<PAGE>
As filed with the Securities and Exchange Commission on May 16, 2000
Registration No. 333-95833
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 5
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 May 16, 2000 Filed Pursuant to Rule 424(a) Registration No.333-95833
11,000,000 Shares
[LOGO OF IBEAM BROADCASTING]
COMMON STOCK
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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.
-----------
Our common stock has been approved for quotation 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>
[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>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 7
Use of Proceeds..................... 23
Dividend Policy..................... 23
Capitalization...................... 24
Dilution............................ 25
Selected Financial Data............. 27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 29
Business............................ 37
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Management......................... 54
Certain Relationships and Related
Transactions...................... 68
Principal Stockholders............. 71
Description of Capital Stock....... 73
Shares Eligible for Future Sale.... 76
Underwriters....................... 78
Legal Matters...................... 81
Experts............................ 81
Where You Can Find More
Information....................... 81
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 ibeam.com. The
information on the website is not a part of this prospectus.
<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 approximately 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 April 2000, we acquired webcasts.com to add business-to-business
communications capabilities, such as online training and interactive trade
shows. Our combined technology allows 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. We derived 74% of our revenue from our
event-based on-stage services during 1999 and 25% of our revenue from these
services for the three months ended March 31, 2000.
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. Our ability to provide content
providers with high quality, low-cost distribution of streaming video and audio
content is dependent on deployment of our servers in the facilities of ISPs. To
realize the benefits of these access agreements with ISPs we will need to
invest at least $15.0 million in capital equipment located at ISPs during 2000
and pay some ISPs fees ranging from 15 to 20% of the revenue we derive from
content delivered through their networks. We have agreed to make non-refundable
prepayments to ISPs in the amount of $5.5 million, of which $3.0 million has
been paid as of March 31, 2000. We do not generate any revenue from our
agreements with ISPs.
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, $30.2 million in 1999
and $21.7 million for the first quarter of 2000.
. We anticipate incurring substantial operating losses and negative cash
flow in the foreseeable future.
. Management and affiliates will beneficially own 37.5% of our outstanding
common stock after this offering.
. We had an accumulated deficit of $66.3 million as of March 31, 2000.
. 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.. 106,147,834 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 95,147,834 shares of common stock outstanding or deemed outstanding as
of March 31, 2000. This includes:
. 8,233,173 shares of common stock issuable upon the conversion of shares
of our series F preferred stock which were issued in exchange for
outstanding shares of webcasts.com capital stock in connection with the
closing of the webcasts.com acquisition;
. 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 per share 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 per share public in this
offering, less underwriting commissions and discounts.
This number excludes:
. 11,816,815 shares of common stock issuable upon the exercise of options
at a weighted average exercise price of $3.38 per share and 4,069,804
shares available for future grant under our stock option plan as of
March 31, 2000;
. 706,285 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
$3.54 per share and up to additional 1,243,932 shares of common stock
issuable if our webcasts.com division meets revenue targets in the
twelve months after the closing of the acquisition; and
. 1,949,987 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 $3.42 per share.
Unless otherwise indicated, all of the information in this prospectus:
. reflects the conversion of all outstanding and deemed outstanding shares
of preferred stock into 76,260,334 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 March 31, 2000 into 66,489,527 shares of common stock
upon the closing of this offering; (ii) the acquisition of webcasts.com as if
it had occurred on March 31, 2000 and the conversion of the related issuance of
8,233,173 shares of series F redeemable convertible preferred stock into the
same number of shares of common stock; (iii) the issuance of 1,000,000 shares
of our series G redeemable convertible preferred stock 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
(iv) the issuance of 537,634 shares of series H redeemable convertible
preferred stock to Excite@Home prior to the completion of this offering for
$5.0 million at a per share price equal to 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 Three Months Ended
March 20, 1998 December 31, 1999 March 31, 2000
(Inception) to --------------------- -------------------
December 31, 1998 Actual Pro Forma Actual Pro Forma
----------------- -------- ----------- -------- ---------
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenue................. $ -- $ 149 $ 5,054 $ 532 $ 2,083
Total operating costs
and expenses........... 4,352 30,317 71,433 22,204 34,653
Loss from operations.... (4,352) (30,168) (66,379) (21,672) (32,570)
Net loss attributable to
common stock........... (4,227) (29,968) (68,066) (32,151) (44,542)
Net loss per share
attributable to common
stock--basic and
diluted................ $ (0.56) $ (3.43) $ (4.01) $ (3.04) $ (2.37)
Weighted average common
shares outstanding..... 7,488 8,726 16,959 10,589 18,822
Pro forma net loss per
share attributable to
common stock--basic and
diluted (unaudited).... $ (0.63) $ (1.22) $ (0.43) $ (0.54)
Pro forma weighted
average common shares
outstanding
(unaudited)............ 47,435 55,668 74,860 83,093
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 2000
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents
and investments........ $ 21,829 $46,124 $146,674
Working capital......... 14,782 32,806 133,356
Total assets............ 80,426 191,135 291,685
Long term obligations,
net of current
portion................ 6,601 7,638 7,638
Redeemable convertible
preferred stock........ 96,114 -- --
Total stockholders'
equity (deficit)....... (36,410) 162,183 262,733
</TABLE>
6
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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. The development of our edge network requires
that we locate our servers in the facilities of ISPs, which control the
Internet access points closest to the end user. 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. The
development of our edge network will require that we not only enter into
additional agreements with ISPs to locate our servers in their facilities, but
also that we successfully move content from our hosting centers to our edge
servers such that we serve end users from the edge.
Our agreements with larger ISPs are critical to the success of our business
plan because through these agreements we gain access to large numbers of end
users that we can reach through our satellite distribution network rather than
through land-lines. Our agreements with high speed Internet access providers
are important because through these agreements we can reach Internet users
with high-speed or "broadband" connections from the edge of the Internet.
These users tend to access greater volumes of streaming content. Unless we can
reach large numbers of Internet users through our edge network, our services
will not be attractive to content providers. In order to secure agreements
with large ISPs and high speed Internet access providers, in some instances we
have agreed to share between 15% and 20% of the revenue we derive from content
delivered through their networks. We have also agreed to make non-refundable
prepayments to ISPs in the amount of $5.5 million, of which $3.0 million has
been paid as of March 31, 2000.
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 upon Excite@Home's completion of their
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
8
<PAGE>
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 network, which is in 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, which is in 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 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 three network outages, one of which was due to
failure of our network software. We may continue to experience problems with
our software. Outages that have occurred to date have resulted in between one
and seven 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;
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. 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 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 three network outages. One was caused by a failure of one of our
servers and the other two were caused by a failure in the land-line
communication services provided to us by third parties. Outages that have
occurred to date have resulted in between one and seven 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 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.
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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 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.
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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 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 an agreement with Microsoft Corporation in September 1999.
Our agreement with Microsoft provides that Microsoft will recommend us as a
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.
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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 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 $21.7 million for the three months ended March 31, 2000 and our
accumulated deficit was $66.3 million as of March 31, 2000. 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 and $21.7 million for the three months ended March 31, 2000.
Our operating losses as a percentage of revenue was 20,247% in 1999 and 4,074%
in the first quarter of 2000. As of March 31, 2000, we had an accumulated
deficit of $66.3 million. In fiscal 2000, based on the planned deployment of
our network, we expect to have capital expenditures of at least $40.0 million,
of which approximately $26.0 million was incurred 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.
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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.
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
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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 acquisition of webcasts.com, and
we may face similar risks in the future if we acquire other businesses or
technologies.
In April 2000, we acquired 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,
Oklahoma, where we currently have no operations. We are just beginning to
integrate webcasts.com with our operations. 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 $92.8 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 $92.8 million of
goodwill and acquired intangibles which will be amortized over a three year
period. This will increase our net loss by approximately $20.6 million in
2000, $30.9 million in 2001 and 2002 and $10.4 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.
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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 $40.0 million in capital expenditures, of which $26.0 million
was incurred 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.
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, to continue to execute on our current
business plan, we would attempt to raise capital in the private equity market.
To the extent such capital is not available, or until available, we would
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
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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:
. 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
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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 for 15% and Pixelworld accounted for 13% of our revenue. In the
three months ended March 31, 2000 NetRadio.com accounted for 12% of revenues.
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.
America Online accounted for an aggregate of 20% of webcasts.com's revenue
in 1999. The loss of this customer or a significant reduction in the level of
webcasts.com's services used by this customer, could seriously harm our
results of operations.
We expect to amortize stock-based compensation expense of $12.2 million in
the remainder of 2000, $9.3 million in 2001, $4.8 million in 2002, and $2.1
million in 2003, which will decrease our net earnings during these periods.
In connection with the grant of stock options to employees and consultants
for the period from March 20, 1998 (inception) to March 31, 2000, we recorded
unearned stock-based compensation of $37.9 million, of which $5.4 million was
amortized during 1999 and $4.1 million was amortized in the first quarter of
2000. If our stock price increases, the amount of stock-based compensation
related to stock option grants to consultants would increase as the fair value
of these grants is re-measured at each reporting date using a Black-Scholes
option pricing model. 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, named iBeam Asia, to introduce our services to the
Pacific Rim, the Indian subcontinent and the Middle East. In order to bring
our services to these regions, the joint venture will need to deploy a network
of servers which will involve large capital expenditures and operating
expenses. While the details of the joint venture have yet to be determined, we
18
<PAGE>
initially expect to incur approximately 49% of the operating losses of the
joint venture. We expect our ownership interest, and therefore our share of
the operating losses of the joint venture, to decline below 49% in the future
as the joint venture raises additional funding through sales of equity
interests to third parties, which would dilute our interest. We expect the
joint venture to begin delivering content to end users by the end of 2000. In
connection with the formation of the joint venture, we expect to contribute
$5.0 million to iBEAM Asia. We expect that iBEAM Asia will be funded
thereafter from independent third party sources. We may decide to provide
additional financing to iBEAM Asia in the future if iBEAM Asia is unable to
raise additional funding from third parties on favorable terms. 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 expect that our capital
expenditures in 2000 in connection with deployment in InterPacket's network
will be less than $1.0 million.
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
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.
19
<PAGE>
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.
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
20
<PAGE>
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 or
substantial sales by current stockholders after the 180-day lock-up
expires;
. 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.
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 37.5% 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
37.5% 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, Excite@Home and Covad have each also agreed not to
acquire more than 15.0% of our voting stock at any time before the end of
April 2005 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.
21
<PAGE>
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 106,147,834 shares of common
stock outstanding, or 107,797,834 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 106,147,834 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>
9,800,000 Immediately
83,071,938 180 days from the date of the prospectus
for the offering
13,275,896 Various dates thereafter
</TABLE>
In addition, 1,949,987 shares of our common stock issuable upon exercise of
warrants will become eligible for sale on various dates upon expiration or
release of the lock-up agreements.
After this offering and expiration or release of the lock-up agreements,
holders of 76,260,334 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 11,816,815 shares of common stock with a
weighted average exercise price per share of $3.38 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 $8.40 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
11,816,815 shares of common stock at a weighted average exercise price of
$3.38 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. In addition, we intend to use $5.0 million of the proceeds of the
offering as a capital contribution to iBeam Asia upon formation of the joint
venture and up to $1.0 million of the proceeds of the offering for capital
expenditures in connection with deployment of our servers in Interpacket's
network. 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 March 31, 2000:
. 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
March 31, 2000 into 66,489,527 shares of common stock upon the closing
of this offering; (ii) the acquisition of webcasts.com as if it had
occurred on March 31, 2000 and the conversion of the related issuance of
8,233,173 shares of series F redeemable convertible preferred stock into
the same number of shares of common stock; (iii) the issuance of
1,000,000 shares of our series G redeemable convertible preferred stock
to The Walt Disney Company prior to the completion of the offering for
$10.0 million at a price equal to the per share price to the public in
the offering and the conversion of those shares into the same number of
shares of common stock; and (iv) the issuance of 537,634 shares of our
series H redeemable convertible preferred stock to Excite@Home prior to
the completion of the offering for $5.0 million at a price equal to the
per share 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; 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>
March 31, 2000
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except per
share data)
<S> <C> <C> <C>
Cash, cash equivalents, and investments........ $ 21,829 $ 46,124 $146,674
======== ======== ========
Long term obligations, net of current portion.. $ 6,601 $ 7,638 $ 7,638
-------- -------- --------
Redeemable convertible preferred stock, $0.0001
par value; actual--20,000 shares authorized;
17,792 shares issued and outstanding; pro
forma--30,000 shares authorized, no shares
issued and outstanding; pro forma as
adjusted--10,000 shares authorized; no shares
issued or outstanding......................... 96,114 -- --
-------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.0001 par value; actual--
120,000 shares authorized; 18,887 shares
issued and outstanding; pro forma--120,000
shares authorized; 95,148 shares issued and
outstanding; pro forma as adjusted--413,100
shares authorized; 106,148 shares issued and
outstanding.................................. 2 10 11
Additional paid-in capital.................... 60,320 258,905 359,454
Stockholders' note receivable................. (2,000) (2,000) (2,000)
Unearned stock-based compensation............. (28,386) (28,386) (28,386)
Deficit accumulated during development stage.. (66,346) (66,346) (66,346)
-------- -------- --------
Total stockholders' equity (deficit)....... (36,410) 162,183 262,733
-------- -------- --------
Total capitalization....................... $ 66,305 $169,821 $270,371
======== ======== ========
</TABLE>
This capitalization table excludes the following shares as of March 31,
2000:
. 11,816,815 shares at a weighted average exercise price of $3.38 per
share that were subject to outstanding options as of March 31, 2000;
. 706,285 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
$3.54 per share and up to additional 1,243,932 shares of common stock
issuable if our webcasts.com division meets revenue targets in the next
twelve months after the closing of the acquisition; and
. 1,949,987 shares of common stock issuable upon exercise and conversion
of outstanding convertible preferred stock warrants as of March 31, 2000
at a weighted average exercise price of $3.42 per share.
24
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 2000, was $69.4
million or $0.73 per share of common stock. Our pro forma net tangible book
value per share as of March 31, 2000 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 March 31, 2000 into 66,489,527 shares of common stock upon the
closing of this offering; (ii) the acquisition of webcasts.com as if it
occurred on March 31, 2000 and the conversion of the related issuance of
8,233,173 shares of series F redeemable convertible preferred stock into the
same number of shares of common stock; (iii) the issuance of 1,000,000 shares
of our series G redeemable convertible preferred stock to The Walt Disney
Company prior to the completion of the offering for $10.0 million at a price
equal to the per share price to the public in the offering and the conversion
of those shares into the same number of shares of common stock; and (iv) the
issuance of 537,634 shares of our series H redeemable convertible preferred
stock to Excite@Home prior to the completion of the offering for $5.0 million
at a price equal to the per share 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. 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 March 31, 2000
would have been $169.9 million or $1.60 per share. This represents an
immediate increase in net tangible book value to existing stockholders of
$0.87 per share and an immediate dilution to new investors of $8.40 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 March 31,
2000........................................................ $0.73
Increase in pro forma net tangible book value per share
attributable to new investors............................... 0.87
-----
Pro forma as adjusted net tangible book value per share after
the offering................................................. 1.60
------
Dilution per share to new investors........................... $ 8.40
======
</TABLE>
The following table sets forth on a pro forma basis as of March 31, 2000,
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 (i) the
existing stockholders; (ii) the investors in the private placements of
preferred stock that will convert into common stock at the public offering,
which includes 8,233,173 shares of series F redeemable convertible preferred
stock issued in the 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 a price equal to the per share 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 a
price equal to the per share price to the public in the offering, less
underwriting discounts and commissions; and (iii) 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...... 85,377,010 81% $101,468,602 33% $ 1.19
Private investors.......... 9,770,807 9 97,331,726 31 9.96
New investors in this
offering.................. 11,000,000 10 110,000,000 36 10.00
----------- --- ------------ ---
Total.................... 106,147,817 100% $308,800,328 100%
=========== === ============ ===
</TABLE>
The table assumes no exercise of the underwriters over-allotment option and
no exercise of stock options or warrants outstanding at March 31, 2000. As of
March 31, 2000, there were options outstanding to purchase a total of
11,816,815 shares at a weighted average exercise price of $3.38 per share,
while 4,069,804 shares were reserved
25
<PAGE>
for future grants under our 1998 Stock Plan. As of March 31, 2000, there were
warrants outstanding to purchase 1,949,987 shares of common stock issuable
upon exercise and conversion of outstanding convertible preferred stock
warrants at a weighted average exercise price of $3.42 per share. We will
assume all outstanding options granted under webcasts.com's 1999 Stock Option
Plan, which will convert into options to purchase 706,285 shares of series F
redeemable convertible preferred stock at a weighted average exercise price of
$3.54 per share. To the extent there are exercises of any of these options,
there will be further dilution to new investors. There will be additional
dilution if our webcasts.com division meets revenue targets in the twelve
month period following the closing of the webcasts.com acquisition, which
would require us to issue up to 1,243,932 shares of common stock to the former
webcasts.com shareholders. See "Capitalization," "Management--Compensation of
Directors" and "--Executive Compensation."
26
<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 and
for the three months ended March 31, 2000 combined with the unaudited pro
forma statement of operations of webcasts.com for the year ended December 31,
1999 and for the three months ended March 31, 2000, respectively. 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 March 31, 2000 and combines the balance sheet of iBEAM as of
March 31, 2000 and the consolidated balance sheet of webcasts.com as of March
31, 2000. 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>
Three Months Ended
Period from March 31,
March 20, 1998 Year Ended ----------------------------
(Inception) to December 31, 1999 2000
December 31, --------------------- 1999 -------------------
1998 Actual Pro Forma Actual Actual Pro Forma
-------------- -------- ----------- ------- -------- ---------
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenue................. $ -- $ 149 $ 5,054 $ -- $ 532 $ 2,083
------- -------- -------- ------- -------- --------
Operating costs and
expenses:
Cost of services
(direct and
indirect)............. -- 8,249 11,788 855 8,119 9,794
Engineering and
development........... 1,468 4,531 4,801 554 4,584 5,061
Sales and marketing.... 1,788 10,363 11,438 1,268 5,768 6,966
General and
administrative........ 1,096 7,174 12,468 767 3,733 5,098
Amortization of
goodwill and acquired
intangibles........... -- -- 30,938 -- -- 7,734
------- -------- -------- ------- -------- --------
Total operating costs
and expenses.......... 4,352 30,317 71,433 3,444 22,204 34,653
------- -------- -------- ------- -------- --------
Loss from operations.... (4,352) (30,168) (66,379) (3,444) (21,672) (32,570)
Other income and
expense, net........... 125 200 110 30 317 84
------- -------- -------- ------- -------- --------
Net loss................ (4,227) (29,968) (66,269) (3,414) (21,355) (32,486)
Dividends and accretion
related to preferred
stock and warrants..... -- -- (1,797) -- (10,796) (12,056)
------- -------- -------- ------- -------- --------
Net loss attributable to
common stock........... $(4,227) $(29,968) $(68,066) $(3,414) $(32,151) $(44,542)
======= ======== ======== ======= ======== ========
Net loss per share
attributable to common
stock--basic and
diluted................ $ (0.56) $ (3.43) $ (4.01) $ (0.40) $ (3.04) $ (2.37)
======= ======== ======== ======= ======== ========
Weighted average common
shares outstanding..... 7,488 8,726 16,959 8,462 10,589 18,822
======= ======== ======== ======= ======== ========
Pro forma net loss per
share attributable to
common stock--basic and
diluted (unaudited).... $ (0.63) $ (1.22) $ (0.43) $ (0.54)
======== ======== ======== ========
Pro forma weighted
average common shares
outstanding (unaudited)
....................... 47,435 55,668 74,860 83,093
======== ======== ======== ========
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
December 31, March 31,
--------------- 2000
1998 1999 ------------------
Actual Actual Actual Pro Forma
------ ------- ------- ---------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and investments.... $2,198 $29,840 $21,829 $ 31,124
Working capital........................... 1,071 24,751 14,782 17,806
Total assets.............................. 4,207 44,741 80,426 176,135
Long term obligations, net of current
portion.................................. -- 3,627 6,601 7,638
Redeemable convertible preferred stock.... 6,905 61,192 96,114 183,593
Total stockholders' deficit............... (3,950) (26,033) (36,410) (36,410)
</TABLE>
28
<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 April 2000 we acquired 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 March 31, 2000, we had an accumulated deficit of
$66.3 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.
