described in Exhibit B, for the purpose of iBEAM Equipment
interconnection and operation with
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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telecommunications and/or satellite equipment of iBEAM, Excite@Home, and/or
third parties, including Regional Bell Operating Companies and other parties
needed to implement the Co-location Services.
3.4 Equipment.
(a) iBEAM Equipment. In order to utilize the Co-location Services, iBEAM
understands that it shall be required to provide and maintain the iBEAM
Equipment.
(b) Treatment. In the event of an emergency during which the iBEAM
Equipment or its condition is threatened, Excite@Home agrees to (i) take
reasonable steps to protect the iBEAM Equipment and (ii) inform iBEAM
immediately about the emergency and the protective steps taken.
(c) Relocation. Upon ten (10) days prior written notice, or during an
emergency, Excite@Home may request that iBEAM relocate iBEAM Equipment, at
Excite@Home's reasonable expense, to an alternative site. However, the
alternative site shall provide technical and environmental conditions for and
accessibility to the iBEAM Equipment comparable to the existing site.
Excite@Home and iBEAM will cooperate to minimize any disruption of iBEAM's
services as a result of such relocation.
(d) Removal by iBEAM. iBEAM may remove the Equipment or any system or
subsystem comprising the iBEAM Equipment at any time with sixty (60) days
written notice to Excite@Home.
3.6 Restrictions on iBeam Service.
iBEAM content aggregation and distribution service ("iBeam Service") is
subject to technical restrictions, and portions of the iBeam Service may be
subject to blocking if adversely affecting the Excite@Home network as determined
by Excite@Home or its distribution affiliates (e.g. adversely affecting network
traffic, security, customer care, client software, etc.). If Excite@Home or its
distribution affiliates determine that any part of the iBeam Service is
adversely affecting the Excite@Home Network, then Excite@Home may block from
user access such part or all of the Content. The parties shall then work
together to resolve the problems or issues that adversely affect the Excite@Home
network until both parties mutually agree in good faith that such portions of
the iBeam Service will no longer have an adverse effect on the Excite@Home
Network.
4. iBEAM Obligations.
4.1 Equipment.
Except as otherwise agreed in writing between the parties, iBEAM will be
solely responsible for providing all iBEAM Equipment necessary for its use of
the Services.
4.2 Permits.
iBEAM will be responsible for securing all material permits, licenses,
regulatory approvals and authorizations, whether domestic or international
(collectively "Permits") required for iBEAM to perform its obligations under
this Agreement and to use the Services, and will take all lawful steps necessary
to maintain such Permits during the term of this Agreement.
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<PAGE>
4.3 Export Control Regulations.
The parties acknowledge that any services, software and technical
information (including, but not limited to, services and training) provided by
Excite@Home under this Agreement may be subject to applicable U.S. export laws
and regulations and that any use or transfer of such services, software and
technical information must be authorized under those laws and regulations. iBEAM
will not use, distribute, transfer, or transmit any such services, software or
technical information (even if incorporated into other products or services)
except in compliance with such laws and regulations. If requested by
Excite@Home, iBEAM will sign such written assurances and other export-related
documents as may be required for Excite@Home to comply with U.S. export laws and
regulations.
5. Other Relationships.
5.1 iBEAM Commitments.
(a) Content Relationships. iBEAM will work in good faith to bring its
content relationships to Excite@Home for further mutual business advantage.
(b) Right of First Refusal. iBEAM will give Excite@Home the first right
of refusal on all [*] which iBEAM requires during the term of this Agreement,
provided iBEAM does not have another contractual obligation that would prevent
it from using Excite@Home products or services. Excite@Home understands that
this right is contingent upon Excite@Home's ability to provide the appropriate
services which iBEAM requires [*] and to provide competitive pricing for the
services in question. To effectuate the foregoing right of first refusal, iBEAM
shall notify Excite@Home in writing of each [*] that iBEAM is preparing and on
which Excite@Home has a right of first refusal under this section (an "Offer"),
such notice to describe the Offer in reasonable detail (subject to any
confidentiality provisions imposed by the maker of the Offer). Excite@Home shall
have fifteen (15) business days from the date of such notice to deliver to iBEAM
a written exercise of its right of first refusal, such exercise to include in
reasonable detail the specifications of the [*] proposed by Excite@Home. If the
Excite@Home proposal is reasonably competitive in all material respects with the
Offer, including without limitation [*], iBEAM shall accept the Excite@Home
proposal. If Excite@Home's proposal is not comparable in all material respects
to the Offer, or if Excite@Home does not timely exercise its right of first
refusal with respect to any particular Offer, iBEAM may accept the Offer free
and clear of Excite@Home's right of first refusal.