On April 28, 2000 we consummated the transaction and issued 8,233,173
shares of our series F preferred stock to webcasts.com's security holders and
assumed webcasts.com's outstanding options which converted into 706,285 shares
of our series F preferred stock. We also issued 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 1,243,932 shares of
stock if our webcasts.com division meets certain revenue targets in the twelve
months after the closing of the acquisition. The purchase price was
approximately $92.2 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 $92.8 million of
intangible assets and goodwill on our balance sheet, which will result in
amortization expense of approximately $20.6 million in 2000, $30.9 million in
2001 and 2002 and $10.4 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 broadcasting
services that include On-Air, On-Stage and On-Demand distribution services. We
also derive revenue from other services, including targeted advertising,
production, event management, encoding and acquisition services. 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 viewers, the access speeds
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<PAGE>
of the viewers and time viewers spend viewing content broadcast by us.
Currently, On-Air and 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.
Most of our contracts with our On-Air and On-Demand customers contain monthly
minimum payment obligations, generally ranging from $500 to $1000 per month.
In addition, for On-Demand customers, there is a monthly fee for content
stored on our network, which is measured in gigabytes. In April 2000, the
monthly fee we charged our On-Demand customers for content storage ranged from
$40 to $11,000 per customer. On-Stage services can be priced under a fixed-fee
arrangement or on actual usage in terms of megabits transferred. To date,
content providers have typically elected to enter into fixed-fee arrangements
in order to fix the price of a broadcasting event. We price our fixed-fee
arrangements using an estimate of the amount of content delivered, which
includes a forecast of the expected number of viewers, the access speeds of
the viewers and the duration of the event. We typically charge $.005 to $.01
per megabyte transferred for our On-Stage services. For example, a content
provider could use our network to broadcast a two hour audio only concert to
10,000 typical Internet users. This would result in the transfer of
approximately 270,000 megabytes in the aggregate to these users. At a fee of
$0.01 per megabyte transferred, our total fee to the content provider would be
$2,700. A typical Internet user for purposes of this example would stream
audio at 30 kilobits per second. 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 four 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 these 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, less than 2% of revenue was subject to
access fees. 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. In addition, we expect the aggregate number of ISPs that receive
access fees will increase.
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
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<PAGE>
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 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
since inception, we recorded unearned stock-based compensation of $37.9
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. 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. We believe that the fair
value of the stock options are more reliably measurable than the fair value of
the services received due to the facts that we do not have records of time
spent by each consultant on matters related to iBEAM and that we do not have
the ability to ascertain what the fair market billing rates are for the
consultant's work. As of March 31, 2000, we expect to amortize unearned stock-
based compensation of $12.2 million in the remainder of 2000, $9.3 million in
2001, $4.8 million in 2002 and $2.1 million 2003.
The following table summarizes operating costs and expenses, excluding the
non-cash amortization of stock-based compensation:
<TABLE>
<CAPTION>
Period from
March 20,
1998 Three Months
(Inception) to Year Ended Ended
December 31, December 31, March 31,
1998 1999 1999 2000
-------------- ------------ ------ -------
(in thousands)
<S> <C> <C> <C> <C>
Operating costs and expenses:
Cost of services (direct and
indirect) (exclusive of stock-
based compensation of $0, $761,
$21 and $989, respectively)....... $ -- $ 7,488 $ 834 $ 7,130
Engineering and development
(exclusive of stock-based
compensation of $19, $329, $21 and
$680, respectively)............... 1,449 4,202 533 3,904
Sales and marketing (exclusive of
stock-based compensation of $8,
$604, $40, and $845,
respectively)..................... 1,780 9,759 1,228 4,923
General and administrative
(exclusive of stock-based
compensation of $12, $3,699, $149
and $1,580, respectively)......... 1,084 3,475 618 2,153
Stock-based compensation............ 39 5,393 231 4,094
------ ------- ------ -------
Total operating costs and
expenses....................... $4,352 $30,317 $3,444 $22,204
====== ======= ====== =======
</TABLE>
31
<PAGE>
iBEAM's Results of Operations for the Three Months Ended March 31, 1999 and
2000
Revenue. We recognized $532,000 of revenue in the first quarter of 2000. We
did not generate revenues in the first quarter of 1999. Fees for On-Stage, On-
Air and On-Demand services accounted for 25%, 27% and 36%, respectively, of
total revenue for the first quarter of 2000. 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.
Cost of Services (Direct and Indirect). Cost of services increased by $6.3
million, or 755%, from $0.8 million in the first quarter of 1999 to $7.1
million in the first quarter of 2000. This increase was primarily due to
network bandwidth, satellite transmission, co-location and content acquisition
expenses of $2.0 million, network server and software depreciation of $1.4
million and salaries, bonuses and related taxes of $1.1 million as we expanded
our network and added capacity in late 1999. Headcount included in cost of
services increased from 12 at March 31, 1999 to 56 at March 31, 2000.
Engineering and Development. Engineering and development expenses increased
by $3.4 million, or 632%, from $0.5 million in the first quarter of 1999 to
$3.9 million in the first quarter of 2000. This increase was primarily due to
an increase in consultant expenses of $0.7 million and in salaries, bonuses
and related taxes of $1.5 million as additional engineers were hired
throughout 1999. Headcount included in engineering and development increased
from 16 at March 31, 1999 to 103 at March 31, 2000.
Sales and Marketing. Sales and marketing expenses increased by $3.7
million, or 301%, from $1.2 million in the first quarter of 1999 to $4.9
million in the first quarter of 2000. This increase was primarily due to an
increase in salaries, commissions, bonuses and related taxes of $1.6 million,
travel and entertainment expenses of $0.4 million and advertising and
promotional expenses of $0.9 million as we expanded our sales and marketing
organization and promoted our network. Headcount included in sales and
marketing increased from 15 at March 31, 1999 to 78 at March 31, 2000.
General and administrative. General and administrative expenses increased
by $1.6 million, or 246%, from $0.6 million in the first quarter of 1999 to
$2.2 million in the first quarter of 2000. This increase was primarily due to
an increase in salaries and related taxes of $0.6 million and professional
services of $0.2 million as we began to provide infrastructure to support our
growing operations. Headcount included in general and administrative increased
from ten at March 31, 1999 to 40 at March 31, 2000.
Amortization of Stock-based Compensation. Amortization of employee stock-
based compensation increased by $3.9 million from $0.2 million in the first
quarter of 1999 to $4.1 million in the first quarter of 2000 primarily due to
the grant of stock options to newly hired employees and consultants. In
connection with the grant of stock options to consultants, we recorded stock-
based compensation expense of $12,000 in the first quarter of 1999 and $1.2
million in the first quarter of 2000.
Other Income and Expense, Net. Other income and expense, net increased from
$30,000 in the first quarter of 1999 to $317,000 in the first quarter of 2000
primarily due to an increase in interest income based on larger cash balances.
Net Loss. Net loss increased by $18.0 million, or 526%, from $3.4 million
in the first quarter of 1999 to $21.4 million in the first quarter of 2000.
The increase in the net loss is primarily attributable to increases in
operating costs and expenses of $18.8 million, including an increase in
amortization of stock-based compensation of $3.9 million.
Webcasts.com Results of Operations for the Three Months Ended March 31, 1999
and 2000
Webcasts.com was incorporated in 1995 and commenced its current web
production services business in 1997. Webcasts.com revenues increased from
$0.7 million in the first quarter of 1999 to $1.6 million in the first quarter
of 2000 primarily as a result of its acquisition of The Rock Island Group,
Inc., or RIG, and higher production services revenue. Webcasts.com cost of
revenues increased from $0.3 million in the first quarter of
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<PAGE>
1999 to $1.7 million in the first quarter of 2000, and its operating expenses
increased from $0.5 million in the first quarter of 1999 to $3.2 million in
the first quarter of 2000 primarily due to the RIG acquisition, additional
employees, increased selling expenses and stock-based compensation. As of
March 31, 2000, webcasts.com had an accumulated deficit of $8.0 million.
iBEAM's Results of Operations for the 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.
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 expense 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 larger 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
33
<PAGE>
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 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 $4.8 million primarily due to increased selling expenses partially as a
result of its acquisition of the RIG and stock-based compensation. As of
December 31, 1999, webcasts.com had an accumulated deficit of $4.4 million.
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 $96.1 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 $2.7 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 $21.8 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 $96.1 million from the
sale of preferred stock and $10.1 million from equipment lease lines that are
repayable over periods of up to four years. We expect to make at least $40.0
million in capital investments in 2000, of which $26.0 million was incurred 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, to continue to execute our current business plan, we
would attempt to raise capital in the private equity market. To the extent
such capital is not available, or until available, we would exercise control
of our discretionary expenses 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.
34
<PAGE>
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.
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.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation -- an interpretation of APB Opinion No. 25". This interpretation
clarifies the definition of employee for purposes of applying Accounting
Practice Board Opinion No. 25, Accounting for Stock Issued to Employees, the
criteria for determining whether a plan qualifies as a noncompensatory plan,
the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and the accounting for an exchange of
stock compensation awards in a business combination. This interpretation is
effective July 1, 2000, but certain conclusions in this interpretation cover
specific events that occur after either December 15, 1998, or January 12,
2000. We believe that FIN 44 will not have a material effect on the financial
position or results of operation.
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,"
35
<PAGE>
"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.
36
<PAGE>
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 April 2000, we acquired webcasts.com to add business-to-business
communications capabilities, such as online training and interactive trade
shows. Our combined technology allows 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 believe they 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 expands
our customer base by adding customers that use webcasts.com's business-to-
business e-commerce services including America Online, which was its largest
customer 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, or PCCW, to
establish a joint venture company called iBEAM Asia. iBEAM Asia, which
initially will be 51% owned by PCCW and 49% owned by iBEAM, will focus on
distributing streaming video and audio content in over 50 countries in the
Pacific Rim, Indian subcontinent and Middle East. We expect our ownership
interest in iBeam Asia to decline below 49% in the future as iBeam Asia raises
additional funding through sales of equity interests to third parties, which
would dilute our interest. PCCW plans to begin offering broadband Internet
access services to cable operators in Asia in 2000. These services are
designed to enable cable operators to offer broadband Internet services to
their end-users. We expect that iBEAM Asia's deployment of its edge network
will initially parallel the build-out of PCCW's Internet services to cable
operators that subscribe to PCCW's broadband ISP platform and related Internet
services. iBEAM Asia intends to predominantly use satellite distribution
rather than land-lines because of the relatively high cost of land-line
bandwidth in Asia. We expect that iBeam Asia will begin delivering content to
end users in Asia by the end of 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
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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.
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
recently introduced is the ability to enable content providers to insert
targeted and non-targeted streaming advertising into our broadcasts. Our
servers now have the capability to insert directed local advertisements into
each copy of the broadcast stream they serve. 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. We expect to
generate revenue from targeted advertising during the second quarter of 2000.
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
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megabytes or megabits consumed and therefore varies with the number of
viewers, the access speeds of the viewers and time viewers spend viewing
content broadcast by us. Currently, On-Air and 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. Most of our contracts with our On-Air and On-
Demand customers contain monthly minimum payment obligations, generally
ranging from $500 to $1,000 per month. In addition, for On-Demand customers,
there is a monthly fee for content stored on our network, which is measured in
gigabytes. In April 2000, the monthly fee we charged our On-Demand customers
for content storage ranged from $40 to $11,000 per customer. On-Stage can be
priced under a fixed-fee arrangement or on actual usage in terms of megabits
transferred. To date, content providers have typically elected to enter into
fixed-fee arrangements in order to fix the price of a broadcasting event. We
price our fixed-fee arrangements using an estimate of the amount of content
delivered, which includes a forecast of the expected number of viewers, the
access speeds of the viewers and the duration of the event. We typically
charge $.005 to $.01 per megabyte transferred for our On-Stage services. For
example, a content provider could use our network to broadcast a two hour
audio only concert to 10,000 typical Internet users. This would result in the
transfer of approximately 270,000 megabytes in the aggregate to these users.
At a fee of $0.01 per megabyte transferred, our total fee to the content
provider would be $2,700. A typical Internet user for purposes of this example
would stream audio at 30 kilobits per second. 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 targeted advertising, production,
event management, encoding and acquisition services. These services are
typically billed on a consulting or usage basis.
Targeted Advertising Services. We recently introduced our iBEAM On-Target
services through which we enable content providers to insert streaming
advertisements targeted toward the end user in our broadcast streams.
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.
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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.
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 March 31, 2000:
Internet Media Film
National Association of Chain Drug Stores
Atom Films
Republican National Committee iFilm Corporation
Jumpcut - Here and Now Cinema Now
MacWorld Always Independent Films
Decorative Arts
Music--Video/Radio News
NetRadio MSNBC
Launch Media PTV News
Entertainment Blvd. BBC World
ChoiceRadio Hollywood Stars TV
Ministry of Sound ZD Net
Sports Business to Business
University Netcasting/Fans Only Lotus/IBM
ProWebCast Amercian Online
Max Broadcasting Prepaid Legal
Cybernet Software Systems
Phillip Morris
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.
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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.
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.
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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.
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 an end user goes to
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.
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Acquisition of webcasts.com
In April 2000 we acquired 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.
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 America Online, which was its largest
customer in 1999. Webcasts.com had 95 employees as of March 31, 2000.
Commercial Relationships
We have commercial relationships with America Online, Covad Communications,
Excite@Home, InterPacket, Microsoft Corporation, Pacific Century CyberWorks
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. Among our more
important commercial relationships are those we have entered with large ISPs
and ISPs which provide high speed Internet access. The agreements are critical
to the success of our business model which is dependent on the deployment of
our servers to the edge of the Internet. In order to secure agreements with
large ISPs and high speed Internet access providers, in four instances we have
agreed to share with ISPs between 15% and 20% of the revenue we derive from
content delivered through their networks.
America Online
In February 2000, we entered an agreement with America Online to deploy our
streaming media distribution network within America Online's data centers. 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. America Online has agreed to allow us to serve Internet end users who
do not subscribe to America Online from our servers located within America
Online's facilities. We have agreed to share with America Online a portion of
the revenue generated from delivery of content from our servers in their
network to end users, including America Online subscribers and non-
subscribers. In addition, if we exceed maximum allowable bandwidth amounts
with respect to content delivered to our servers located within the America
Online network and from such servers to non-subscribers, we have agreed to
make additional payments to America Online. We do not expect to make any
payments to America Online for excess bandwidth usage. 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.
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In addition, in February 2000, we sold $5.0 million of our series E
preferred stock to America Online which will convert into 500,726 shares of
common stock upon the closing of the offering. America Online 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's network, which is 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 as
Excite@Home completes its national data centers. 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-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 an 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
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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 January 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. iBEAM Asia,
which initially will be 51% owned by PCCW and 49% owned by iBEAM, will deploy
a network of edge servers in Asia for the purpose of distributing streaming
video and audio content in over 50 countries in the Pacific Rim, Indian
subcontinent and Middle East. We expect our ownership interest in iBEAM Asia
to decline below 49% in the future as iBEAM Asia raises additional funding
through sales of equity interests to third parties, which would dilute our
interest. We expect that iBEAM Asia will begin delivering content to end users
in Asia by the end of 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.
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.
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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.
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.
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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;
. 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 58,000 square feet
of leased office space in Sunnyvale, California. We recently obtained an
additional 22,000 square feet of office space near our headquarters.
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We are building a network operations center in our headquarters which began
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 277 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 $40.0 million in 2000 for capital expenditures, $26.0 million of
which was incurred 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 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.
On April 20, 2000, InterVu, Inc. filed a lawsuit in California state court,
County of Santa Clara, against us and three of our employees entitled InterVu,
Inc. v. iBEAM Broadcasting et al., No. CV 89308. The complaint alleges claims
for misappropriation of trade secrets and inevitable disclosure and breach of
contract and seeks a temporary restraining order, a preliminary injunction and
damages. The complaint is based on the hiring of three former InterVu employees
by iBEAM. On April 25, 2000, the Court denied InterVu's application for a
temporary restraining order and set a hearing for InterVu's motion for a
permanent injunction for May 23, 2000. We intend to defend this action
vigorously, however, litigation is inherently uncertain and we may not prevail
against
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InterVu. Should InterVu prevail in its lawsuit, the three employees who are
the subject of this action would not be permitted to continue their employment
at iBEAM. InterVu also seeks damages of an unspecified amount, as well as
punitive damages.
On April 20, 2000, Akamai Technologies, Inc. filed a lawsuit against us in
the Commonwealth of Massachusetts, Middlesex, Superior Court entitled Akamai
Technologies, Inc. v. iBEAM Broadcasting Corporation, 00-1944 alleging claims
for breach of contract and unauthorized acquisition of Akamai's confidential
information and trade secrets, among other claims. Akamai seeks injunctive
relief enjoining us from continuing the employment of one of its former
employees who is also the subject of the InterVu v. iBEAM case described
above. Akamai also seeks unspecified damages, as well as punitive damages. On
May 2, 2000, the court denied Akamai's request for injunctive relief
preventing us from continuing the employment of the employee in question and
from recruiting or soliciting any employee of Akamai. However, the court did
enjoin us for disclosing or using any of Akamai's trade secrets and directed
iBEAM to return to Akamai any confidential information or trade secrets. We
will continue to vigorously defend our company in this action, however,
litigation is inherently uncertain and we may not prevail against Akamai.
Should Akamai prevail in its lawsuit, the employee who is the subject of this
action would not be permitted to continue employment with us.
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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
Joe Shepela...................... 55 Vice President, Human Resources
James McDermott.................. 45 Vice President, Customer Care
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.
Joe Shepela joined us in April 2000 as our Vice President, Human Resources.
From July 1999 to April 2000, Mr. Shepela served as Senior Vice President of
S3 Incorporated, an Internet applications company. From January 1998 to June
1999, Mr. Shepela served as Vice President, Worldwide Human Resources of
Adaptec Corporation, a manufacturer of hard drive controllers. From October
1995 to January 1998, he served as Vice President, Worldwide Human Resources
of Symantec Corporation, a software company. In these capacities, Mr. Shepela
managed these companies' human resources operations, established the human
resources integration process utilized during acquisitions and mergers and
assisted in corporate restructuring strategy and implementation. Mr. Shepela
holds a B.S. from Drexel University and an M.B.A. from Santa Clara University.
James McDermott joined us in April 2000 as our Vice President, Customer
Care. From September 1995 to April 2000, Mr. McDermott served in various
capacities with Pacific Bell, a telecommunications company. Mr. McDermott
initially served as Executive Director, Customer Care until he was promoted in
April 1998 to Regional Vice President, Public Safety Solutions. As Executive
Director, Customer Care, Mr. McDermott led Pacific Bell's California customer
support organization consisting of approximately 385 managers and associates.