(c) Excite@Home Services. iBEAM will review other related Excite@Home
related products and/or services for inclusion within iBEAM's network plans.
These products and/or services include, but are not be limited to [*]. iBEAM
commits to meet with the appropriate personnel from Excite@Home by [*] to
discuss a "starter project" whereby iBEAM would be able to assess Excite@Home's
capabilities in a real world commercial setting.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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5.2 Excite@Home Commitments.
(a) iBEAM Services. Excite@Home will review related iBEAM services for
use on the Excite.com narrowband portal and @Home broadband subscriber
businesses. These iBEAM services include, but are not be limited to, streaming
content delivery, encoding and related services. Excite@Home commits to meet
with the appropriate personnel from iBEAM by [*] to discuss a "starter project"
whereby Excite@Home would be able to assess iBEAM's capabilities in a real world
commercial setting.
(b) Branding. In such cases where Excite@Home elects to source these
services from iBEAM, it will use reasonable efforts to include a "powered by
iBEAM" graphic on related content. Such efforts will be dependent on
Excite@Home's relationship and/or obligations to the specific content
provider(s).
6. Payment
6.1 Prepayment
iBEAM will make a non-refundable pre-payment to Excite@Home of Two Million
Five Hundred Thousand dollars ($2,500,000) for the Services to be provided
during the term of this Agreement. Fifty percent of this amount ($1,250,000)
will be paid to Excite@Home within five (5) days of the date that iBEAM first
receives Connectivity Services. The remaining fifty percent of this amount
($1,250,000) will be paid to Excite@Home within five (5) days of the date that
iBEAM first receives Co-Location Services. This payment will be drawn down
against all Services delivered by Excite@Home and future revenue sharing
activities. If at any point during the term of this Agreement the cumulative
fees owed by iBEAM to Excite@Home exceed $2,500,000, iBEAM will pay Excite@Home
on a monthly basis to remain current. In the event that any portion of the
$2,500,000 is unused at the expiration or termination of this Agreement, the
remaining amount may be used to purchase Excite@Home Connectivity Services
within one year of such expiration or termination. After one year from the date
of such expiration or termination, any unused portions of the prepayment will be
forfeited by iBEAM.
6.2 Connectivity Services.
Subject to the draw-down described in Section 6.1 above, for the
Connectivity Services provided by Excite@Home hereunder, iBEAM will pay
Excite@Home the fees as set forth on the attached Exhibit A at the time and in
the amounts as set forth therein.
6.3 Co-location Services.
Subject to the draw-down described in Section 6.1 above, for the Co-
location Services provided by Excite@Home hereunder, iBEAM will pay Excite@Home
the revenue shares as forth on the attached Exhibit B at the time and in the
amounts set forth therein.
6.4 Special Circumstances.
If, after [*], appropriate NDC space is not available for iBEAM Equipment,
the payment for Connectivity Services will change from the payments described in
Exhibit A to the following, until such time as the Co-location Services
commence: Each month during such period, iBEAM will pay to Excite@Home (i) [*]%
of all revenue it receives from delivering content to Excite@Home end users, and
(ii) [*]% of all gross revenue it receives attributable to all other services
delivered to Excite@Home users (e.g., ad insertion, commerce, etc.) during the
prior month. During such period, there will be a revenue share floor of $[*] per
month for each OC-3 connection iBEAM has
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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into the Excite@Home network. iBEAM, therefore, will pay Excite@Home a monthly
fee equal to the higher of the revenue share or the floor. iBEAM and Excite@Home
agree to review foregoing revenue equations from time to time. If such a review
indicates that an equation is unfairly skewed to the material benefit of either
iBEAM or Excite@Home, the parties agree to negotiate in good faith a mutually
acceptable adjustment to such equation.
7. Intellectual Property.
As between iBEAM and Excite@Home, and subject only to the licenses
expressly granted by Excite@Home to iBEAM hereunder, Excite@Home retains all
right, title, and license to all intellectual property rights associated with
the Services and any technology used to provide the Services (including without
limitation, hardware, software, data, systems, and processes), including any
intellectual property developed by or on behalf of Excite@Home in the course of
providing the Services.