Mr. McDermott also served in various capacities with AT&T between 1982 and
1995. Mr. McDermott holds a B.A. from University of California, San Diego and
an Executive M.B.A. from St. Mary's College of California.
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
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<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
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.
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-employee directors. 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;
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<PAGE>
. 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.
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."
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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.
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<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(4) Value(5) Date 0% 5% 10%
- ------- ---------- ------------- ------------ ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter Desnoes(2) 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(3) 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) This table does not include options to purchase 1,050,000 shares of common
stock that were granted to Mr. Desnoes in April 2000. These options vest
in equal monthly installments and are exercisable at a price of $10.00 per
share.
(3) 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.
(4) Exercises prices reflect our board of directors good faith determination
of the fair market value of our common stock on the date of grant.
(5) Based on recent developments, we reassessed the fair market value of our
common stock underlying options at the time of grant.
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<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
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<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.
In September 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 11,816,815
shares of common stock and 4,069,804 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 approved by our stockholders in April 2000. An amendment to the plan is
expected to be approved by the board of directors and our stockholders in May
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,
. 10,000,000 shares, or
. such lesser amount as our board of directors may determine.
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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 to the extent that shares have vested. 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 1,500,000 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, 3,000,000
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.
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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 February 1 and August 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 January 31, 2001.
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, commissions and bonuses 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 the plan was approved by our stockholders in April 2000. As of April
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. If a non-employee director's status
as a director terminates due to death or disability, the option will remain
exercisable for 12 months. In all other cases where a director's status is
terminated, 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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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 six 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 180 days following the date of the notice. The
option will terminate upon the expiration of the 180-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.
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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 6,500,000 45,052,850
Crosspoint Venture Partners
1997........................ 1,090,604 4,505,285 6,500,000 45,052,850
Media Technology Ventures.... 385,906 1,594,177 2,300,000 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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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. As of April 12,
2000, we and Mr. Seegal mutually agreed to terminate the consulting
arrangement. The parties terminated the arrangement effective May 8, 2000. We
have the right to repurchase the shares purchased by Mr. Seegal pursuant to
the consulting arrangement at cost until June 7, 2000. We intend to repurchase
the 908,820 shares of our common stock held by Mr. Seegal for $2,395,602 and
cancel the $1,999,998 of indebtedness owed to us by Mr. Seegal by June 7,
2000.
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 21, 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.
Directed Share Program. At our request, the underwriters have reserved for
sale, at the initial public offering price, some of the shares offered by this
prospectus for directors and executive officers of iBEAM.
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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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 95,147,834 shares outstanding as of
March 31, 2000, assuming conversion of the preferred stock, and 106,147,834
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% 14.2%
2925 Woodside Road
Woodside, CA 94062
Accel Partners (1)................ 14,247,817 15.0 13.4
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)................. 3,519,949 3.7 3.3
Chris Dier (5).................... 732,724 * *
Tom Gillis (6).................... 392,445 * *
Nils Lahr (7)..................... 439,952 * *
Jeremy Zullo (8).................. 417,231 * *
Barry Baker (9)................... 82,620 * *
Frederic Seegal(10)............... 1,191,334 1.3 1.1
Robert Wilmot (11)................ 2,743,190 2.9 2.6
Richard Shapero (12).............. 15,114,498 15.9 14.2
Peter Wagner (13)................. 14,247,817 15.0 13.4
All executive officers and
directors as a group (15 persons)
(14)............................. 41,115,392 41.7 37.5
</TABLE>
- --------
* Represents less than 1% of our outstanding common stock.
71
<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. Also includes 1,050,000 shares subject to
options that were granted to Mr. Desnoes on April 11, 2000, all of which
are exercisable within 60 days of March 31, 2000.
(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 209,442 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 exercisable
within 60 days of March 31, 2000.
(10) Includes 908,820 shares of common stock that we intend to repurchase from
Mr. Seegal in connection with the termination of our consulting
arrangement with Mr. Seegal.
(11) All of these shares are held in the name of the Wilmot Living Trust, of
which Mr. Wilmot and his spouse are trustees.
(12) 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.
(13) 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.
(14) Includes 3,509,577 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 95,147,834 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 260
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;
. 8,233,173 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 per share 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 per share 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 76,260,334 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
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<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.
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<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 106,147,834
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. Of the 11,000,000 shares sold in this offering, 9,800,000 shares 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.
Of the remaining 96,347,834 shares of common stock, 95,147,834 shares were
issued and sold by us in reliance on exemptions from the registration
requirements of the Securities Act and 1,200,000 shares were issued in this
offering as part of our directed share program. 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, 83,071,938 shares will
become eligible for sale pursuant to Rule 144(k), Rule 144, and Rule 701.
Thereafter, 13,275,876 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 9,800,000 Freely tradable shares sold in
prospectus.............. this offering
180 days after the date 83,071,938 All shares subject to lock-up
of this prospectus...... agreements released; shares saleable
under Rules 144, 144(k) and 701
Thereafter............... 13,275,876 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 1,061,478 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 76,260,334 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.
Warrants
As of March 31, 2000, there were a total of 1,949,987 shares of common
stock subject to outstanding warrants, all of which are subject to lock-up
agreements similar to those described below. These shares will become eligible
for sale on various date upon expiration or release of the 180-day lock-up
agreements.
Stock Options
As of March 31, 2000, there were a total of 11,816,815 shares of common
stock subject to outstanding options under our 1998 Stock Plan, all of which
are 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., FleetBoston
Robertson Stephens Inc., and J.P. Morgan Securities 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. ........................................
FleetBoston Robertson Stephens Inc. .............................
J.P. Morgan Securities 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.
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<PAGE>
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters of iBEAM. These amounts are
shown assuming both no exercise and full exercise of the underwriters' over-
allotment option.
<TABLE>
<CAPTION>
Per Share Total
----------------- -----------------
No Full No Full
Exercise Exercise Exercise Exercise
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Underwriting discounts and commission paid
by iBEAM................................. $ $ $ $
Expenses payable by iBEAM.................
</TABLE>
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
79
<PAGE>
purchased will be offered by the underwriters to the general public on the
same basis as the other shares offered hereby. Purchasers of these shares that
are not otherwise subject to the restrictions described above must represent
that they will not sell, transfer, assign, pledge or hypothecate these shares
for the period ending 180 days after the date of this prospectus.
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. In connection with
these Internet distributions, each of these underwriters will provide for
offers and acceptances of offers to be made through e-mail and over the
Internet.
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 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.
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<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 sec.gov. The information on the Commission's website
is not incorporated into this prospectus.
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.
81
<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-22
webcasts.com, Inc. and Subsidiary
Independent Auditors' Report............................................ F-28
Consolidated Balance Sheets............................................. F-29
Consolidated Statements of Operations................................... F-30
Consolidated Statements of Stockholders' Equity (Deficit)............... F-31
Consolidated Statements of Cash Flows................................... F-32
Notes to Consolidated Financial Statements.............................. F-33
</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.
PricewaterhouseCoopers LLP
San Jose, California
January 28, 2000, except as to the third
paragraph of Note 2, 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
----------------- March 31, March 31,
1998 1999 2000 2000
------- -------- --------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 2,198 $ 24,863 $ 9,849
Short-term investments............. -- 4,977 11,980
Accounts receivable ............... -- 70 217
Prepaid expenses and other current
assets............................ 125 796 6,857
------- -------- --------
Total current assets.............. 2,323 30,706 28,903
Property and equipment, net......... 1,477 12,912 36,886
Note receivable due from
webcasts.com....................... -- -- 10,000
Other assets........................ 407 1,123 4,637
------- -------- --------
$ 4,207 $ 44,741 $ 80,426
======= ======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable................... $ 815 $ 3,055 $ 8,012
Accrued liabilities................ 437 879 3,187
Deferred revenue................... -- 448 331
Current portion of capital lease
obligations....................... -- 1,573 2,591
------- -------- --------
Total current liabilities......... 1,252 5,955 14,121
Capital lease obligations, net of
current portion.................... -- 3,627 6,601
------- -------- --------
Total liabilities................. 1,252 9,582 20,722
------- -------- --------
Commitments and contingencies (Note
6)
Redeemable convertible preferred
stock, $0.0001 par value; 20,000
shares authorized; 4,582, 15,247,
17,792 (unaudited) and no
(unaudited) shares issued and
outstanding (aggregate liquidation
value at December 31, 1999 and
March 31, 2000 of $61,398 and
$96,398, respectively)............. 6,905 61,192 96,114 $ --
------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.0001 par value;
40,000 shares authorized; 9,827,
17,132, 18,887 (unaudited) and
85,377 (unaudited) shares issued
and outstanding................... 1 2 2 9
Additional paid-in capital......... 853 21,773 60,320 156,427
Stockholders' note receivable...... -- -- (2,000) (2,000)
Unearned stock-based compensation.. (577) (13,613) (28,386) (28,386)
Deficit accumulated during
development stage................. (4,227) (34,195) (66,346) (66,346)
------- -------- -------- --------
Total stockholders' equity
(deficit)........................ (3,950) (26,033) (36,410) $ 59,704
------- -------- -------- ========
$ 4,207 $ 44,741 $ 80,426
======= ======== ========
</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 Three Months
(Inception) to Year Ended (Inception) to Ended March 31,
December 31, December 31, December 31, -----------------
1998 1999 1999 1999 2000
-------------- ------------ -------------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue................. $ -- $ 149 $ 149 $ -- $ 532
------- -------- -------- ------- --------
Operating costs and
expenses:
Cost of services....... -- 8,249 8,249 855 8,119
Engineering and
development........... 1,468 4,531 5,999 554 4,584
Sales and marketing.... 1,788 10,363 12,151 1,268 5,768
General and
administrative........ 1,096 7,174 8,270 767 3,733
------- -------- -------- ------- --------
Total operating costs
and expenses......... 4,352 30,317 34,669 3,444 22,204
------- -------- -------- ------- --------
Loss from operations.... (4,352) (30,168) (34,520) (3,444) (21,672)
Interest income......... 125 579 704 73 473
Loss on disposal of
assets................. -- (199) (199) -- --
Interest and other
expense................ -- (180) (180) (43) (156)
------- -------- -------- ------- --------
Net loss................ (4,227) (29,968) (34,195) (3,414) (21,355)
Deemed dividend related
to preferred stock..... -- -- -- -- (10,796)
------- -------- -------- ------- --------
Net loss attributable to
common stock........... $(4,227) $(29,968) $(34,195) $(3,414) $(32,151)
======= ======== ======== ======= ========
Net loss per share
attributable to common
stock--basic and
diluted................ $ (0.56) $ (3.43) $ (0.40) $ (3.04)
======= ======== ======= ========
Weighted average common
shares outstanding..... 7,488 8,726 8,462 10,589
======= ======== ======= ========
Pro forma net loss per
share--basic and
diluted (unaudited).... $ (0.63) $ (0.43)
======== ========
Pro forma weighted
average common shares
outstanding
(unaudited)............ 47,435 74,860
======== ========
</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>
Redeemable
Convertible Deficit
Preferred Accumulated
Stock Common Stock Additional Stockholders' Unearned During Total
-------------- -------------- Paid-in Note Stock-based Development Stockholders'
Shares Amount Shares Amount Capital Receivable Compensation Stage Deficit
------ ------- ------ ------ ---------- ------------- ------------ ----------- -------------
<S> <C> <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)
Issuance of series E
redeemable convertible
preferred stock at
$13.75 per share, less
issuance cost of $78, in
February 2000
(unaudited)............. 2,545 34,922 -- -- -- -- -- -- --
Deemed dividend related
to issuance of series E
redeemable convertible
preferred stock
(unaudited)............. -- -- -- -- 10,796 -- -- (10,796) --
Issuance of common stock
(unaudited)............. -- -- 909 -- 4,396 (2,000) -- -- 2,396
Issuance of common stock
for services rendered
(unaudited)............. -- -- 4 -- 50 -- -- -- 50
Repurchase of common
stock (unaudited)....... -- -- (518) -- (21) -- -- -- (21)
Exercise of employee
stock options
(unaudited)............. -- -- 1,360 -- 1,709 -- -- -- 1,709
Issuance of warrant in
February 2000 (Note
10)(unaudited).......... -- -- -- -- 2,750 -- -- -- 2,750
Unearned stock-based
compensation, net
(unaudited)............. -- -- -- -- 18,867 -- (14,773) -- 4,094
Net loss (unaudited).... -- -- -- -- -- -- -- (21,355) (21,355)
------ ------- ------ --- ------- ------- -------- -------- --------
Balance at March 31,
2000 (unaudited)........ 17,792 $96,114 18,887 $ 2 $60,320 $(2,000) $(28,386) $(66,346) $(36,410)
====== ======= ====== === ======= ======= ======== ======== ========
</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 Three Months
(Inception) to Year Ended (Inception) to Ended March 31,
December 31, December 31, December 31, -----------------
1998 1999 1999 1999 2000
-------------- ------------ -------------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(4,227) $(29,968) $(34,195) $(3,414) $(21,355)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 65 1,707 1,772 117 2,067
Loss on disposal of
assets............... -- 199 199 -- --
Amortization of stock-
based compensation... 39 5,393 5,432 231 4,094
Issuance of common
stock for services... -- 232 232 -- 50
Issuance of warrant
(see Note 7)......... -- 1,000 1,000 -- --
Changes in assets and
liabilities:
Accounts receivable.. -- (70) (70) -- (147)
Prepaid expenses and
other assets........ (313) (813) (1,126) (214) (6,825)
Accounts payable..... 815 2,240 3,055 (259) 4,957
Accrued liabilities.. 437 442 879 42 2,308
Deferred revenue..... -- 448 448 -- (117)
------- -------- -------- ------- --------
Net cash used in
operating
activities......... (3,184) (19,190) (22,374) (3,497) (14,968)
------- -------- -------- ------- --------
Cash flows from
investing activities:
Purchase of property
and equipment......... (1,542) (7,491) (9,033) (320) (21,768)
Purchase of
investments........... -- (4,977) (4,977) -- (7,003)
Note receivable due
from webcasts.com..... -- -- -- -- (10,000)
------- -------- -------- ------- --------
Net cash used in
investing
activities......... (1,542) (12,468) (14,010) (320) (38,771)
------- -------- -------- ------- --------
Cash flows from
financing activities:
Issuance of convertible
preferred stock....... 6,905 54,287 61,192 12,201 34,922
Issuance of common
stock................. 19 686 705 318 4,084
Proceeds from lease
financing............. -- -- -- 1,001 --
Payment of capital
lease obligations..... -- (650) (650) (73) (281)
------- -------- -------- ------- --------
Net cash provided by
financing
activities......... 6,924 54,323 61,247 13,447 38,725
------- -------- -------- ------- --------
Net increase in cash and
cash equivalents....... 2,198 22,665 24,863 9,630 (15,014)
Cash and cash
equivalents at
beginning of period.... -- 2,198 -- 2,198 24,863
------- -------- -------- ------- --------
Cash and cash
equivalents at end of
period................. $ 2,198 $ 24,863 $ 24,863 $11,828 $ 9,849
======= ======== ======== ======= ========
Supplemental non-cash
investing and financing
activities:
Property and equipment
purchased under
capital lease
obligations........... $ -- $ 5,850 $ 5,850 $ 872 $ 4,273
Issuance of warrants... 219 574 793 -- 2,750
Deemed dividend related
to preferred stock.... -- -- -- -- 10,796
Supplemental cash flows
disclosures:
Cash paid for
interest.............. -- 140 140 28 100
</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.
Prior to March 31, 2000 the Company was 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
Unaudited interim results
The accompanying interim financial statements as of March 31, 2000 and for
the three-months ended March 31, 1999 and 2000 are unaudited. The unaudited
interim financial statements have been prepared on the same basis as the
annual financial statements and, in the opinion of management, reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial position, results of operations and
cash flows as of March 31, 2000 and for the three months ended March 31, 1999
and 2000. The financial data and other information disclosed in these notes to
financial statements related to these periods are unaudited. The results for
the three months ended March 31, 2000 are not necessarily indicative of the
results to be expected for the year ending December 31, 2000.
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
F-7
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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.
F-8
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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.
Cash payments received in advance of services provided are recorded as
deferred revenue.
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 $600,000 were capitalized and
included in property and equipment.
F-9
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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 Three Months
(Inception) to Year Ended Ended March 31,
December 31, December 31, -----------------
1998 1999 1999 2000
-------------- ------------ ------- --------
(unaudited)
<S> <C> <C> <C> <C>
Net loss attributable to common
stock.......................... $(4,227) $(29,968) $(3,414) $(32,151)
======= ======== ======= ========
Basic and diluted:
Weighted average common shares
outstanding................... 9,610 14,678 13,937 18,132
Weighted average unvested
common shares subject to
repurchase.................... (2,122) (5,952) (5,475) (7,543)
------- -------- ------- --------
Weighted average shares used to
compute basic and diluted net
loss per share attributable to
common stock.................. 7,488 8,726 8,462 10,589
======= ======== ======= ========
Net loss per share attributable
to common stock--basic and
diluted........................ $ (0.56) $ (3.43) $ (0.40) $ (3.04)
======= ======== ======= ========
</TABLE>
F-10
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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,
------------- March 31,
1998 1999 2000
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Convertible preferred stock upon conversion to
common stock....................................... 18,930 62,984 66,489
Convertible preferred stock warrants upon conversion
to common stock.................................... 381 1,413 1,950
Unvested common shares subject to repurchase........ 2,191 7,101 7,785
Options to purchase common stock.................... 4,513 9,437 11,817
------ ------ ------
26,015 80,935 88,041
====== ====== ======
</TABLE>
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1999 and the
three months ended March 31, 2000 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 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 and 64,756,000 shares for the
three months ended March 31, 2000.
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
ratio. The pro forma effects of this transaction is unaudited and has been
reflected in the accompanying Pro Forma Stockholders' Equity as of March 31,
2000.
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.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation -- an interpretation of APB Opinion No. 25" ("FIN 44"). This
Interpretation clarifies the definition of employee for purposes of applying
Accounting Practice Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25'), the criteria for determining whether a plan qualifies as
a noncompensatory plan, the accounting consequence of various modifications to
the terms of
F-11
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
a previously fixed stock option or award, and the accounting for an exchange
of stock compensation awards in a business combination. This Interpretation is
effective July 1, 2000, but certain conclusions is this Interpretation cover
specific events that occur after either December 15, 1998, or January 12,
2000. Management believes that FIN 44 will not have a material effect on the
financial position or results of operations of the Company.
3. Balance Sheet Components (in thousands)
<TABLE>
<CAPTION>
December 31,
---------------
March 31,
1998 1999 2000
------ ------- -----------
(unaudited)
<S> <C> <C> <C>
Property and equipment, net:
Network software and equipment............... $ 366 $ 8,224 $30,629
Computers, software and equipment............ 705 5,494 8,330
Furniture and fixtures....................... 456 631 1,177
Leasehold improvements....................... 15 180 434
------ ------- -------
1,542 14,529 40,570
Less: Accumulated depreciation and
amortization................................ (65) (1,617) (3,684)
------ ------- -------
$1,477 $12,912 $36,886
====== ======= =======
Accrued liabilities:
Accrued payroll and related liabilities...... $ 54 $ 489 $ 1,301
Other accrued liabilities.................... 236 390 1,886
Deferred rent................................ 147 -- --
------ ------- -------
$ 437 $ 879 $ 3,187
====== ======= =======
</TABLE>
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.
F-12
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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).
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................................................................. 4,029
2002................................................................. 4,457
-------
$11,230
=======
</TABLE>
F-13
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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.
F-14
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 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
F-15
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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
(Inception) to Year Ended Three Months Ended
December 31, 1998 December 31, 1999 March 31, 2000
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- --------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 4,513 $ 0.04 9,437 $ 0.87
Granted................ 6,704 0.03 15,062 0.59 4,022 8.79
Exercised.............. (2,191) 0.01 (8,900) 0.09 (1,360) 1.26
Cancelled.............. -- -- (1,238) 0.06 (282) 6.77
--------- --------- ---------
Outstanding at end of
period................. 4,513 0.04 9,437 0.87 11,817 3.38
========= ========= =========
Options vested at end of
period................. 17 0.04 2,488 0.07 3,885 0.09
========= ========= =========
</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.
F-16
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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>
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, $17,290,000 and
$10,577,000 (unaudited) 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, for the year
ended December 31, 1999 and for the three months ended March 31, 2000,
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
F-17
<PAGE>
iBEAM BROADCASTING CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
years. As a result, the Company recorded stock-based compensation expense of
$31,000, $4,974,000 and $2,920,000 (unaudited) for the period from March 20,
1998 (inception) to December 31, 1998, for the year ended December 31, 1999
and for the three months ended March 1, 2000, respectively.
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. As a result, the stock-based compensation
expense will fluctuate as the fair market value of our common stock
fluctuates. The Company believes that the fair value of the stock options are
more reliably measurable than the fair value of the services received. In
connection with the grant of stock options to consultants, the Company
recorded stock-based compensation expense of $8,000, $419,000 and $1,174,000
for the period from March 20, 1998 (inception) to December 31, 1998, for the
year ended December 31, 1999, and for the three month ended March 31, 2000,
respectively.
As of March 31, 2000, the Company expects to amortize stock-based
compensation expense of $12,227,000 in the remainder of fiscal 2000,
$9,262,000 in 2001, $4,843,000 in 2002, and $2,054,000 in 2003.
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 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 Three Months Ended
December 31, 1999 March 31, 2000
----------------- ------------------
(unaudited)
<S> <C> <C>
iBEAM On-Stage.......................... $110 $132
iBEAM On-Air............................ 9 144
iBEAM On-Demand......................... 5 191
Other services.......................... 25 65
---- ----
$149 $532
==== ====
</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. For the three months ended March 31, 2000 one customer,
NetRadio, represented 12% of the Company's revenue.
10. Subsequent Events (Unaudited):
Series E Financing
In February 2000, the Company issued 2,545,454 shares of series E
redeemable convertible preferred stock ("Series E") at a price of $13.75 per
share, for aggregate proceeds of $35.0 million. These convertible preferred
F-18
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 approximately $10.8 million. Under Emerging Issues Task Force No. 98-5,
Accounting for Convertible Securities with Beneficial Conversion Features, the
beneficial conversion feature resulted in a "deemed" preferred dividend of
$10.8 million for the three months 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"), 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, on-line trade shows and interactive
television. The acquisition was consummated on April 28, 2000 and was
accounted for as a purchase business combination with a purchase price of
$92.2 million.
Under the terms of the agreement, all issued and outstanding shares and
warrants of webcasts.com were exchanged for 8,233,173 shares of the Company's
series F redeemable convertible preferred stock ("Series F") equal to 8% of
the as adjusted capitalization of the combined companies immediately following
the acquisition. Such shares had a value of approximately $82.3 million. In
addition, based on an exchange ratio of 0.34743 shares of iBEAM for every
share of webcasts.com, all of the outstanding options granted under the
webcasts.com 1999 Stock Option Plan converted into options to purchase 706,285
shares of the Company's Series F. The fair value of these options of
approximately $5.2 million was determined using the Black-Scholes option
pricing model and is included as a component of the purchase price. The
Company also issued a $3.0 million note to the webcasts.com's redeemable
preferred stockholders, which is payable on September 20, 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 of $3.0 million against future revenue sharing
obligations derived from content delivered through their network. 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 Series E 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 $2.8 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.
F-19
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Pacific Century CyberWorks (PCCW)
The Company has 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 the
Pacific Rim, Indian subcontinent, and Middle East. The joint venture will be
51% owned by PCCW and 49% owned by iBEAM and is expected to be operational by
the end of 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 ("Series G") 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. Series G 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.
Excite@Home
In April 2000, the Company agreed to issue shares of series H redeemable
convertible preferred stock ("Series H") 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. Series H 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.
Stock Option Plans
The Company's 2000 Stock Plan (the "2000 Plan") was adopted by the Board of
Directors in January 2000, as amended in May 2000, subject to stockholder
approval. 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,
. 10,000,000 shares or
. such lesser amount as determined by the Board of Directors.
F-20
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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"), which
was subsequently amended in May 2000. A total of 1,500,000 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) 3,000,000 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
February 1 and August 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
January 31, 2001. The Purchase Plan permits participants to purchase common
stock through payroll deductions of up to 15% of their eligible compensation.
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.
F-21
<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.
On April 28, 2000, the Company consummated this acquisition. All issued and
outstanding shares and warrants of webcasts.com were exchanged for shares of
the Company's series F redeemable convertible preferred stock ("Series F")
equal to 8% of the as adjusted capitalization of the combined companies
immediately following the acquisition. Using the capitalization of the
companies as of April 28, 2000 as adjusted for the planned issuance of
1,537,634 shares of preferred stock to The Walt Disney Company and Excite@Home
and the repurchase of 908,820 shares of common stock in May 2000, the Company
issued 8,233,173 shares, at $10.00 per share, for a value of approximately
$82.3 million. In addition, based on an exchange ratio of 0.34743 shares of
iBEAM for every share of webcasts.com, all of the outstanding options granted
under the webcasts.com 1999 Stock Option Plan were converted into options to
purchase 706,285 shares of the Company's Series F. The fair value of these
options of approximately $5.2 million was determined using the Black-Scholes
option pricing model and is included as a component of the purchase price. The
Company also issued a $3.0 million note to the webcasts.com's redeemable
preferred stockholders, which is payable on September 20, 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 1,243,932 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 $92.2 million will be 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 an 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......................................... $12,896
Purchased technology............................................. 2,000
Assembled workforce.............................................. 2,150
Non-competition agreements....................................... 4,700
Goodwill......................................................... 83,963
Liabilities assumed.............................................. (13,530)
-------
$92,179
=======
</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
March 31, 2000 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-22
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
March 31, 2000
(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... $ 9,849 $9,295 $ -- $ 19,144
Short-term investments...... 11,980 -- -- 11,980
Accounts receivable, net.... 217 831 -- 1,048
Prepaid expenses and other
current assets............. 6,857 91 -- 6,948
-------- ------- -------- --------
Total current assets....... 28,903 10,217 -- 39,120
Property and equipment, net.. 36,886 2,581 -- 39,467
Note receivable due from
webcasts.com................ 10,000 -- (10,000)(A) --
Goodwill and acquired
intangible assets........... -- 3,796 89,017 (B) 92,813
Other assets................. 4,637 98 -- 4,735
-------- ------- -------- --------
$ 80,426 $16,692 $ 79,017 $176,135
======== ======= ======== ========
<CAPTION>
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
(DEFICIT)
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable............ $ 8,012 $ 1,567 $ -- $ 9,579
Accrued liabilities......... 3,187 581 1,700 (B) 5,468
Deferred revenue............ 331 116 -- 447
Current portion of capital
lease obligations.......... 2,591 107 -- 2,698
Revolving line of credit,
current portion............ -- 122 -- 122
Note payable due to iBEAM... -- 10,000 (10,000)(A) --
Notes payable to
webcasts.com's redeemable
preferred stockholders..... -- -- 3,000 (B) 3,000
-------- ------- -------- --------
Total current liabilities.. 14,121 12,493 (5,300) 21,314
Revolving line of credit..... -- 969 -- 969
Capital lease obligations,
net of current portion...... 6,601 68 -- 6,669
-------- ------- -------- --------
Total liabilities.......... 20,722 13,530 (5,300) 28,952
-------- ------- -------- --------
Redeemable convertible
preferred stock............. 96,114 -- 87,479 (B) 183,593
-------- ------- -------- --------
Redeemable preferred stock... -- 2,639 (2,639)(B) --
-------- ------- -------- --------
Stockholders' equity
(deficit):
Common stock................ 2 -- -- 2
Additional paid-in capital.. 60,320 8,497 (8,497)(B) 60,320
Stockholders' note
receiveable................ (2,000) -- -- (2,000)
Unearned stock-based
compensation............... (28,386) -- -- (28,386)
Deficit accumulated during
development stage.......... (66,346) (7,974) 7,974 (B) (66,346)
-------- ------- -------- --------
Total stockholders' equity
(deficit)................. (36,410) 523 (523) (36,410)
-------- ------- -------- --------
$ 80,426 $16,692 $ 79,017 $176,135
======== ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
F-23
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Three Months Ended March 31, 2000
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical Historical
iBEAM webcasts.com Adjustments Combined
---------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Revenue....................... $ 532 $ 1,551 $ -- $ 2,083
-------- ------- ------- --------
Operating costs and expenses:
Cost of services............. 8,119 1,675 -- 9,794
Engineering and development.. 4,584 477 -- 5,061
Sales and marketing.......... 5,768 1,198 -- 6,966
General and administrative... 3,733 1,365 -- 5,098
Goodwill amortization........ -- 143 7,591 (C) 7,734
-------- ------- ------- --------
Total costs and operating
expenses.................. 22,204 4,858 7,591 34,653
-------- ------- ------- --------
Loss from operations.......... (21,672) (3,307) (7,591) (32,570)
Other income (expense), net... 317 (233) -- 84
-------- ------- ------- --------
Net loss...................... (21,355) (3,540) (7,591) (32,486)
Dividends and accretion
related to preferred stock
and redeemable warrants...... (10,796) (1,260) -- (12,056)
-------- ------- ------- --------
Net loss attributable to
common stock................. $(32,151) $(4,800) $(7,591) $(44,542)
======== ======= ======= ========
Net loss per share
attributable to common stock:
Basic and diluted............ $ (3.04) $ (2.37)
======== ========
Weighted average common
shares outstanding.......... 10,589 18,822
======== ========
Pro forma net loss per share
attributable to common
stock: (D)
Basic and diluted............ $ (0.43) $ (0.54)
======== ========
Weighted average common
shares outstanding.......... 74,860 83,093
======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
F-24
<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)(E) $ 4,905 $ -- $ 5,054
-------- ------- ------- ----- ------- -------- --------
Operating costs and
expenses:
Cost of services....... 8,249 1,800 1,913 (174)(E) 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 (F) 5,294 -- 12,468
Amortization of
goodwill and acquired
intangibles........... -- 97 -- 476 (G) 573 30,365 (C) 30,938
-------- ------- ------- ----- ------- -------- --------
Total operating costs
and expenses......... 30,317 6,581 3,840 330 10,751 30,365 71,433
-------- ------- ------- ----- ------- -------- --------
Loss from operations.... (30,168) (4,150) (1,192) (504) (5,846) (30,365) (66,379)
Other income (expense),
net.................... 200 (86) (472) 468 (H) (90) -- 110
-------- ------- ------- ----- ------- -------- --------
Net loss................ (29,968) (4,236) (1,664) (36) (5,936) (30,365) (66,269)
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) $(30,365) $(68,066)
======== ======= ======= ===== ======= ======== ========
Net loss per share
attributable to common
stock:
Basic and diluted...... $ (3.43) $ (4.01)
======== ========
Weighted average common
shares outstanding.... 8,726 16,959
======== ========
Pro forma net loss per
share attributable to
common
stock: (D)
Basic and diluted...... $ (0.63) $ (1.22)
======== ========
Pro forma weighted
average common shares
outstanding........... 47,435 55,668
======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
F-25
<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 March 31, 2000 and combines the balance sheet
of iBEAM as of March 31, 2000 and the consolidated balance sheet of
webcasts.com as of March 31, 2000.
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 eliminate the intercompany promissory note.
B 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 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.
C To reflect the amortization of goodwill and other intangibles over their
estimated useful lives as follows:
<TABLE>
<CAPTION>
Amortization Expenses
------------------------------------
Amortization Year Ended Three Months Ended
Amount Period December 31, 1999 March 31, 2000
------- ------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Goodwill................ $83,963 3 years $27,987 $6,996
Purchased technology.... 2,000 3 years 667 167
Assembled workforce..... 2,150 3 years 717 179
Non-compete agreements.. 4,700 3 years 1,567 392
</TABLE>
The estimated useful life related to the assembled workforce was based
on the remaining vesting schedule of the employees' stock options and
the historical experience of employee turnover. The estimated useful
life related to the non-compete agreement was based on the term of the
non-compete provisions.
D Pro forma basic and diluted net loss per share attributable to common
stock is computed using the weighted average number of common shares
outstanding, including the pro forma effects of the automatic conversion
of the Company's outstanding redeemable convertible preferred stock
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
F-26
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION--(Continued)
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 22,258,000 shares at March 31, 2000
and 18,657,000 shares at December 31, 1999, have been excluded from the
diluted net loss per share calculation because to do so would be
antidilutive.
E 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.
F To reflect additional depreciation expense on the fair value of tangible
assets acquired.
G To record the additional amortization of goodwill related to the
acquisition of RIG as if the transaction occurred on January 1, 1999.
H 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.
F-27
<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-28
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, March 31,
--------------- -----------
1998 1999 2000
------ ------- -----------
(unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash............................................. $ 23 $ 1,780 $ 9,295
Trade accounts receivable, net of allowance for
doubtful accounts of $22, $31 and $36 in
1998, 1999 and 2000, respectively............... 411 902 831
Prepaid expenses and other current assets........ 6 132 53
Costs of uncompleted contracts................... 57 27 38
------ ------- -------
Total current assets............................ 497 2,841 10,217
------ ------- -------
Equipment......................................... 138 2,200 2,912
Less accumulated depreciation and amortization... (41) (181) (331)
------ ------- -------
Net equipment..................................... 97 2,019 2,581
Goodwill, net of accumulated amortization of $98
and $241, respectively........................... -- 3,939 3,796
Other assets...................................... -- 71 98
------ ------- -------
$ 594 $ 8,870 $16,692
====== ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C> <C>
Current liabilities:
Accounts payable................................. $ 242 $ 1,178 $ 1,567
Deferred revenues................................ 139 134 116
Accrued liabilities.............................. 67 378 581
Notes payable, current portion................... 203 64 10,000
Revolving line of credit, current portion........ -- -- 122
Notes payable to common stockholders............. 419 -- --
Notes payable to preferred stockholders.......... -- 2,720 --
Current portion of capital lease obligations..... 23 99 107
------ ------- -------
Total current liabilities....................... 1,093 4,573 12,493
Revolving line of credit.......................... -- 978 969
Notes payable, net of current portion............. -- 52 --
Capital lease obligations, net of current
portion.......................................... 18 102 68
------ ------- -------
Total liabilities............................... 1,111 5,705 13,530
------ ------- -------
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 1,997
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................................. -- 244 259
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................................. -- 361 383
------ ------- -------
Total redeemable preferred stock................ -- 2,483 2,639
------ ------- -------
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 in 1999; and 361
shares authorized and 345 shares issued and
outstanding in 2000............................. -- -- --
Common stock, $.00001 par value, 50,000 shares
authorized, 12,875 shares issued and 10,787
shares outstanding in 1998, 12,150 shares issued
and outstanding in 1999 and 20,105 shares issued
and outstanding in 2000......................... -- -- --
Warrants to purchase common stock................ -- 2,292 --
Additional paid in capital....................... 73 2,824 8,497
Accumulated deficit.............................. (198) (4,434) (7,974)
Treasury stock, 2,087 shares at cost in 1998..... (392) -- --
------ ------- -------
Total stockholders' equity (deficit)............ (517) 682 523
------ ------- -------
Commitments and contingencies (Notes 3, 4, 8 and
10).............................................. -- -- --
------ ------- -------
$ 594 $ 8,870 $16,692
====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Years Ended Ended
December 31, March 31,
---------------- ---------------
1998 1999 1999 2000
------- ------- ------ -------
(unaudited)
<S> <C> <C> <C> <C>
Revenues.................................... $ 1,997 $ 2,431 $ 734 $ 1,551
Cost of revenues............................ 1,300 1,800 296 1,675
------- ------- ------ -------
Gross profit (loss)....................... 697 631 438 (124)
Operating expenses.......................... 896 4,781 497 3,183
------- ------- ------ -------
Loss from operations........................ (199) (4,150) (59) (3,307)
Interest income............................. -- 33 -- 58
Interest expense............................ (48) (119) (18) (291)
------- ------- ------ -------
Net loss.................................. (247) (4,236) (77) (3,540)
Preferred stock dividends in arrears and
accretion of discount on preferred stock
and redeemable warrants.................... -- (1,797) -- (1,260)
------- ------- ------ -------
Net loss applicable to common stock....... $ (247) $(6,033) $ (77) $(4,800)
======= ======= ====== =======
Net loss per average common share
outstanding--basic and diluted............. $ (0.02) $ (0.51) $(0.01) $ (0.39)
======= ======= ====== =======
Weighted average common shares--basic and
diluted.................................... 12,226 11,758 10,931 12,240
======= ======= ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<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-based
compensation........... -- -- -- -- -- 33 -- -- 33
Net loss................ -- -- -- -- -- -- (4,236) -- (4,236)
--- --- ------ ---- ------- ------- ------- ----- -------
Balance, December 31,
1999................... 210 -- 12,150 -- 2,292 2,824 (4,434) -- 682
Exercise of stock
options (unaudited).... 4 -- 31 -- -- 34 -- -- 34
Issuance of preferred
stock (unaudited)...... 11 -- -- -- -- 275 -- -- 275
Conversion of debt to
preferred stock
(unaudited)............ 120 -- -- -- -- 2,782 -- -- 2,782
Exercise of warrants
(unaudited)............ -- -- 7,924 -- (3,259) 3,281 -- -- 22
Accretion of redeemable
preferred stock
(unaudited)............ -- -- -- -- -- (156) -- -- (156)
Accretion of warrants to
purchase common stock
(unaudited) -- -- -- -- 967 (967) -- -- --
Stock-based compensation
(unaudited)............ -- -- -- -- -- 424 -- -- 424
Net loss (unaudited).... -- -- -- -- -- -- (3,540) -- (3,540)
--- --- ------ ---- ------- ------- ------- ----- -------
Balance, March 31, 2000
(unaudited)............ 345 $-- 20,105 $ -- $ -- $ 8,497 $(7,974) $ -- $ 523
=== === ====== ==== ======= ======= ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Years Ended Ended
December 31, March 31,
-------------- -------------
1998 1999 1999 2000
----- ------- ---- -------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................... $(247) $(4,236) $(77) $(3,540)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 33 238 9 293
Accretion of debt discount.................. -- 31 -- 62
Issuance of warrants and options for
services................................... -- 91 -- --
Stock-based compensation.................... -- 549 -- 424
Net change in:
Accounts receivable........................ (85) (79) (74) 71
Prepaid expenses and other current assets.. (2) (103) (7) 79
Costs of uncompleted contracts............. (57) 30 33 (11)
Other assets............................... -- -- -- (27)
Accounts payable........................... 3 466 321 389
Deferred revenues.......................... 97 (5) (82) (18)
Accrued liabilities........................ 55 142 16 203
----- ------- ---- -------
Net cash used in operating activities..... (203) (2,876) 139 (2,075)
----- ------- ---- -------
Cash flows used in investing activities:
Purchase of equipment......................... (36) (1,598) (57) (712)
Legal fees paid for acquisition............... -- (85) -- --
----- ------- ---- -------
Net cash used in investing activities..... (36) (1,683) (57) (712)
----- ------- ---- -------
Cash flows from financing activities:
Proceeds from sale of preferred stock......... -- 2,841 -- 275
Proceeds from sale of common stock............ -- 77 -- 56
Proceeds from notes payable................... 203 264 -- 10,000
Payments on notes payable..................... -- (420) (60) (116)
Proceeds from notes payable to preferred
stockholders................................. -- 3,000 -- --
Net proceeds from revolving line of credit.... -- 978 -- 113
Payments on notes payable to stockholders..... (4) (419) (19) --
Cash paid for treasury stock.................. (40) -- -- --
Proceeds from sale of treasury stock.......... 130 -- -- --
Distributions to stockholders................. (28) -- -- --
Payments on capital lease obligations......... (23) (24) (4) (26)
Cash received through acquisition............. -- 19 -- --
----- ------- ---- -------
Net cash provided by financing
activities............................... 238 6,316 (83) 10,302
----- ------- ---- -------
Net change in cash.............................. (1) 1,757 (1) 7,515
Cash at beginning of period..................... 24 23 23 1,780
----- ------- ---- -------
Cash at end of period........................... $ 23 $ 1,780 $ 22 $ 9,295
===== ======= ==== =======
Supplemental cash flow information:
Cash paid for interest........................ $ 38 $ 88 $ 12 $ 32
Debt exchanged for common stock............... -- 50 -- --
Acquisition consummated through issuance of
preferred stock.............................. -- 4,000 -- --
Accretion of redeemable preferred stock....... -- 276 -- 156
Purchase of treasury stock, at cost, through
issuance of notes payable.................... 410 -- -- --
Purchase of equipment through capital leases.. 13 -- -- --
Bridge loan conversion to Series D Preferred
Stock........................................ -- -- -- 2,782
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1999
(Information insofar as it relates to March 31, 2000 and the
three months ended March 31, 1999 and 2000 is unaudited)
(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.