8. Confidential Information
8.1 Defined.
"Confidential Information" of a party means all confidential or proprietary
information or materials (in any medium) of either party (including information
entrusted to it by a third party) respecting, comprising, describing, embodying
or incorporating the services, products, business and financial plans, customer
lists and software of such party to an obligation of confidence to a third
party, including in each case, any trade secrets and other proprietary ideas,
concepts, know-how, methodologies and information described in any of the
foregoing categories that are incorporated in materials produced by a party in
connection with this Agreement, and any information marked confidential,
restricted or proprietary by either party; provided, however, that the failure
of either to so mark any material shall not relieve the receiving party of the
obligation to maintain the confidentiality of any unlegended material which the
receiving party knows or should reasonably know contains Confidential
Information. The terms of this Agreement shall be considered Confidential
Information. Customer information (user data) received by Excite@Home in the
course of providing the Services shall not be considered Confidential
Information, except any portion of such data that is personally identifiable.
Information of a party will not be considered Confidential Information under
this Agreement if such information: (i) was already rightfully known by the
Receiving Party at the time it was obtained thereby, free from any obligation to
keep such information confidential; (ii) is or falls into the public domain
through no wrongful act, fault or omission by the Receiving Party; (iii) is
rightfully received by the Receiving Party from a third party without
restriction and without breach of this Agreement; or (iv) is developed by the
Receiving Party independently of and without access to or use or benefit of any
Confidential Information of the Disclosing Party.
8.2 Obligations Regarding Confidential Information.
During the term of this Agreement and for a period of two years after its
expiration or termination, the party (the "Receiving Party") receiving any
Confidential Information of the other
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party (the "Disclosing Party") shall take reasonable steps to maintain the
security and confidentiality of such Confidential Information. The Receiving
Party further agrees as follows:
(a) to take reasonable steps, no less rigorous than those taken to
protect its own Confidential Information of a similar nature, to prevent any
disclosure of the Disclosing Party's Confidential Information;
(b) to use and reproduce the Disclosing Party's Confidential
Information only to the extent necessary to permit the Receiving Party to meet
its obligations or exercise its rights under this Agreement;
(c) to notify the Disclosing Party immediately if the Disclosing
Party's Confidential Information is disclosed in violation of the provisions of
this Section 8 or is otherwise lost or unaccounted for; and
(d) to use reasonable effort to limit disclosure of the Disclosing
Party's Confidential Information to those of the Receiving Party's affiliates,
directors, officers, employees, third party service providers, consultants,
subcontractors and contractors who have a "need to know" such information in
connection with the Receiving Party's performance of its obligations or exercise
of its rights under this Agreement; provided, however, that any such person or
entity who is not one of the Receiving Party's affiliates, directors, officers,
or employees shall have first executed a nondisclosure agreement reasonably
satisfactory to the other party governing the treatment of such information.
8.3 Return or Destruction of Confidential Information.
Upon the expiration or any termination of this Agreement, or upon the
request of the Disclosing Party requesting return of any tangible embodiments of
all or any portion of its Confidential Information (which the Receiving Party
does not then require to perform its obligations hereunder), the Receiving Party
shall promptly return such Confidential Information (whether in hard copy,
electronic, or any other form) and any copies thereof, or, with the Disclosing
Party's written consent, will promptly destroy it (and any copies thereof) and
will further provide the Disclosing Party with written confirmation by an
authorized representative of the Receiving Party of the destruction.
8.4 Required Disclosure.
Notwithstanding anything to the contrary in this Agreement, if the
Receiving Party learns that it is or may be required by applicable court order,
law or regulation to disclose any Confidential Information, then the Receiving
Party shall (i) as promptly as possible after learning of a possible disclosure
requirement, and in any case prior to making disclosure, notify the Disclosing
Party of the disclosure requirement so that the Disclosing Party may seek a
protective order or other appropriate relief, (ii) provide such cooperation and
assistance as the Disclosing Party may reasonably request in any effort by the
Disclosing Party to obtain such relief, and (iii) take all reasonable steps to
limit the amount of Confidential Information so disclosed and to protect its
confidentiality.