In the opinion of management, the accompanying unaudited financial
statements as of March 31, 2000 and for the three months ended March 31, 1999
and 2000, reflect adjustments (all of which are normal and recurring) which,
in the opinion of management, are necessary for a fair presentation of the
financial position and results of operations of the interim periods presented.
(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. Indirect costs and
general and administrative expenses are expensed as incurred. Contract costs,
consisting primarily of direct labor and material 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.
F-33
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
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) 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
F-34
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 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
F-35
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation--an interpretation of APB
Opinion No. 25" ("FIN 44"). Among other issues, this interpretation clarifies
the definition of employee for purposes of applying APB Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), the criteria for
determining whether a plan qualifies as a noncompensatory plan, the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1,
2000, but certain conclusions in this Interpretation cover specific events
that occur after either December 15, 1998, or January 12, 2000. Management
believes that FIN 44 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 excess of the purchase price
over the fair value of the net assets acquired was approximately $4 million
and is being amortized on a straight-line basis over 7 years. In determining
the purchase price allocation, the Company identified intangible assets
consisting of customer base and assembled workforce. The allocation of the
purchase price to these identifiable assets would not materially impact the
financial position or the results of operations for 1999 or future results.
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
F-36
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and approximately $113,000 borrowed at March 31, 2000. The
equipment loan expires September 15, 2002, and there was $978,480 borrowed
against the loan at December 31, 1999 and March 31, 2000. The loans are
secured by equipment and trade accounts receivable and bear interest at the
prime rate plus 1% (approximately 9.5% and 9.75% at December 31, 1999 and
March 31, 2000, respectively).
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.
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 increased approximately $31,000 and $62,000 for the
accretion of the debt to its face value during 1999 and the three months ended
March 31, 2000, respectively. The promissory notes were converted to 120,000
shares of Series D Preferred Stock on February 29, 2000.
In March 2000, the Company entered into a $10,000,000 promissory note with
iBEAM Broadcasting Corporation (iBEAM). The note bears interest at prime rate
+1%, with principal and interest due at maturity on March 1, 2001.
(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
and March 31, 2000, cumulative dividends in arrears for the Preferred Stock
were approximately $120,000 and $180,000, respectively. 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
F-37
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 any time 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 $14,100,000 at December
31, 1999. The Preferred Warrants were exercised on March 31, 2000 for
7,756,000 shares of common stock.
(5) Stockholders' Equity (Deficit)
Common Stock
During 1999, the board of directors and shareholders of the Company
approved amended and restated certificates of incorporation which ultimately
authorized 50,000,000 shares of common stock ($.00001 par value) 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 and March 31, 2000, cumulative dividends
in arrears for the Series D Stock were approximately $53,000 and $120,000,
respectively. 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
vested 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
F-38
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
a Qualified Public Offering, as defined in the acquisition agreement. Options
to purchase 4,500 shares of Series D Stock were exercised in the three months
ended March 31, 2000, and 15,500 options remain outstanding at March 31, 2000.
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 any time after a
Qualified Transaction and before maturity at an exercise price of $.01. The
Bridge Warrants were exercised in the three months ended March 31, 2000 for
120,000 shares of common stock.
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. The warrants were exercised in full in the three
months ended March 31, 2000.
(6) Equipment
Equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December
31, March 31,
----------- -----------
1998 1999 2000
---- ------ -----------
(unaudited)
<S> <C> <C> <C>
Office equipment..................................... $ 16 $ 67 $ 97
Computer equipment................................... 122 2,133 2,815
---- ------ ------
$138 $2,200 $2,912
==== ====== ======
</TABLE>
(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, March 31,
-------------- -----------
1998 1999 2000
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Furniture and fixtures........................... $ 63 $ 40 $ 40
Computer equipment............................... -- 230 230
------ ------ ----
63 270 270
Less: Accumulated amortization................... (23) (59) (80)
------ ------ ----
$ 40 $ 211 $190
====== ====== ====
</TABLE>
F-39
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 $33,000 and $154,000 in 1998 and 1999, 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>
(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>
F-40
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
(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 is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March 31,
1999 2000
---------------- ----------------
(unaudited)
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
------ -------- ------ --------
<S> <C> <C> <C> <C>
Balance at beginning of period............. -- $ -- 1,366 $1.07
Granted.................................... 1,396 1.06 653 1.55
Exercised.................................. (4) 0.32 (31) 0.88
Forfeited.................................. (26) 0.32 -- 0.32
----- -----
Balance at end of period................... 1,366 1.07 1,988 1.23
===== =====
</TABLE>
F-41
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
(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. For the three months ended March 31,
2000, two customers accounted for 50% of the Company's total revenue, and 58%
of trade accounts receivable.
(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 April 2000, the Company merged 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 merger, all issued and outstanding shares of
common and preferred stock and warrants to purchase shares of the Company were
exchanged for approximately 8.2 million shares of series F redeemable
convertible preferred stock 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 iBEAM 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 were converted into
options to purchase shares of iBEAM's series F redeemable convertible
preferred stock.
F-42
<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 25,689,019 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
12,450,704 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 closing
of the acquisition on April 28, 2000, we issued 8,233,173 shares of our Series
F Preferred Stock in exchange for outstanding shares of webcasts.com capital
stock. The issuance of these shares was completed in reliance of Section 4(2)
of the Securities Act and Regulation D promulgated thereunder. In connection
with this acquisition, we also assumed webcasts.com options, which are
exercisable to purchase 706,285 shares of our Series F Preferred Stock. These
options were granted in reliance upon Rule 701 of the Securities Act.
(17) On March 16, 2000 we entered into an agreement with Catalyst
Investments, LLC pursuant to which Catalyst Investments, LLC 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, Catalyst Investments, LLC 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 At Home
Corporation pursuant to which At Home Corporation 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, At Home Corporation 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** Specimen of common stock certificate.
4.2** Third Amended and Restated Investors' Rights Agreement dated April
28, 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.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
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.
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>
- --------
** Previously filed.
+ Confidential treatment has been requested with respect to certain non-
public information contained in these exhibits. Such information has been
filed with the Securities and Exchange Commission.
(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 16th day of May, 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 May 16, 2000
____________________________________ Executive Officer and
Peter Desnoes Chairman of the Board
(Principal Executive
Officer)
/s/ Chris Dier Vice President and Chief May 16, 2000
____________________________________ Financial Officer
Chris Dier (Principal Financial and
Accounting Officer)
Barry Baker* Director May 16, 2000
____________________________________
Barry Baker
Frederic Seegal* Director May 16, 2000
____________________________________
Frederic Seegal
Richard Shapero* Director May 16, 2000
____________________________________
Richard Shapero
Peter Wagner* Director May 16, 2000
____________________________________
Peter Wagner
Robert Wilmot* Director May 16, 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** Specimen of common stock certificate.
4.2** Third Amended and Restated Investors' Rights Agreement dated April
28, 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.18+ Excite@Home - iBEAM Internet Services Agreement by and between the
Registrant and At Home Corporation dated April 5, 2000.
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>
- --------
** Previously filed.
+ Confidential treatment has been requested with respect to certain non-
public information contained in these exhibits. Such information has been
filed with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 1.1
_______________ Shares
iBEAM BROADCASTING CORPORATION
COMMON STOCK, $0.0001 PAR VALUE
UNDERWRITING AGREEMENT
May [.], 2000
<PAGE>
May [.], 2000
Morgan Stanley & Co. Incorporated
Bear, Stearns & Co. Inc.
J.P. Morgan Securities Inc.
FleetBoston Robertson Stephens Inc.
c/o Morgan Stanley & Co.
Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
iBEAM Broadcasting Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (the "Underwriters") [.] shares of its Common Stock, $0.0001 par value
(the "Firm Shares"). The Company also proposes to issue and sell to the several
Underwriters not more than an additional [.] shares of its Common Stock, $0.0001
par value (the "Additional Shares") if and to the extent that you, as Managers
of the offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares." The shares of Common
Stock, $0.0001 par value of the Company to be outstanding after giving effect to
the sales contemplated hereby are hereinafter referred to as the "Common Stock."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Registration Statement"), then any reference herein to the
term "Registration Statement" shall be deemed to include such Rule 462
Registration Statement.
<PAGE>
Morgan Stanley & Co. Incorporated ("Morgan Stanley") has agreed to reserve
a portion of the Shares to be purchased by it under this Agreement for sale to
the Company's directors, officers, employees and business associates and other
parties related to the Company (collectively, "Participants"), as set forth in
the Prospectus under the heading "Underwriters" (the "Directed Share Program").
The Shares to be sold by Morgan Stanley and its affiliates pursuant to the
Directed Share Program are referred to hereinafter as the "Directed Shares."
Any Directed Shares not orally confirmed for purchase by any Participants by the
end of the business day on which this Agreement is executed will be offered to
the public by the Underwriters as set forth in the Prospectus.
1. Representations and Warranties. The Company represents and warrants
to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) the Registration Statement and the Prospectus
comply and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations
and warranties set forth in this paragraph do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so
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qualified or be in good standing would not have a material adverse effect
on the Company and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole; all of the issued shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and are owned directly by the Company, free and clear of
all liens, encumbrances, equities or claims.
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will
not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by the Company of its obligations
under this Agreement, except such as may be
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required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration Statement or
the Prospectus and are not so described or any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder except for the omission of price
range and other information derived therefrom to the extent such
information was omitted from the initial filing of the registration
statement.
(m) The Company is not, and after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus will not be, required to register as an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended.
(n) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms
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and conditions of such permits, licenses or approvals would not, singly or
in the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(o) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(p) Except as described in the Prospectus, or which have been
validly waived, there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Securities
Act with respect to any securities of the Company or to require the Company
to include such securities with the Shares registered pursuant to the
Registration Statement.
(q) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government of
Cuba or with any person or affiliate located in Cuba.
(r) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company and
its subsidiaries have not incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction not in the
ordinary course of business; (ii) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (iii) there has not been any material
change in the capital stock, short-term debt or long-term debt of the
Company and its subsidiaries, except in each case as described in the
Prospectus.
(s) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the
Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held
under lease by the Company and its subsidiaries are held by them under
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valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries, in each
case except as described in the Prospectus.
(t) Except as described in the Prospectus, the Company and its
subsidiaries own or possess, or can acquire on reasonable terms, all
material patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names currently employed by them in
connection with the business now operated by them, and, except as described
in the Prospectus, neither the Company nor any of its subsidiaries has
received any notice of infringement of or conflict with asserted rights of
others with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a material adverse affect on the Company and its subsidiaries,
taken as a whole.
(u) No material labor dispute with the employees of the Company or
any of its subsidiaries exists, except as described in the Prospectus, or,
to the knowledge of the Company, is imminent; and the Company is not aware
of any existing, threatened or imminent labor disturbance by the employees
of any of its principal suppliers, manufacturers or contractors that could
have a material adverse affect on the Company and its subsidiaries, taken
as a whole.
(v) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as, to the knowledge of the Company, are prudent
and customary in the businesses in which they are engaged; neither the
Company nor any of its subsidiaries has been refused any insurance coverage
sought or applied for; and neither the company nor any of its subsidiaries
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
at a cost that would not have a material adverse affect on the Company and
its subsidiaries, taken as a whole, except as described in the Prospectus.
(w) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any of its subsidiaries has
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<PAGE>
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse affect on the Company and its
subsidiaries, taken as a whole, except as described in the Prospectus.
(x) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(y) Except as described in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement), the Company has not sold, issued or distributed any shares of
Common Stock during the six-month period preceding the date hereof,
including any sales pursuant to Rule 144A under, or Regulation D or S of,
the Securities Act, other than shares issued pursuant to employee benefit
plans, qualified stock option plans or other employee compensation plans or
pursuant to outstanding options, rights or warrants.
(z) The Registration Statement, the Prospectus and any preliminary
prospectus comply, and any amendments or supplements thereto will comply,
with any applicable laws or regulations of foreign jurisdictions in which
the Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share
Program.
(aa) No consent, approval, authorization or order of, or
qualification with, any governmental body or agency, other than those
obtained, is required in connection with the offering of the Directed
Shares in any jurisdiction where the Directed Shares are being offered,
except such as may be required by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the Directed
Shares.
(bb) The Company has not offered, or caused Morgan Stanley or its
affiliates to offer, Shares to any person pursuant to the Directed Share
Program with the intent to unlawfully influence (i) a customer or supplier
of the Company to alter the customer's or supplier's level or type of
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business with the Company, or (ii) a trade journalist or publication to
write or publish favorable information about the Company or its products.
2. Agreements to Sell and Purchase. The Company hereby agrees to sell
to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedule I hereto
opposite its name at $[.] a share (the "Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to [.] Additional
Shares at the Purchase Price. If you, on behalf of the Underwriters, elect to
exercise such option, you shall so notify the Company in writing not later than
30 days after the date of this Agreement, which notice shall specify the number
of Additional Shares to be purchased by the Underwriters and the date on which
such shares are to be purchased. Such date may be the same as the Closing Date
(as defined below) but not earlier than the Closing Date nor later than ten
business days after the date of such notice. Additional Shares may be purchased
as provided in Section 4 hereof solely for the purpose of covering over-
allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
The Company hereby agrees 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 the Prospectus, (i) 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 (ii) 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 such transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Shares to be sold hereunder; (B) the issuance by the Company of shares of
Common Stock as described in the Prospectus or upon the exercise of an option or
warrant or the
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<PAGE>
conversion of a security outstanding on the date hereof of which the
Underwriters have been advised in writing; (C) the issuance of purchase rights,
shares of Common Stock or the grant of options to purchase Common Stock pursuant
to the 2000 Stock Plan, the 2000 Director Option Plan or the 2000 Employee Stock
Purchase Plan; and (D) the issuance of the Series G Preferred Stock to The Walt
Disney Corporation and the Series H Preferred Stock to At Home Corporation, each
as described in the Prospectus.
3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at $[.]
a share (the "Public Offering Price") and to certain dealers selected by you at
a price that represents a concession not in excess of $[.] a share under the
Public Offering Price. No Underwriter may allow, and no dealer may reallow, a
concession to any Underwriter or dealer.
4. Payment and Delivery. Payment for the Firm Shares shall be made to
the Company in Federal or other funds immediately available in New York City
against delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on [.], 2000, or at such other
time on the same or such other date, not later than [.], 2000, as shall be
designated in writing by you. The time and date of such payment are hereinafter
referred to as the "Closing Date."
Payment for any Additional Shares shall be made to the Company in Federal
or other funds immediately available in New York City against delivery of such
Additional Shares for the respective accounts of the several Underwriters at
10:00 a.m., New York City time, on the date specified in the notice described in
Section 2 or at such other time on the same or on such other date, in any event
not later than [.], 2000 as shall be designated in writing by you. The time and
date of such payment are hereinafter referred to as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
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5. Conditions to the Underwriters' Obligations. The obligations of the
Company to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 12:00 noon (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or
of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the
Company's securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations of
the Company and its subsidiaries, taken as a whole, from that set
forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement) that, in your
judgment, is material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in Section 5(a)(i) above and to the
effect that the representations and warranties of the Company contained
in this Agreement are true and correct as of the Closing Date and that
the Company has complied with all of the agreements and satisfied all of
the conditions on its part to be performed or satisfied hereunder on or
before the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
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outside counsel for the Company, dated the Closing Date, to the effect
that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole;
(ii) each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as
a whole;
(iii) the authorized capital stock of the Company conforms
as to legal matters to the description thereof contained in the
Prospectus;
(iv) the shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly
issued, fully paid and non-assessable;
(v) all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable and are owned directly by
the Company, free and clear of all liens, encumbrances, equities or
claims;
(vi) the Shares have been duly authorized and, when issued
and delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable,
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and the issuance of such Shares will not be subject to any preemptive
or similar rights other than such rights as have been validly waived;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of Applicable Law or the certificate
of incorporation or by-laws of the Company or, to the best of such
counsel's knowledge, any agreement or other instrument binding upon
the Company or any of its subsidiaries that is material to the Company
and its subsidiaries, taken as a whole, and is listed as an Exhibit to
the Registration Statement or, to the best of such counsel's
knowledge, any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for
the performance by the Company of its obligations under this
Agreement, except such as may be required by the federal securities
laws and the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares;
(ix) the statements (A) in the Prospectus under the captions
"Business--Commercial Relationships," "Business--Facilities,"
"Business--Legal Proceedings," "Management," "Certain Transactions,"
"Description of Capital Stock" and "Underwriters" and (B) in the
Registration Statement in Items 14 and 15, in each case insofar as
such statements constitute summaries of the legal matters, documents
or proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein;
(x) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are not
so described or of any statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as
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exhibits to the Registration Statement that are not described or filed
as required;
(xi) the Company is not, and after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus will not be, required to
register as an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended;
(xii) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
schedules as to which such counsel need not express any opinion)
comply as to form in all material respects with the Securities Act and
the applicable rules and regulations of the Commission thereunder, (B)
has no reason to believe that (except for financial statements and
schedules as to which such counsel need not express any belief) the
Registration Statement and the prospectus included therein at the time
the Registration Statement became effective contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading and (C) has no reason to believe that (except
for financial statements and schedules as to which such counsel need
not express any belief) the Prospectus contains any untrue statement
of a material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
In rendering the opinions set forth above, Wilson Sonsini Goodrich &
Rosati, Professional Corporation, may state that its opinion is limited to
matters governed by federal laws of the United States of America, the
General Corporation Law of the State of Delaware, and the law of the State
of California.
With respect to the opinion to be delivered in subparagraphs (i) and
(ii) above, Wilson Sonsini Goodrich & Rosati, Professional Corporation,
shall be entitled to rely on a certificate of an officer of the Company as
to which jurisdictions the Company and its subsidiaries are currently
conducting business or own or lease property.
The opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, described in Section 5(c) above shall be rendered to the
Underwriters at the request of the Company and shall so state therein.
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(d) The Underwriters shall have received on the Closing Date an
opinion of Davis Polk & Wardwell, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in Sections 5(c)(vi),
5(c)(vii), 5(c)(ix) (but only as to the statements in the Prospectus under
"Description of Capital Stock" and "Underwriters") and 5(c)(xiii) above.
With respect to Section 5(c)(xiii) above, Wilson Sonsini Goodrich &
Rosati, Professional Corporation, and Davis Polk & Wardwell may state that
their belief is based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are without
independent check or verification, except as specified.
(e) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from PricewaterhouseCoopers LLP, independent public accountants, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information, including the "Unaudited Combined
Financial Information," contained in the Registration Statement and the
Prospectus; provided that the letter delivered on the Closing Date shall
use a "cut-off date" not earlier than the date hereof.
(f) The Underwriters shall have received, on each of the date hereof
and the Closing Date, as the case may be, in form and substance
satisfactory to the Underwriters, from KPMG LLP, independent public
accountants, containing statements and information of the type ordinarily
included in accountants "comfort letters" to underwriters with respect to
the financial statements and certain financial information as to
webcasts.com, Inc. and subsidiary contained in the Registration Statement
and the Prospectus; provided that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
(g) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other dispositions
of shares of Common Stock or certain other securities, delivered to you on
or before the date hereof, shall be in full force and effect on the Closing
Date.
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The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the delivery to you on the Option Closing Date of such
documents as you may reasonably request with respect to the good standing of the
Company, the due authorization and issuance of the Additional Shares and other
matters related to the issuance of the Additional Shares.
6. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, four signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
Section 6(c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be
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misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders
and to you as soon as practicable an earning statement covering the twelve-
month period ending June 30, 2001, that satisfies the provisions of Section
11(a) of the Securities Act and the rules and regulations of the Commission
thereunder.
(f) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid
all expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Shares under the Securities Act and all
other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies
thereof to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and delivery
of the Shares to the Underwriters, including any transfer or other taxes
payable thereon, (iii) the cost of printing or producing any Blue Sky or
Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws
as provided in Section 6(d) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky or
Legal Investment memorandum, (iv) all filing fees and the reasonable fees
and disbursements of counsel to the Underwriters incurred in connection
with the review and qualification of the offering of the Shares by the
National Association of Securities Dealers, Inc. (the "NASD"), (v) all fees
and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Common Stock and all
costs and expenses incident to listing the Shares on the Nasdaq National
Market, (vi) the cost of printing certificates representing the Shares,
(vii) the costs and charges of any transfer agent, registrar or depositary,
(viii) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the
marketing of the offering of the
16
<PAGE>
Shares, including, without limitation, expenses associated with the
production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and
the cost of any aircraft chartered in connection with the road show, (ix)
all fees and disbursements of counsel incurred by the Underwriters in
connection with the Directed Share Program and stamp duties, similar taxes
or duties or other taxes, if any, incurred by the Underwriters in
connection with the Directed Share Program, (x) all expenses in connection
with any offer and sale of the Shares outside of the United States,
including filing fees and the reasonable fees and disbursements of counsel
for the Underwriters in connection with offers and sales outside of the
United States, and (xi) all other costs and expenses incident to the
performance of the obligations of the Company hereunder for which provision
is not otherwise made in this Section. It is understood, however, that
except as provided in this Section, Section 7 entitled "Indemnity and
Contribution", and the last paragraph of Section 10 below, the Underwriters
will pay all of their costs and expenses, including fees and disbursements
of their counsel, stock transfer taxes payable on resale of any of the
Shares by them and any advertising expenses connected with any offers they
may make.
(g) To place stop transfer orders on any Directed Shares that have
been sold to Participants subject to the three month restriction on sale,
transfer, assignment, pledge or hypothecation imposed by the NASD under its
Interpretative Material 2110-1 on free-riding and withholding to the extent
necessary to ensure compliance with the three month restrictions.
(h) To comply with all applicable securities and other applicable
laws, rules and regulations in each jurisdiction in which the Directed
Shares are offered in connection with the Directed Share Program.
7. Indemnity and Contribution. (a) The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have
17
<PAGE>
furnished any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use therein; provided, that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
so amended or supplemented) would have cured the defect giving rise to such
losses, claims, damages or liabilities, unless such failure is the result of
noncompliance by the Company with Section 6(a) hereof.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to such Underwriter,
but only with reference to information relating to such Underwriter furnished to
the Company in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 7(a) or 7(b), such person (the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be
18
<PAGE>
inappropriate due to actual or potential differing interests between them. It is
understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) for all such
indemnified parties and that all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by Morgan Stanley &
Co. Incorporated, in the case of parties indemnified pursuant to Section 7(a),
and by the Company, in the case of parties indemnified pursuant to Section 7(b).
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second and third sentences of this paragraph, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in Section 7(a) or
7(b) is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause 7(d)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
7(d)(i) above but also the relative fault of the Company on the one hand and of
the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the same
19
<PAGE>
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Company on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.
(e) The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 7(d). The amount paid or payable
by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 7 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this Section
7 and the representations, warranties and other statements of the Company
contained in this Agreement shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any investigation made
by or on behalf of any Underwriter or any person controlling any Underwriter or
by or on behalf of the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of the
Shares.
20
<PAGE>
8. Directed Share Program Indemnification. (a) The Company agrees to
indemnify and hold harmless Morgan Stanley and its affiliates and each person,
if any, who controls Morgan Stanley or its affiliates within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act
("Morgan Stanley Entities"), from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) (i) caused by any untrue statement or alleged untrue
statement of a material fact contained in any material prepared by or with the
consent of the Company for distribution to Participants in connection with the
Directed Share Program, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; (ii) caused by the failure of any Participant
to pay for and accept delivery of Directed Shares that the Participant has
agreed to purchase; or (iii) related to, arising out of, or in connection with
the Directed Share Program other than losses, claims, damages or liabilities (or
expenses relating thereto) that are finally judicially determined to have
resulted from the bad faith or gross negligence of Morgan Stanley Entities.
(b) In case any proceeding (including any governmental investigation)
shall be instituted involving any Morgan Stanley Entity in respect of which
indemnity may be sought pursuant to Section 8(a), the Morgan Stanley Entity
seeking indemnity shall promptly notify the Company in writing and the Company,
upon request of the Morgan Stanley Entity, shall retain counsel reasonably
satisfactory to the Morgan Stanley Entity to represent the Morgan Stanley Entity
and any other the Company may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any Morgan Stanley Entity shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Morgan Stanley Entity unless (i) the Company shall have agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Company and the Morgan
Stanley Entity and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. The
Company shall not, in respect of the legal expenses of the Morgan Stanley
Entities in connection with any proceeding or related proceedings the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Morgan Stanley Entities. Any such
firm for the Morgan Stanley Entities shall be designated in writing by Morgan
Stanley. The Company shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the Company agrees to indemnify the
Morgan Stanley Entities from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
a Morgan Stanley Entity
21
<PAGE>
shall have requested the Company to reimburse it for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph, the
Company agrees that it shall be liable for any settlement of any proceeding
effected without its written consent if (i) such settlement is entered into more
than 30 days after receipt by the Company of the aforesaid request and (ii) the
Company shall not have reimbursed the Morgan Stanley Entity in accordance with
such request prior to the date of such settlement. The Company shall not,
without the prior written consent of Morgan Stanley, effect any settlement of
any pending or threatened proceeding in respect of which any Morgan Stanley
Entity is or could have been a party and indemnity could have been sought
hereunder by such Morgan Stanley Entity, unless such settlement includes an
unconditional release of the Morgan Stanley Entities from all liability on
claims that are the subject matter of such proceeding.
(c) To the extent the indemnification provided for in Section 8(a) is
unavailable to a Morgan Stanley Entity or insufficient in respect of any losses,
claims, damages or liabilities referred to therein, then the Company, in lieu of
indemnifying the Morgan Stanley Entity thereunder, shall contribute to the
amount paid or payable by the Morgan Stanley Entity as a result of such losses,
claims, damages or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Morgan Stanley Entities on the other hand from the offering of the Directed
Shares or (ii) if the allocation provided by clause 8(c)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 8(c)(i) above but also the
relative fault of the Company on the one hand and of the Morgan Stanley Entities
on the other hand in connection with the statements or omissions that resulted
in such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and of the Morgan Stanley Entities on the other hand in connection with
the offering of the Directed Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Directed Shares (before
deducting expenses) and the total underwriting discounts and commissions
received by the Morgan Stanley Entities for the Directed Shares, bear to the
aggregate Public Offering Price of the Shares. If the loss, claim, damage or
liability is caused by an untrue or alleged untrue statement of a material fact,
the relative fault of the Company on the one hand and the Morgan Stanley
Entities on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement or the omission or
alleged omission relates to information supplied by the Company or by the Morgan
Stanley Entities and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(d) The Company and the Morgan Stanley Entities agree that it would not
be just or equitable if contribution pursuant to this Section 8 were determined
22
<PAGE>
by pro rata allocation (even if the Morgan Stanley Entities were treated as one
entity for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 8(c). The amount
paid or payable by the Morgan Stanley Entities as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by the Morgan Stanley
Entities in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Morgan Stanley Entity shall
be required to contribute any amount in excess of the amount by which the total
price at which the Directed Shares distributed to the public were offered to the
public exceeds the amount of any damages that such Morgan Stanley Entity has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. The remedies provided for in this
Section 8 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any Morgan Stanley Entity at law or in equity.
(e) The indemnity and contribution provisions contained in this Section
8 shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
any Morgan Stanley Entity or the Company, its officers or directors or any
person controlling the Company and (iii) acceptance of and payment for any of
the Directed Shares.
9. Termination. This Agreement shall be subject to termination by notice
given by you to the Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange or the National Association of
Securities Dealers, Inc., (ii) trading of any securities of the Company shall
have been suspended on any exchange or in any over-the-counter market, (iii) a
general moratorium on commercial banking activities in New York shall have been
declared by either Federal or New York State authorities or (iv) there shall
have occurred any outbreak or escalation of hostilities or any change in
financial markets or any calamity or crisis that, in your judgment, is material
and adverse and (b) in the case of any of the events specified in clauses
9(a)(i) through 9(a)(iv), such event, singly or together with any other such
event, makes it, in your judgment, impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
10. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
23
<PAGE>
If, on the Closing Date or the Option Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Shares that it
has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 10 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If, on
the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased, and arrangements satisfactory to you and the Company for
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Company to comply with the
terms or to fulfill any of the conditions of this Agreement, or if for any
reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
24
<PAGE>
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
11. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
13. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
Very truly yours,
iBEAM BROADCASTING CORPORATION
By: ____________________________________
Name: Chris Dier
Title: Chief Financial Officer
25
<PAGE>
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
BEAR, STEARNS & CO. INC.
J.P. MORGAN SECURITIES INC.
FLEETBOSTON ROBERTSON STEPHENS INC.
Acting severally on behalf of themselves
and the several Underwriters named in
Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By: _____________________________________
Name:
Title:
26
<PAGE>
SCHEDULE I
Number of Firm Shares
Underwriter To Be Purchased
- -------------------------------------------------- ----------------------
Morgan Stanley & Co. Incorporated.................
Bear, Stearns & Co. Inc...........................
J.P. Morgan Securities Inc........................
FleetBoston Robertson Stephens Inc................
----------------------
Total:.......................................
======================
<PAGE>
EXHIBIT A
[FORM OF LOCK-UP LETTER]
_____________, 2000
Morgan Stanley & Co. Incorporated
Bear, Stearns & Co. Inc.
J.P. Morgan Securities Inc.
FleetBoston Robertson Stephens Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated ("Morgan
Stanley") proposes to enter into an Underwriting Agreement (the "Underwriting
Agreement") with iBEAM Broadcasting Corporation, a Delaware corporation (the
"Company"), providing for the public offering (the "Public Offering") by the
several Underwriters, including Morgan Stanley (the "Underwriters"), of shares
(the "Shares") of the Common Stock, $.001 par value, of the Company (the "Common
Stock").
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the final prospectus relating
to the Public Offering (the "Prospectus"), (1) 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 (2) 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 such
<PAGE>
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (a) the sale of any Shares to the Underwriters
pursuant to the Underwriting Agreement, (b) transactions relating to shares of
Common Stock or other securities acquired in open market transactions after the
completion of the Public Offering or (c) shares of Common Stock purchased in the
Public Offering. In addition, the undersigned agrees that, without the prior
written consent of Morgan Stanley on behalf of the Underwriters, it will not,
during the period commencing on the date hereof and ending 180 days after the
date of the Prospectus, make any demand for or exercise any right with respect
to, the registration of any shares of Common Stock or any security convertible
into or exercisable or exchangeable for Common Stock.
Notwithstanding the foregoing, (i) gifts and transfers by will or intestacy
or (ii) transfers to (A) the undersigned's members, partners, affiliates or
immediate family or (B) a trust, the beneficiaries of which are the undersigned
and/or members of the undersigned's immediate family, shall not be prohibited by
this agreement; provided that (x) the donee or transferee agrees in writing to
be bound by the foregoing in the same manner as it applies to the undersigned
and (y) if the donor or transferor is a reporting person subject to Section
16(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), any gifts or
transfers made in accordance with this paragraph shall not require such person
to, and such person shall not voluntarily, file a report of such transaction of
Form 4 under the Exchange Act. "Immediate family" shall mean spouse, lineal
descendants, father, mother, brother or sister of the transferor and father,
mother, brother or sister of the transferor's spouse.
Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
This agreement will automatically terminate and be of no further force or
effect if (1) the registration statement on Form S-1 relating to the Prospectus
does not become effective by August 31, 2000 or (2) for any reason the
Underwriting Agreement (other than the provisions thereof that survive
termination) shall terminate or be terminated prior to payment for and delivery
of the shares that are the subject of the Public Offering; provided, however,
that this agreement will remain in full force and effect if the Company, in its
sole discretion, shall furnish to the Undersigned on a date occurring prior to
August 31, 2000, a certificate signed by the President of the Company stating
that a registration statement on Form S-1 will be filed before August 31, 2000,
and that, in the good faith judgment of the Board of Directors, it would be
beneficial to the Company and the Stockholders for this agreement to remain in
full force and effect.
2
<PAGE>
Very truly yours,
____________________________________
Print Name
____________________________________
____________________________________
Print Address
____________________________________
Signature
Date: , 2000
3
<PAGE>
EXHIBIT 10.4
iBEAM BROADCASTING CORPORATION
2000 STOCK PLAN
1. Purposes of the Plan. The purposes of this 2000 Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions
of substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means iBEAM Broadcasting Corporation, Inc., a Delaware
-------
corporation.
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
--------
<PAGE>
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee 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.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the day three (3) months following the 91/st/
day of such leave, any Incentive Stock Option held by the Optionee shall cease
to be treated as an Incentive Stock Option and shall be treated for tax purposes
as a Nonstatutory Stock Option. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment" by
the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the day of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the day of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
-2-
<PAGE>
(q) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 2000 Stock Plan.
----
(y) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b) " means Section 16(b) of the Exchange Act.
-------------
(cc) "Service Provider" means an Employee, Director or Consultant.
----------------
(dd) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 9,639,000
-3-
<PAGE>
Shares, plus an annual increase to be added on the first day of the Company's
fiscal year beginning in 2001, equal to the lesser of (i) 10,000,000 shares,
(ii) 5% of the outstanding shares on such date or (iii) an amount determined by
the Board. The Shares may be authorized, but unissued, or reacquired Common
Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. Different Committees with
------------------------------
respect to different groups of Service Providers may administer the Plan.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
-4-
<PAGE>
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the minimum amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights
-----------
may be granted to Service Providers. Incentive Stock Options may be granted only
to Employees.
-5-
<PAGE>
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 1,377,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 2,754,000
Shares, which shall not count against the limit set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
------------
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
-6-
<PAGE>
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to
--------------
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares, provided Shares acquired directly from the
Company, (A) have been owned by the Optionee for more than six (6) months on the
date of surrender, and (B) have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
-7-
<PAGE>
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
-------------------------------------------------
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
-8-
<PAGE>
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
-----------------
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
-----------------
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
-9-
<PAGE>
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, the number of shares that may be added annually to the shares
reserved under the Plan (pursuant to Section 3(a)(i)), as well as the price per
share of Common Stock covered by each such outstanding Option or Stock Purchase
Right, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation
-10-
<PAGE>
takes place at the time and in the manner contemplated. To the extent it has not
been previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the
-11-
<PAGE>
Optionee and the Company. Termination of the Plan shall not affect the
Administrator's ability to exercise the powers granted to it hereunder with
respect to Options granted under the Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-12-
<PAGE>
EXHIBIT 10.5
iBEAM BROADCASTING CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock Purchase
Plan of iBEAM Broadcasting Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company or any
-----
committee thereof designated by the Board of Directors of the Company in
accordance with Section 14 of the Plan.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean iBEAM Broadcasting Corporation and any
-------
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings,
------------
commissions and bonuses, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each Purchase
-------------
Period.
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the day of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately
----------------
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after February 1 and
August 1 of each year and terminating on the last Trading Day in the periods
ending twenty-four months later; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
July 31, 2002. The duration and timing of Offering Periods may be changed
pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 2000 Employee Stock Purchase Plan.
----
(m) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date; provided, however, that
the first Purchase Period under the Plan shall commence with the first Trading
Day on or after the Securities and Exchange Commission declares the Company's
Registration Statement effective and shall end on the last Trading Day on or
before January 31, 2001.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
-2-
<PAGE>
(o) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after February 1 and August 1 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
July 31, 2002. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
---------
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such
-3-
<PAGE>
authorization is applicable, unless sooner terminated by the participant as
provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding 15% of the Compensation
which he or she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than
10,000 shares of the Company's Common Stock
-4-
<PAGE>
(subject to any adjustment pursuant to Section 19), and provided further that
such purchase shall be subject to the limitations set forth in Sections 3(b) and
12 hereof. The Board may, for future Offering Periods, increase or decrease, in
its absolute discretion, the maximum number of shares of the Company's Common
Stock an Employee may purchase during each Purchase Period of such Offering
Period. Exercise of the option shall occur as provided in Section 8 hereof,
unless the participant has withdrawn pursuant to Section 10 hereof. The option
shall expire on the last day of the Offering Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
----------
-5-
<PAGE>
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
---------
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 1,500,000 shares plus an annual increase to be added on the first day
of the Company's fiscal year beginning in 2001, equal to the lesser of (i)
3,000,000 shares, (ii) 2% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine
-6-
<PAGE>
eligibility and to adjudicate all disputed claims filed under the Plan. Every
finding, decision and determination made by the Board or its committee shall, to
the full extent permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
- --------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), the
number of shares that may be added annually to the shares reserved under the
Plan (pursuant to Section 13(a)(i)), as well as the price per share and the
number of shares of Common Stock covered by each option under the Plan which has
not yet been
-7-
<PAGE>
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as
provided in Section 19 and this Section 20 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval in such a
manner and to such a degree as required.