8.5 Equitable Relief.
The parties acknowledge that any disclosure or misappropriation of
Confidential Information in violation of this Agreement may cause irreparable
harm, the amount of which may
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be extremely difficult to determine, thus potentially making any remedy at law
or for damages inadequate. Each party therefore agrees that the other party
shall have the right to apply to any court of competent jurisdiction for an
order restraining any breach or threatened breach of this Section 8 and for any
other equitable relief as such other party deems appropriate.
9. Representations and Warranties.
9.1 By Excite@Home.
Excite@Home represents and warrants to iBEAM that:
(a) it has full power and authority to enter into this Agreement;
(b) it has not previously and will not grant any rights to any third party
that are inconsistent with the rights granted and obligations undertaken
hereunder;
(c) Neither Excite@Home nor its subcontractors warrant any connection to,
transmission over, nor results of, any software, network connection or
facilities or equipment provided (or failed to be provided) under this
Agreement. iBEAM is responsible for assessing its own computer and transmission
network needs, content aggregation and streaming needs and the results to be
obtained therefrom.
(d) Excite@Home makes no other warranties of any kind, whether express,
implied, statutory, or otherwise, including, but not limited to, the implied
warranties of merchantability, fitness for a particular purpose,
noninfringement, continuous operation of the Services, security of the Internet
connections or operation of iBEAM's equipment, or ability of any backup services
to re-establish operation of iBEAM equipment. Excite@Home does not warrant that
the Services will meet specific requirements or that the operation of the
Services will be uninterrupted or error-free.
9.2 By iBEAM.
iBEAM represents and warrants to Excite@Home that:
(a) it has full power and authority to enter into this Agreement;
(b) it has not previously and will not grant any rights to any third party
that are inconsistent with the rights granted and obligations undertaken
hereunder;
(c) iBEAM makes no other warranties of any kind, whether express, implied,
statutory, or otherwise, including, but not limited to, the implied warranties
of merchantability, fitness for a particular purpose, or noninfringement.
10. Limitation of Liability.
Except for liability arising out of or related to breach of Section 8
(Confidentiality) and or Section 11 (Indemnification) herein, neither party will
be liable to the other for any lost profits, or costs of procurement of
substitute goods or services, or for any indirect, special, incidental, or
consequential damages,
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including, without limitation, damages for lost data, system downtime, service
interuption, inability to access data or services, however caused and under any
theory of liability, including but not limited to contract, products liability,
strict liability, and negligence, and whether or not it was or should have been
aware of, or was advised of, the possibility of such damages. In no event will
either party's liability to the other hereunder exceed the amount actually paid
by iBEAM to Excite@Home hereunder.
11. Indemnification.
11.1 By iBEAM.
iBEAM will indemnify, defend and hold Excite@Home, its affiliates,
officers, directors, employees, agents, successors and assigns (each, an
"Excite@Home Indemnitee") harmless from and against any and all losses,
liabilities, damages and costs and all related costs and expenses (including
reasonable attorneys' fees) (collectively, "Losses") arising out of or relating
to:
(a) any claim alleging that any equipment, software or materials supplied
or made available to Excite@Home by iBEAM in connection with the Services or to
provide services to its customers ("iBEAM Materials") infringe upon the
intellectual property rights of any third party, except for any claim based
upon: (i) the combination, operation, or use of any iBEAM Materials with
equipment, devices, or software not supplied by iBEAM; or (ii) alteration or
modification of any iBEAM Materials other than by iBEAM;
(b) the failure by iBEAM to comply in any material respect with Applicable
Law; or
(c) any claim relating to or arising out of (i) any content or software
displayed, distributed or otherwise disseminated by the iBEAM and/or its
customers (including without limitation any third party content customers of
iBEAM) in any way connected to or through the Service, and/or (ii) any malicious
act or act in violation of any laws committed by iBEAM and/or its customers
using the Service, including without limitation any malicious or unlawful act
affecting any computer, network equipment or internet service.
Excite@Home will notify iBEAM promptly in writing of the claim, provide
reasonable assistance in connection with the defense and/or settlement thereof,
and permit iBEAM to control the defense and/or settlement thereof.