-8-
<PAGE>
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
-9-
<PAGE>
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-10-
<PAGE>
EXHIBIT A
---------
iBEAM BROADCASTING CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date:___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the iBEAM Broadcasting
Corporation Employee Stock Purchase Plan (the "Employee Stock Purchase
Plan") and subscribes to purchase shares of the Company's Common Stock in
accordance with this Subscription Agreement and the Employee Stock Purchase
Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 0 to 15%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
-
hereby agree to notify the Company in writing within 30 days after the date
---------------------------------------------------------------------------
of any disposition of my shares and I will make adequate provision for
----------------------------------------------------------------------
Federal, state or other tax withholding obligations, if any, which arise
------------------------------------------------------------------------
upon the
--------
<PAGE>
disposition of the Common Stock. The Company may, but will not be
-------------------------------
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year and
1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to
the extent of an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market
value of the shares on the first day of the Offering Period. The remainder
of the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)_____________________________________________________
(First) (Middle) (Last)
_________________________ __________________________________________
Relationship
__________________________________________
(Address)
-2-
<PAGE>
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:__________________ __________________________________________________
Signature of Employee
__________________________________________________
Spouse's Signature (If beneficiary other than
spouse)
-3-
<PAGE>
EXHIBIT B
---------
iBEAM BROADCASTING CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the iBEAM
Broadcasting Corporation Employee Stock Purchase Plan which began on
____________, ______ (the "Enrollment Date") hereby notifies the Company that he
or she hereby withdraws from the Offering Period. He or she hereby directs the
Company to pay to the undersigned as promptly as practicable all the payroll
deductions credited to his or her account with respect to such Offering Period.
The undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:____________________________
<PAGE>
EXHIBIT 10.6
iBEAM BROADCASTING CORPORATION
2000 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 2000 Director Option
--------------------
Plan are to attract and retain the best available personnel for service as
Outside Directors (as defined herein) of the Company, to provide additional
incentive to the Outside Directors of the Company to serve as Directors, and to
encourage their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall
-----------
apply:
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the common stock of the Company.
------------
(d) "Company" means iBEAM Broadcasting Corporation, a Delaware
-------
corporation.
(e) "Director" means a member of the Board.
--------
(f) "Disability" means total and permanent disability as defined
----------
in section 22(e)(3) of the Code.
(g) "Employee" means any person, including officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(i) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the day of determination as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
<PAGE>
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the day of determination, as reported in The Wall
Street Journal or such other source as the Board deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(j) "Inside Director" means a Director who is an Employee.
---------------
(k) "Option" means a stock option granted pursuant to the Plan.
------
(l) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(m) "Optionee" means a Director who holds an Option.
--------
(n) "Outside Director" means a Director who is not an Employee.
----------------
(o) "Parent" means a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(p) "Plan" means this 2000 Director Option Plan.
----
(q) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(r) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section
-------------------------
10 of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 688,500 Shares, plus an annual increase to be added on
the first day of the Company's fiscal year beginning in 2001, equal to (i) the
Optioned Stock underlying Options granted in the immediately preceding year, or
(ii) a lesser amount determined by the Board (the "Pool"). The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
-2-
<PAGE>
4. Administration and Grants of Options under the Plan.
---------------------------------------------------
(a) Procedure for Grants. All grants of Options to Outside
--------------------
Directors under this Plan shall be automatic and nondiscretionary and shall be
made strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 82,620 Shares (the "First Option") on the date on which such
person first becomes an Outside Director, whether through election by the
shareholders of the Company or appointment by the Board to fill a vacancy;
provided, however, that an Inside Director who ceases to be an Inside Director
but who remains a Director shall not receive a First Option.
(iii) Notwithstanding the provisions of subsections (ii)
hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(iv) The terms of a First Option granted hereunder shall be
as follows:
(A) the term of the First Option shall be ten (10)
years.
(B) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option shall
become exercisable as to 1/48/th/ of the Shares subject to the First Option on
each monthly anniversary of its date of grant, provided that the Optionee
continues to serve as a Director on such dates.
(v) In the event that any Option granted under the Plan
would cause the number of Shares subject to outstanding Options plus the number
of Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under Options to
the Outside Directors on a pro rata basis. No further grants shall be made until
such time, if any, as additional Shares become available for grant under the
Plan through action of the Board or the shareholders to increase the number of
Shares which may be issued under the Plan or through cancellation or expiration
of Options previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors.
-----------
All Options shall be automatically granted in accordance with the terms set
forth in Section 4 hereof.
-3-
<PAGE>
The Plan shall not confer upon any Optionee any right with respect
to continuation of service as a Director or nomination to serve as a Director,
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate the Director's relationship with the Company at
any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the
---------------------
Shares to be issued upon exercise of an Option, including the method of payment,
shall consist of (i) cash, (ii) check, (iii) other shares, provided shares
acquired directly from the Company (x) have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised, (iv) consideration received by the
Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
8. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
----------------------------------------------
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or
-4-
<PAGE>
Disability), the Optionee may exercise his or her Option, but only within six
(6) months following the date of such termination, and only to the extent that
the Optionee was entitled to exercise it on the date of such termination (but in
no event later than the expiration of its ten (10) year term). To the extent
that the Optionee was not entitled to exercise an Option on the date of such
termination, and to the extent that the Optionee does not exercise such Option
(to the extent otherwise so entitled) within the time specified herein, the
Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
----------------------
Director terminates as a result of Disability, the Optionee may exercise his or
her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of termination, or if he or she does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
-----------------
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold,
------------------------------
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger
---------------------------------------------------------------
or Asset Sale.
- -------------
(a) Changes in Capitalization. Subject to any required action by
-------------------------
the shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, the
number of shares that may be added annually to the shares reserved under the
Plan (pursuant to Section 3(a)(i)), as well as the price per Share covered by
each such outstanding Option, and the number of Shares issuable pursuant to the
automatic grant provisions of Section 4 hereof shall be proportionately adjusted
for any increase or decrease in the number of issued Shares resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued Shares effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or
-5-
<PAGE>
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the
Option or equivalent option shall continue to be exercisable as provided in
Section 4 hereof for so long as the Optionee serves as a Director or a director
of the Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with Sections 8(b) through (d)
above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of one hundred-eighty (180) days from
the date of such notice, and upon the expiration of such period the Option shall
terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
11. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
-6-
<PAGE>
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall,
------------------------
for all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this
---------------------
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
16. Shareholder Approval. The Plan shall be subject to approval by
--------------------
the shareholders of the Company within twelve (12) months after the date the
Plan is adopted. Such shareholder approval shall be obtained in the degree and
manner required under applicable state and federal law and any stock exchange
rules.
-7-
<PAGE>
EXHIBIT 10.8
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.
iBEAM and Microsoft
Broadband Streaming Initiative Agreement
This Broadband Streaming Initiative Agreement (the "Agreement") is entered
into and effective as of September 20, 1999 (the "Effective Date") by and
between Microsoft Corporation, a Washington corporation located at One Microsoft
Way, Redmond, WA 98052 ("Microsoft") and iBEAM Broadcasting Corporation, a
Delaware Corporation located at 645 Almanor Avenue, Sunnyvale, CA 94086
("iBEAM").
Recitals
iBEAM is an application service provider capable of delivering Internet-related
broadband multimedia applications and services for independent content providers
and corporate customers (referred to collectively as "ICPs"), including
competitively priced hosting and broadcasting services for live and on-demand
broadband Streaming Media.
Microsoft is a developer of operating system technologies and tools for the
development and serving of broadband multimedia applications and content,
including Streaming Media.
Microsoft has established a "Broadband Streaming Initiative," whereby Microsoft
desires to promote adoption of Windows Media Technologies ("WMT") for broadband
multimedia applications on the Internet.
Microsoft wishes to engage iBEAM as, and iBEAM wishes to become, a supplier and
promoter of broadband multimedia applications and services in connection with
Microsoft's upcoming Broadband Streaming Initiative.
Agreement
This Agreement is entered into with reference to the following information
("Initial Definitions Table") as well as the definitions set forth below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C>
iBEAM Information: Corporate Name: iBEAM Broadcasting Corporation
Place of Incorporation: Delaware
Address for Notices: 645 Almanor Avenue, Suite 100,
Sunnyvale, CA 94086
- -----------------------------------------------------------------------------------------------------
iBEAM Contact: iBEAM Contact/Title: Chris Dier, CFO
Telephone Number: (408) 523-1603
Facsimile Number: (408) 730-8937
Email: [email protected]
- -----------------------------------------------------------------------------------------------------
iBEAM Name and iBEAM Service Name(s) iBEAM Name: iBEAM Broadcasting
(for use in press release): iBEAM Service Name(s): DirectCast
- -----------------------------------------------------------------------------------------------------
</TABLE>
Microsoft Confidential & Proprietary Page 1 of 9
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------
<S> <C>
iBEAM Web Site: www.ibeam.com and any successors and additional and/or
new versions of a web site owned or controlled by iBEAM
during the Term.
- -----------------------------------------------------------------------------------------------------
Term: Beginning as of the Effective Date and continuing
through September 30, 2002 unless earlier terminated in
accordance with Section 9.
- -----------------------------------------------------------------------------------------------------
</TABLE>
1. Definitions
1.1 Above the fold means the placement of Content (including an icon and/or
link) or other material on an iBEAM Web Site Page such that the material
is viewable on a computer screen at a 800 x 600 pixels resolution when the
user first accesses such web page and without having to scroll down to
view more of the web page.
1.2 Broadband Streaming Initiative ICP Participant means an ICP or other
customer designated by Microsoft in its sole discretion (including
without limitation Microsoft or any of its affiliates) to use Network
Credits in support of the Broadband Streaming Initiative as contemplated
by this Agreement.
1.3 Confidential Information means: (i) any source code of software disclosed
by either party to the other party; (ii) any trade secrets and/or other
proprietary non-public information not generally known relating to either
party's product plans, designs, costs, prices or names, finances,
marketing plans, business opportunities, personnel, research, development
or know-how; and (iii) the terms and conditions of this Agreement.
"Confidential Information" does not include information that: (i) is or
becomes generally known or available by publication, commercial use or
otherwise through no fault of the receiving party; (ii) is known and has
been reduced to tangible form by the receiving party prior to the time of
disclosure and is not subject to restriction; (iii) is independently
developed by the receiving party without the use of the other party's
Confidential Information; (iv) is lawfully obtained from a third party
that has the right to make such disclosure; or (v) is made generally
available by the disclosing party without restriction on disclosure.
1.4 Content means data, text, audio, video, graphics, photographs, artwork
and other technology and materials.
1.5 iBEAM Services means the provision of hosting, serving, broadcasting,
and/or other applications and services involving "live" and "on-demand"
broadband Streaming Media for third parties.
1.6 iBEAM Services Guidelines means the guidelines and procedures related to
this Agreement with respect to how iBEAM will be engaged by Broadband
Streaming Initiative ICP Participants to provide iBEAM Services to such
customers and will apply Network Credits against such provision of
services, as more fully described in Exhibit A.
1.7 Microsoft Software means Windows NT Server (including Windows Media
Streaming Media and Site Server 3.0) and direct successors thereto.
1.8 Network Credits means credits available to pay for iBEAM Services which
credits are equal in value to the Network Credits Fee Amount having been
paid by Microsoft from time to time during the Term, less amounts having
been applied pursuant to this
Microsoft Confidential & Proprietary Page 2
<PAGE>
Agreement to reflect the provision of iBEAM Services to Broadband
Streaming Initiative Participants, as further set forth in Section 2.1
and Exhibit A.
1.9 Streaming Media means multimedia Content that is transmitted live or held
in archive on servers and played or displayed via the Web incrementally,
or in semi-real time, such that it can be heard, viewed or received by an
end user with minimal download delays, if any.
1.10 Updates means, as to any Microsoft software, all subsequent public
releases thereof during the Term, including public maintenance releases,
error corrections, upgrades, enhancements, additions, improvements,
extensions, modifications and successor versions.
1.11 Windows Media Format means (a) the Windows Media Audio format which
encodes files with the Microsoft Audio codec (.wma extension), (b) the
proposed industry standard format referred to as the "Advanced Streaming
Format" (.asf extension), which as of the Effective Date is in
comment/revision processes within industry standards bodies, and (c) any
successors or replacements for such formats that may be designated by
Microsoft, regardless of the brand or trademark under which they are made
available from time to time.
1.12 Windows Media Player means the North American English version of the
upgrade to the Windows 95 and Windows 98 Microsoft Windows Media Player
client technology that displays Streaming Media in Windows Media Format,
other formats of Streaming Media, and other multimedia data-types, and
all successors and Updates to such technology which are commercially
released during the Term.
1.13 Windows Media Technologies or "WMT" means, collectively and
interchangeably, Windows Media Player and Windows Media Streaming Media
services for the Windows NT operating system.
All other initially capitalized terms shall have the meanings assigned to them
in this Agreement.
2. Microsoft Obligations
2.1 Network Credits Fee. Microsoft agrees to pay to iBEAM a Network Credits
Fee Amount of Five Hundred Thousand Dollars ($500,000.00), which fee will
pre-pay for iBEAM web hosting services and other iBEAM Services which
Microsoft may then use in accordance with this Agreement either for
Microsoft's internal operations or for the benefit of Broadband Streaming
Initiative ICP Participants or iBEAM customers. Microsoft will pay the
Network Credits Fee Amount of Five Hundred Thousand Dollars ($500,000.00)
in accordance with the following schedule: (a) Three Hundred Thousand
Dollars ($300,000.00) after iBEAM delivers an invoice for such amount to
Microsoft, which invoice iBEAM may deliver on or after the Effective
Date; (b) One Hundred Thousand Dollars ($100,000.00) on January 15, 2000,
and (c) One Hundred Thousand Dollars ($100,000.00) on April 15, 2000. All
amounts payable under this Agreement shall be due on a net thirty (30)
day basis. Such fees shall be refundable by iBEAM to Microsoft only to
the extent set forth in Section 9.
2.2 Deployment Support. During the Term, and at no charge to iBEAM, Microsoft
shall provide high-level technical support in the United States from
Microsoft's developer relations group or product support group in order
to assist iBEAM with carrying out its obligations under this Agreement
(with Microsoft selecting in its discretion which of these groups will
provide support). Such support shall include providing reasonable on-site
deployment support services to iBEAM, provided that Microsoft shall be
entitled to charge iBEAM at its then-current rates for any such on-site
Microsoft Confidential & Proprietary Page 3
<PAGE>
deployment support services which exceed a cumulative total of [*]
person-weeks (i.e., a total of [*] hours).
2.3 Promotion of iBEAM's Services. In conjunction with its Broadband
Streaming Initiative, Microsoft agrees to publicly announce that iBEAM is
a Microsoft recommended solution provider for ICPs who are using WMT to
run high bandwidth Streaming Media applications in a manner commercially
similar to the level of promotion provided to the other application
service providers who are Broadband Streaming Initiative Participants.
Thereafter, during the Term, Microsoft will use commercially reasonable,
good faith efforts to include and promote iBEAM as a provider of hosting
and other applications and services related to Streaming Media, including
without limitation as part of Microsoft's applicable marketing efforts
and materials, sales training, Web sites, and other promotions,
consistent with Microsoft's promotion of other Broadband Streaming
Initiative application service providers which have entered into
agreements with Microsoft on similar terms to this Agreement.
2.4 Early Releases. During the Term, Microsoft will provide to iBEAM, at no
charge, successive pre-commercial releases (beta, and where practical as
determined by Microsoft in its sole discretion, pre-beta) of Microsoft
Software in object code form; provided, however, that nothing herein
shall be deemed to require that Microsoft release any additional versions
of the Microsoft Software during the Term. Any Microsoft Software
provided hereunder may be used by iBEAM only in accordance with the
confidentiality and license agreements accompanying such Microsoft
Software and, in addition, may be used solely in connection with
supporting the provision of iBEAM Services that use Windows Media
Technologies. iBEAM understands that pre-release software is not intended
for full scale commercial use.
2.5 Preconditions for Microsoft Sponsorship and Support Obligations. Each of
Microsoft's obligations under this Section 2 is expressly conditioned
upon iBEAM's performance of its obligations under Sections 3.1 through
3.5 throughout the Term. In addition, because iBEAM has not fully
formulated and shared with Microsoft its plans for the iBEAM Services as
of the Effective Date, iBEAM agrees to confer in good faith with
Microsoft promptly after the Effective Date in order to develop and set
forth in writing, no later than ninety (90) days after the Effective
Date, mutually approved performance objectives (the "Performance
Criteria") for iBEAM's participation in the Broadband Streaming
Initiative during the first two (2) years of the Term. If Microsoft
reasonably believes that iBEAM has not met or exceeded such Performance
Criteria during the first fifteen (15) months of the Term, then Microsoft
may notify iBEAM of such determination by providing a written notice
identifying the specific Performance Criteria which iBEAM has not met,
provided that Microsoft must issue any such notice within ninety (90)
days after the fifteen (15) month anniversary of the Effective Date. If,
after receiving such a notice, iBEAM does not improve its performance
such that it meets the Performance Criteria within sixty (60) days after
receiving Microsoft's written notice hereunder, then Microsoft may in its
discretion terminate this Agreement effective thirty (30) days after
Microsoft provides written notice to iBEAM of such termination.
[*] 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.
Microsoft Confidential & Proprietary Page 4
<PAGE>
2.6 Digital Rights Management Application. To assist iBEAM in conducting an
evaluation of Microsoft's Digital Rights Management applications ("DRM")
in connection with iBEAM's services and applications related to Streaming
Media, Microsoft agrees to provide iBEAM with reasonable access to
applicable beta programs and other information on applicable new
technologies and technical support offerings, subject to Microsoft's
applicable confidentiality and license agreements.
2.7 Account Introductions. Microsoft agrees to use commercially reasonable
efforts during the first ninety (90) days after the Effective Date to
provide, on a non-exclusive basis, introductions to existing Microsoft
account contacts in order to assist iBEAM's efforts to make initial
presentations to selected Broadband Streaming Initiative ICP Participants
and appropriate ISPs with respect to participation in the Broadband
Streaming Initiative. The following is a preliminary list of anticipated
accounts as to which Microsoft agrees, if and only to the extent it has
appropriate existing contacts at such accounts as of the Effective Date,
to use commercially reasonable efforts to introduce iBEAM to, in
accordance with the foregoing sentence: [*].
2.8 International Marketing. Microsoft agrees to use commercially reasonable
efforts to provide senior iBEAM managers with reasonable access (subject
to availability) to Microsoft's applicable senior international managers
in order to provide advice on entering international markets in
connection with the Broadband Streaming Initiative. Microsoft agrees to
make commercially reasonable efforts to help iBEAM identify and make
initial executive level presentations to a mutually agreed list of tier
one international accounts.
2.9 Reservation of Rights. Except as expressly licensed pursuant to this
Agreement, iBEAM shall have no other rights in the Microsoft Software,
the Windows Media Player or any other Microsoft software, technology or
service provided to iBEAM hereunder. Microsoft retains all right, title
and interest in and to the Microsoft Software, the Windows Media Player
and any other Microsoft software, technologies and services. Nothing in
this Agreement shall be construed, by implication, estoppel or otherwise,
as granting iBEAM any rights to any Microsoft software, technology,
service or other intellectual property rights.
3 iBEAM Obligations
3.1 Use and Promotion of Windows Media Technologies. Subject to Window Media
Technologies being a competitively comparable solution to other Streaming
Media technologies (as reasonably determined by iBEAM in good faith based
on technology, price, quality and delivery timetables), throughout the
Term, including without limitation as part of iBEAM's full services
product launch, iBEAM will deploy, describe and promote Microsoft's WMT
platform and formats to prospective and actual customers [*] iBEAM may
also deploy, describe and promote other Streaming Media platforms or
formats. iBEAM agrees to hold its full services platform launch within
fifteen (15) days after Microsoft's initial public announcement of its
Broadband Streaming Initiative.
iBEAM's use and promotion of Windows Media Technologies shall further
include, without limitation:
[*] 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.