11.2 By Excite@Home.
Excite@Home will indemnify, defend and hold iBEAM, its officers, directors,
employees, agents, successors and assigns (each, a "iBEAM Indemnitee") harmless
from and against any and all Losses arising out of or relating to:
(a) any claim alleging that any equipment, software or materials supplied
to iBEAM by Excite@Home ("Excite@Home Materials") infringe upon the intellectual
property rights of such third party, except for any claim based upon: (i) the
combination, operation, or use of any Excite@Home Materials with equipment,
devices, or software not supplied by Excite@Home; (ii) alteration or
modification of any Excite@Home Materials other than by Excite@Home; or (iii)
Excite@Home's compliance with iBEAM's designs, specifications, or instructions;
or
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(b) the failure by Excite@Home to comply in any material respect with
Applicable Law.
iBEAM will notify Excite@Home promptly in writing of the claim, provide
reasonable assistance in connection with the defense and/or settlement thereof
(at Excite@Home's expense), and permit Excite@Home to control the defense and/or
settlement thereof.
11.3 Infringement.
In the event that the Services, or any material portion thereof, are
determined to infringe upon the proprietary rights of a third party, Excite@Home
will, at its sole election and at its own expense: (a) obtain the right for the
iBEAM to use the infringing Services (or portion thereof) as contemplated by
this Agreement; (b) modify the Services (or portion thereof) so that they are no
longer infringing, but still substantially satisfy the requirements contained in
this Agreement; (c) substitute functionally similar Services (or portion
thereof) that are not infringing; or (d) if none of the forgoing alternatives is
available to Excite@Home at commercially reasonable terms, terminate this
Agreement and return to iBEAM all funds paid to Excite@Home pursuant to this
Agreement for which actual Services have not been provided as of the termination
date, disregarding the applicability of all minimum payment obligations of iBEAM
hereunder.
12. Term and Termination.
12.1 Term.
The term of this Agreement will be for a period of [*] years from the
Effective Date unless earlier terminated in accordance with its terms.
12.2 Termination Without Cause After [*] Years.
Beginning [*] years after the Effective Date, this Agreement may be
terminated at any time by either party, for any reason or no reason, without
penalty or liability to the other, by delivering ten (10) days' written notice
to the other party.
12.3 Termination for Cause.
(a) Either party may terminate this Agreement for cause by delivering
written notice to the other party upon the occurrence of any of the following
events: (i) a receiver is appointed for either party or its property; (ii)
either party makes a general assignment for the benefit of its creditors; (iii)
either party commences, or has commenced against it, proceedings under any
bankruptcy, insolvency or debtor's relief law which proceedings are not
dismissed within 60 days; or (iv) either party is liquidated or dissolved.
(b) Excite@Home may terminate this Agreement for cause by delivering
thirty (30) days' written notice to iBEAM upon a change in control of iBEAM or a
merger of iBEAM in which iBEAM is not the surviving entity. Initial or secondary
public offerings of iBEAM's stock shall not be deemed to be a change in control
of iBEAM.
12.4 Termination for Default.
Either party may terminate this Agreement upon written notice to the other
party if the other party defaults or fails to perform any material obligation
hereunder in any material respect, which default or failure is not cured within
thirty (30) days after written notice thereof from the non-defaulting party
stating its intention to terminate this Agreement by reason thereof.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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12.5 Survival.
The rights and obligations contained in Sections 7 (Intellectual Property);
8 (Confidential Information); 10 (Limitation of Liability); 11
(Indemnification); 12.5 (Survival); and 14 (Miscellaneous) shall survive any
termination or expiration of this Agreement. In addition, iBEAM's obligations to
pay Excite@Home for Services provided by Excite@Home will survive any
termination or expiration of this Agreement.
13. Publicity
Subject to prior approval of both parties, the parties may issue a joint
press release regarding the relationship created by this Agreement. Excite@Home
will provide quotes for use in an iBEAM press release announcing the
relationship. iBEAM will work with Excite@Home on the specific messaging of any
press release regarding the relationship between Excite@Home and iBEAM so as to
address the potential sensitivity of Excite@Home's equity partners. iBEAM will
give Excite@Home appropriate advance warning before the actual release, and will
not issue any release or other publicity that mentions Excite@Home without the
prior approval of Excite@Home
Excite@Home agrees that iBEAM will be the first publicly announced
streaming Content Distribution Network ("CDN") company to be hosted within
Excite@Home's NDCs. Excite@Home agrees not to announce any agreements it may
reach to collocate any other CDN provider in Excite@Home's NDCs until the
earlier of: (i) sixty (60) days after the Effective Date; or (2) thirty (30)
days after Excite@Home's announcement of its relationship with iBEAM.
14. Miscellaneous
14.1 Notices.
All notices permitted or required under this Agreement must be in writing
and shall be delivered as follows with notice deemed given as indicated (i) by
personal delivery when delivered personally, (ii) by overnight courier upon
written verification of receipt, (iii) by telecopy or facsimile transmission
when confirmed by telecopier or facsimile transmission, or (iv) by certified or
registered mail, return receipt requested, five days after deposit in the mail.
All notices must be sent to the addresses first described above or to such other
address that the Receiving Party may have provided for the purpose of notice in
accordance with this Section 14.1.
14.2 Force Majeure.
Neither party will be liable hereunder by reason of any failure or delay in
the performance of its obligations hereunder (except for the payment of money)
on account of strikes, shortages, riots, insurrection, fires, flood, storm,
explosions, acts of God, war, governmental action, labor conditions,
earthquakes, or any other cause which is beyond the reasonable control of such
party.
14.3 Governing Law and Venue.
This Agreement and any disputes arising under, in connection with, or
relating to this Agreement will be governed by the laws of the State of
California, excluding its conflicts of law rules. Any proceeding brought by one
party against the other will take place in, and the parties hereby submit to the
jurisdiction of, the state and federal courts located in San Mateo County,
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California. The prevailing party in any such dispute will be entitled to recover
reasonable costs of suit (including the reasonable fees of attorneys and other
professionals).
14.4 Relationship of Parties.
Neither this Agreement nor the parties' business relationship established
hereunder will be construed as a partnership, joint venture or agency
relationship or as granting a franchise. Neither party will attempt to, or will
have the right to, legally obligate the other party.
14.5 Subcontractors.
Excite@Home may provide all or part of the Services through its affiliates
or through subcontractors.
14.6 Waiver and Modification.
The failure of either party to require performance by the other party of
any provision hereof shall not affect the full right to require such performance
at any time thereafter; nor shall the waiver by either party of a breach of any
provision hereof be taken or held to be a waiver of the provision itself. This
Agreement may be modified only by a writing signed by authorized representatives
of both Excite@Home and iBEAM.
14.7 Severability.
In the event that any provision of this Agreement shall be unenforceable or
invalid under any applicable law or be so held by applicable court decision,
such unenforceability or invalidity shall not render this Agreement
unenforceable or invalid as a whole, and, in such event, such provision shall be
changed and interpreted so as to best accomplish the objectives of such
provisions within the limits of applicable law or applicable court decisions.
14.8 Headings.
The paragraph headings appearing in this Agreement are inserted only as a
matter of convenience and in no way define, limit, construe or describe the
scope or extent of such paragraph or in any way affect such paragraph.
14.9 Assignment.
This Agreement shall be binding and inure to the benefit of the parties
hereto and their respective successors and assigns. Neither party shall assign
any of its rights nor delegate any of its obligations under this Agreement to
any third party without the express written consent of the other except that
either party may assign this Agreement (i) to the surviving entity in a merger
or consolidation in which it participates or to a purchaser of all or
substantially all of its assets, so long as such surviving entity or purchaser
shall expressly assume in writing the performance of all of the terms of this
Agreement, or (ii) to any wholly owned subsidiary or affiliate. Notwithstanding
the foregoing, without Excite@Home's prior, written consent, iBEAM shall not
have the right to assign any of its rights or delegate any of its duties under
this Agreement pursuant to either subpart (i) or subpart (ii) of this Section
14.9 to a person or entity who as of the purported effective date of such
assignment is a direct competitor of Excite@Home.
14.10 Entire Agreement.
This Agreement, including the Exhibits attached hereto, which are
incorporated herein by reference, is the entire agreement between the parties
regarding its subject matter. It supersedes and
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its terms govern, all prior proposals, agreements, or other communications
between the parties, oral or written, regarding such subject matter.
14.11 Non-Exclusive.
Excite@Home and iBEAM each acknowledge and agree that, except as may be
expressly agreed in writing between the parties, the rights granted to each
other in this Agreement are granted on a non-exclusive basis, and that nothing
in this Agreement prevents either party from entering into similar agreements
with third parties at any time at the sole discretion of each party.
IN WITNESS WHEREOF, the duly authorized representatives of the parties have
executed this Agreement.
At Home Corporation iBEAM Broadcasting Corporation
By: By:
--------------------------------- ----------------------------------
Title: Title:
------------------------------ -------------------------------
Date: Date:
------------------------------- --------------------------------
Table of Exhibits:
- ------------------
Exhibit A Connectivity Services and Pricing
Exhibit B Co-location Services and Pricing
Exhibit C iBEAM Equipment
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Exhibit A
Description of Connectivity Services and Pricing
Excite@Home will provide connectivity from iBEAM servers which reside in
third party co-location facilities to the Excite@Home network for the sole
purpose of delivering traffic to Excite@Home users. The first two connections
will be fractional OC-3s to the iBEAM equipment currently housed in [*]
facilities in [*].
Excite@Home will offer a monthly connectivity rate of $[*]/Megabits per
second (Mbps) per month for these connections with a minimum commitment of
[*]Mbps per connection based on the average of the first six months usage (e.g.,
during the first six months of usage, iBEAM commits to $[*] in connectivity
charges excluding local loop charges). After the first six months, there will be
a monthly minimum commitment of $[*] (i.e., [*] connections x minimum [*]Mbps x
$[*]/Mbps). Excite@Home will waive its set-up fee for these lines.
iBEAM will also be responsible for telco local loop expenses which include
a set-up fee of $[*] per connection and a monthly fee of approximately $[*] per
connection. If the iBEAM traffic at any connectivity location exceeds [*]Mbps in
any given month, the above mentioned minimum fee will be increased by $[*] for
each additional Mbps of traffic generated.
iBEAM will be eligible for volume discounts based on the aggregate Monthly
Recurring Revenue (excluding local loop) it generates with Excite@Home. The
discount levels will be as follows:
Monthly Discount Level
Discount Tier Recurring Revenue (off $[*]/Mb)
-----------------------------------------------------------------
Tier I $[*] [*]%
-----------------------------------------------------------------
Tier II $[*] [*]%
-----------------------------------------------------------------
Tier III $[*] [*]%
-----------------------------------------------------------------
Tier IV Over $[*] [*]%
-----------------------------------------------------------------
Excite@Home will determine the applicable Discount Tier for a given month
by looking at actual MRR charges from the previous month. For example: if in the
third month of the agreement, iBEAM incurs a total charges for $[*], then iBEAM
will receive a [*]% discount off of the $[*]/Mb charge in the fourth month.
iBEAM will pay the fees outlined above from the date on which the
connection is live until the earlier of the following: (i) the one year
anniversary of the connection turn up date; or (ii) the time at which
Excite@Home has appropriate space available in its National Data Centers to
collocate iBEAM's equipment.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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Exhibit B
Description of Co-location Services and Pricing
Co-Location Specifics:
In conjunction with the Co-Location Services, Excite@Home will provide
connectivity to the Excite@Home network for the sole purpose of delivering
traffic from the iBEAM servers located within Excite@Home NDCs to Excite@Home
users.
Pricing:
Once Co-location Services have commenced, each month iBEAM will pay to
Excite@Home (i) [*]% of all revenue it generates from delivering content to
Excite@Home end-users, and (ii) [*]% of all gross revenue it receives
attributable to all other services to Excite@Home end users (e.g., ad insertion,
commerce, etc.) during the prior month.
iBEAM will provide monthly reports to Excite@Home detailing the revenues
generated from traffic going to users on the Excite@Home network, the applicable
revenue share and resulting fees due Excite@Home. Excite@Home will have audit
rights.
There will be a minimum monthly fee paid to Excite@Home for Co-Location
Services. The floor will be $[*] per month for any Co-location Services
delivered by Excite@Home during the first year of the agreement. During the
second year of this Agreement, the monthly floor for Co-Location Services will
be $[*] per month.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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Exhibit C
iBEAM Equipment
The following list is iBEAM's good faith estimate of the primary pieces of
equipment it will co-locate at Excite's data centers once they are made
available by Excite. This list is subject to reasonable change based on the
nature of Excite's data centers based on changes in iBEAM's technology in the
intervening period.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated January 28, 2000, except as to the second paragraph of Note 2
and Note 10, which is as of April 11, 2000, relating to the financial
statements of iBEAM Broadcasting Corporation (a development stage company),
which appear in such Registration Statement. We also consent to the reference
to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
April 11, 2000
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
webcasts.com, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG LLP
Oklahoma City, Oklahoma
April 11, 2000