Microsoft Confidential & Proprietary Page 5
<PAGE>
(a) Content Format. Within thirty (30) days after the Effective Date, and
continuing thereafter throughout the Term, all Streaming Media available
on the iBEAM Web Site shall be made available in Windows Media Format;
provided, however, that nothing herein shall be deemed to prevent iBEAM
from making Streaming Media available on such Web site in other formats.
(b) Deployment of New Applications and Services. Throughout the Term, iBEAM
will promote and make available to its customers all new applications and
services related to Streaming Media on WMT platforms and in Windows Media
Format concurrently with or sooner than iBEAM makes such new applications
and services available based on or in conjunction with other Streaming
Media technologies or formats, subject to the limitation that iBEAM's
obligations hereunder with respect to release schedule parity are subject
to Microsoft's providing comparable competitive offerings to other
commercially available offerings in the area of Streaming Media
technology or formats (as applicable) during the Term.
(c) Sponsorship. Beginning on the Effective Date and continuing thereafter
throughout the Term, iBEAM shall include on all pages of the iBEAM Web
Site pages that relate to or contain Streaming Media or applications
therefor a prominent "Get Windows Media Player" link logo (the "Windows
Media Sponsorship Notice") which links to a Microsoft-authorized Windows
Media Player download site, in accordance with the following terms:
(i) The Windows Media Sponsorship Notice shall appear prominently and
Above the fold on each iBEAM Web Site page that contains or
provides access to Streaming Media or that materially focuses on
any iBEAM Service.
(ii) On all pages of the iBEAM Web Site, including without limitation
those described in Section 3.1(c)(i), in the event iBEAM includes
any information or notices concerning Streaming Media
technologies or formats other than Windows Media Technologies and
Windows Media Format, the Windows Media Sponsorship Notice shall
appear on such page in a position at least as favorable in
prominence, size and positioning as any other such notice.
(iii) In all cases, the Windows Media Sponsorship Notice shall be a
minimum of 65 by 57 pixels (width by height), and shall conform
to all trademark usage standards provided by Microsoft to iBEAM
from time to time.
(iv) Microsoft shall be entitled to substitute a different hypertext
link and/or link logo as the Windows Media Sponsorship Notice,
subject to the same pixel size restrictions as are set forth in
Section 3.1(c)(iii), in place of the "Get Windows Media Player"
link logo for purposes of this Agreement, including without
limitation iBEAM's responsibilities under this Section 3.1(c),
upon Microsoft's reasonable advance written notice to iBEAM.
(d) Additional Promotions. Microsoft and iBEAM will cooperate in good faith
to identify and pursue additional opportunities for promotion of Windows
Media Technologies in conjunction with the iBEAM Services to U.S.- based
ICPs in the
Microsoft Confidential & Proprietary Page 6
<PAGE>
[*].
(e) Uses of the Get Windows Media Player Logo. All use by iBEAM of the "Get
Windows Media Player" link logo (or any successor logo(s)) in connection
with this Agreement is subject to compliance with Microsoft's guidelines
relating to the use of such logo(s). The current version of such
guidelines as of the Effective Date is set forth in Exhibit B hereto.
3.2 Provision of iBEAM Services to Broadband Streaming Initiative ICP
Participants.
(a) iBEAM agrees to provide six (6) months of iBEAM Services, to be comprised
of broadband Streaming Media hosting, distribution and broadcasting
services, at no charge (either to Microsoft or the ICP, and without
applying Network Credits against the value of such services) to each
Broadband Streaming Initiative ICP Participant that Microsoft designates
in its discretion as a participant in the Broadband Streaming Initiative;
provided, however, that such obligation shall not extend beyond the Term
of this Agreement, and the value of such no-charge services in the
aggregate for Broadband Streaming Initiative ICPs will not exceed Two
Hundred Thousand Dollars ($200,000.00) as calculated using the rates
described in Exhibit A. iBEAM will use commercially reasonable efforts to
notify Microsoft in writing at least sixty (60) days before it
anticipates exceeding the foregoing maximum value of the relevant iBEAM
Services.
(b) At Microsoft's request and at no charge to Microsoft or the applicable
Internet Service Providers ("ISPs") and without applying Network Credits
against the value of such services. iBEAM will install copies of the
Microsoft Software and provide its standard level of customer service for
such software during the Term in order to support ISPs which Microsoft
has designated in its discretion to participate in the Broadband
Streaming Initiative. In performing the foregoing obligations, iBeam
shall maintain and comply with separate written agreements with Microsoft
and/or its licensees with respect to installation and support of the
Microsoft Software, and nothing in this Agreement shall be deemed to
authorize iBeam to install and/or support such copies of the Microsoft
Software.
(c) In addition to the obligations of iBEAM under Sections 3.2(a) and (b),
Microsoft shall be entitled to apply its prepaid Network Credits and
thereby obtain iBEAM Services for the benefit of designated ICP
Participants in accordance with this Agreement (including without
limitation Exhibit A). In the event that Microsoft authorizes iBEAM to
provide iBEAM Services that exceed in value (as calculated pursuant to
the terms set forth in Exhibit A) the value of then-existing pre-paid
balance of Network Credits, Microsoft agrees to pay iBEAM for such iBEAM
Services in accordance with iBEAM's then-current pricing to third parties
which are purchasing iBEAM Services in aggregate volumes comparable to
those being purchased by Microsoft in connection with the use of Network
Credits under this Agreement.
3.3 Promotion of Internet Radio Networks. iBEAM agrees to provide highly
------------------------------------
competitive fixed rate pricing for iBEAM Services to radio networks or
stations that iBEAM and Microsoft in
[*] 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.
Microsoft Confidential & Proprietary Page 7
<PAGE>
their reasonable discretion mutually designate to participate in such
manner in the Broadband Streaming Initiative. Such fixed rate pricing shall
be established at or below a rate that is the lesser of (a) seventy five
percent (75%) of iBEAM's then-applicable list prices and (b) the lowest
price then being provided by iBEAM to customers purchasing such iBEAM
Services in aggregate volumes comparable to those being purchased by
applicable radio networks or stations. iBEAM shall provide such fixed rate
pricing for the first year that each designated radio network or station
participates in this program, provided that such customers enter agreements
with terms equal to or greater than eighteen (18) months and agree to make
commercially reasonable efforts to promote their use of iBEAM's services.
3.4 Publicity. iBEAM will work with Microsoft to develop a mutually agreeable
---------
press release to be released as soon as possible after the Effective Date,
provided that the text of such release must have been approved in writing
by each party before its release. In such release, iBEAM shall endorse
Windows Media Technologies, and Windows Media Format as being recommended
by iBEAM as its recommended platform and formats for its services and
applications. Further, subject to the limitations set forth in the next
sentence hereof, iBEAM agrees that (a) it will not release or approve any
press releases using its name or descriptions of the iBEAM Services, other
than in conjunction with promotions of Windows Media Technologies as
described above, for [*] before the initial announcement contemplated by
the previous sentence, nor for [*] following such initial announcement, and
(b) at all times during the Term, iBEAM shall not issue or approve press
releases from third parties that are inconsistent with the spirit of this
Section 3.4. Notwithstanding the restrictions set forth in the previous
sentence, iBEAM shall be entitled to perform under any contractual
obligation existing as of the Effective Date which requires iBEAM to
release or approve press releases or making other announcements during the
Term; provided, however, that to the extent iBEAM can comply with such
contractual obligations and also comply with the time limitations set forth
in the previous sentence, it shall do so. During the Term, iBEAM will also
work with Microsoft to develop and release joint press announcements,
provided that the details of each such announcement must have been approved
in writing by each party before it occurs, and iBEAM agrees to provide
Microsoft with reasonably detailed information on iBEAM's use of Microsoft
technology in its iBEAM Web Site for inclusion in a case study which iBEAM
shall be entitled to review and approve. With respect to all approvals
contemplated by this Section 3.4, the parties agree not to unreasonably
withhold or delay such approvals.
3.5 Reporting and Audits. By the tenth (10/th/) day of each calendar month
--------------------
during the Term (other than the month in which the Effective Date falls),
iBEAM shall provide a report to Microsoft setting forth the following
information concerning the previous calendar month, to the extent iBEAM's
provision of such information to Microsoft does not conflict with any
obligation of iBEAM to a customer and is reasonably available from iBEAM's
reporting systems (and provided further that if iBEAM's reporting systems
do not enable it to provide any element of such reports, iBEAM will
promptly confer in good faith with Microsoft to pursue possible ways to
enable such reporting systems to provide the requested information):
(a) The URL and number of page views for pages on the iBEAM Web Site or
third party web sites hosted by iBEAM which contain Streaming Media;
(b) The number of referrals of end users from the iBEAM Web Site or third
party web sites hosted by iBEAM to Microsoft's Windows Media Player
download site(s);
(c) Web browsing software share and Streaming Media player share
information for the iBEAM Web Site and third party web sites hosted by
iBEAM; include version information;
[*] 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.
Microsoft Confidential & Proprietary Page 8
<PAGE>
(d) The number of streams served, including the total number of .wma, .asx
and .asf format files served, by bit rate;
(e) The average length of a user stream for a single connection to the
iBEAM Web Site and third party web sites hosted by iBEAM;
(f) The number of streams of pages with feature/streaming technology; and
(g) The average number of .wma, .wmx, and .asx files on site.
iBEAM shall provide all reports hereunder to Microsoft via Microsoft's web
reporting system located at [*], or any successor thereto.
In the event that iBEAM has failed to provide a report as described in this
Section 3.5 on or before the tenth (10/th/) day of the relevant calendar
month, then Microsoft will be entitled to suspend its performance under
this Agreement (including without limitation its payment obligations under
Section 2.1) until such report has been received. All information provided
pursuant to this Section will be deemed to be Confidential Information of
iBEAM.
3.6 Additional Trademark Use. iBEAM further agrees to use all Windows Media
------------------------
Technologies-related logos in accordance with the applicable logo program
requirements established by Microsoft in its sole discretion from time to
time. In the event that iBEAM fails to comply with Microsoft's then-current
logo requirements for participation in the Streaming Media Initiative at
any time during the Term, then Microsoft will be entitled, after providing
iBEAM with notice of breach and an opportunity to cure such breach within
thirty (30) days, to suspend its performance under this Agreement and
terminate this Agreement (including without limitation Microsoft's payment
obligations under Section 2.1) upon further written notice to iBEAM.
3.7 Technology Development and Testing Discussions. iBEAM agrees that upon
----------------------------------------------
request and subject to the parties' prior mutual written agreement with
respect to applicable intellectual property ownership and licenses, iBEAM
will make its appropriate senior technical personnel available to discuss
architecture and beta release testing matters with Microsoft in relation to
the following areas of mutual interest concerning technology development:
[*]. Microsoft agrees to provide pre-commercial releases of Microsoft
Software as specified under Section 2.4.
3.8 Digital Rights Management Applications. iBEAM intends to implement and
--------------------------------------
license Microsoft Digital Rights Management "DRM" technologies and services
in connection with the iBEAM Services, provided, however, that Microsoft
technologies and services can be rejected by iBEAM if it evaluates and in
good faith reasonably deems them not to be commercially competitive with
respect to alternatives in the areas of technology, price, quality, and
delivery timetables, taken as a whole. In the event that any such
technology or service is reasonably deemed not to be competitive, iBEAM
agrees to provide Microsoft a written notice describing in reasonable
detail the reason(s) why the Microsoft offering has been deemed not to be
competitive and the opportunity to discuss and address such shortfalls.
Upon iBEAM's final selection (if any) of Microsoft's DRM technologies and
services, the parties further agree to negotiate in good faith for a
commercially reasonable period concerning the applicable license and
support terms and concerning joint promotional efforts the parties may
engage in with respect to iBEAM's implementation of
[*] 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.
Microsoft Confidential & Proprietary Page 9
<PAGE>
DRM, and upon entering into any such agreement iBEAM agrees that it will
deploy, describe and promote Microsoft's DRM technologies and services to
prospective and actual customers as its recommended digital rights
management solutions for iBEAM services; provided, however, that iBEAM may
also deploy, describe and promote other digital rights management solutions.
4. Additional Understandings
4.1 Corporate Solutions. Subject to Window Media Technologies being a
-------------------
competitively comparable solution to other Streaming Media technologies (as
reasonably determined by iBEAM in good faith based on technology, price,
quality and delivery timetables) iBEAM agrees to promote Microsoft Software
and Windows Media Technologies as its recommended platform and solutions
with respect to all Streaming Media-related services and solutions that
iBEAM may offer to corporate customers (e.g., to support intranets) during
the Term. iBEAM agrees to make good faith efforts to share its product and
sales plans for such marketplace with Microsoft promptly upon their
development. Microsoft acknowledges that all such prospective plans shall be
deemed to be Confidential Information of iBEAM.
4.2 International Service Rollout. iBEAM agrees to use commercially reasonable
-----------------------------
efforts to provide Microsoft [*], subject to the provisions of this Section
4.2, to [*] on then-standard commercial terms to support iBEAM's rollout of
its network and services internationally as part of joint ventures and other
affiliations in which iBEAM does not independently control technology
deployment. In all applicable iBEAM international efforts, iBEAM will
endeavor in good faith to provide Microsoft a [*] in order to implement and
license Microsoft technologies and services as referenced herein, provided,
however, that [*]. iBEAM and its international affiliates may make the final
selection based on its sole discretion in accordance with this paragraph.
4.3 Other Opportunities. iBEAM agrees to notify and offer Microsoft [*], on the
-------------------
same basis as described in Section 4.2, with respect to any and all
Streaming Media-related initiatives, applications, services and other
offerings that iBEAM may develop or offer during the Term of this Agreement.
[*]
[*] 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.
Microsoft Confidential & Proprietary Page 10
<PAGE>
5. Non-Exclusive
Nothing in this Agreement shall be deemed to restrict either party's ability to
license, develop, sub-license, manufacture, deploy, support, promote, or
distribute software, Content, Streaming Media or any other format or technology,
whether or not similar to Windows Media Technologies or any iBEAM Services.
6. Confidentiality
6.1 Each party shall protect the other's Confidential Information from
unauthorized dissemination and use with the same degree of care that such
party uses to protect its own like information and in no event using less
than a reasonable degree of care. Neither party will use the other's
Confidential Information for purposes other than those necessary to
directly further the purposes of this Agreement. Neither party will
disclose to third parties the other's Confidential Information without the
prior written consent of the other party. Except as expressly provided in
this Agreement, no ownership or license rights are granted in any
Confidential Information. The other provisions of this Agreement
notwithstanding, either party will be permitted to disclose the
Confidential Information to their outside legal and financial advisors; and
to the extent required by applicable law, provided however that before
making any such required filing or disclosure, the disclosing party shall
first give written notice of the intended disclosure to the other party,
within a reasonable time from the time disclosure is requested and in any
event prior to the time when disclosure is to be made, and the disclosing
party will exercise best efforts, in cooperation with and at the expense of
the other party, consistent with reasonable time constraints, to obtain
confidential treatment for all non-public and sensitive provisions of this
Agreement, including without limitation dollar amounts and other numerical
information.
6.2 The parties' obligations of confidentiality under this Agreement shall not
be construed to limit either party's right to independently develop or
acquire products without use of the other party's Confidential Information.
Further, either party shall be free to use for any purpose the residuals
resulting from access to or work with such Confidential Information,
provided that such party shall maintain the confidentiality of the
Confidential Information as provided herein. The term "residuals" means
information in non-tangible form, which may be retained by persons who have
had rightful and good faith access to the Confidential Information,
including ideas, concepts, know-how or techniques contained therein.
Neither party shall have any obligation to limit or restrict the assignment
of such persons or to pay royalties for any work resulting from the use of
residuals. However, the foregoing shall not be deemed to grant to either
party a license under the other party's copyrights or patents.
7. Warranties and Disclaimers
7.1 Warranties. Each party warrants and covenants that it has the full power
----------
and authority to enter into and perform according to the terms of this
Agreement.
7.2 DISCLAIMERS. ANY AND ALL SOFTWARE, TECHNOLOGY, SERVICES, CONTENT, OR
-----------
INFORMATION PROVIDED BY EITHER PARTY TO THE OTHER
Microsoft Confidential & Proprietary Page 11
<PAGE>
HEREUNDER IS PROVIDED "AS IS," WITHOUT WARRANTY OF ANY KIND. EACH PARTY
DISCLAIMS ALL WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, TITLE AND NONINFRINGEMENT, WITH RESPECT TO ANY
SOFTWARE, TECHNOLOGY, SERVICES, CONTENT, OR INFORMATION PROVIDED HEREUNDER.
8. Indemnity
8.1 Indemnity. iBEAM shall, at its expense and Microsoft's request, defend
---------
any claim or action brought by a third party against Microsoft, or
Microsoft's affiliates, directors, or officers, to the extent it is based
upon a claim involving the iBEAM Services and/or the iBEAM Web Site,
including without limitation any claim that any iBEAM Services or any
Content included in or uploaded to the iBEAM Web Site infringes or violates
any copyright, patent, trademark, trade secret, right of publicity, or
other intellectual property, proprietary or contractual right of a third
party (all such claims or actions being referred to hereinafter as "iBEAM
Claims"), and iBEAM will indemnify and hold Microsoft harmless from and
against any costs, damages and fees reasonably incurred by Microsoft,
including but not limited to fees of outside attorneys and other
professionals, that are attributable to such iBEAM Claims. Microsoft shall:
(a) provide iBEAM reasonably prompt notice in writing of any such iBEAM
Claims and permit iBEAM, through counsel chosen by iBEAM, to answer and
defend such iBEAM Claims; and (b) provide the entity defending such claim
information, assistance and authority, at such entity's expense, to help
defend such iBEAM Claims. iBEAM will not be responsible for any settlement
made by Microsoft without iBEAM's written permission, which permission will
not be unreasonably withheld or delayed. Reasonable withholding of
permission may be based upon, among other factors, editorial and business
concerns. iBEAM will consult with Microsoft on the choice of any counsel
under this Section 8.1. In the event Microsoft receives any iBEAM Claim or
Microsoft has reason to believe it may be subject to any iBEAM Claim,
Microsoft shall be entitled, upon written notice to iBEAM, to suspend
performance under this Agreement (other than Microsoft's obligations under
Section 2.1) with respect to the applicable iBEAM Services, iBEAM Web Site
or Content thereon until iBEAM has taken steps to Microsoft's satisfaction
in order to address the alleged infringement. If iBEAM does not take
satisfactory steps to address the alleged infringement within fifteen (15)
days after receiving a notice from Microsoft under the foregoing sentence,
then Microsoft in its discretion may terminate this Agreement upon written
notice to iBEAM and such termination shall be deemed to be a termination
for cause for purposes of Section 9.
8.2 Settlement by iBEAM. Unless iBEAM obtains for Microsoft a complete release
-------------------
of all iBEAM Claims thereunder, iBEAM may not settle any iBEAM Claim under
this Section 8 on Microsoft's behalf without first obtaining Microsoft's
written permission, which permission will not be unreasonably withheld or
delayed. Reasonable withholding of permission may be based upon, among
other factors, the ability for Microsoft to ship any product. In the event
iBEAM and Microsoft agree to settle an iBEAM Claim, iBEAM agrees not to
disclose terms of the settlement without first obtaining Microsoft's
written permission, which will not be unreasonably withheld or delayed.
Microsoft Confidential & Proprietary Page 12
<PAGE>
9. Termination
9.1 Termination By Either Party. Either party may suspend performance and/or
---------------------------
terminate this Agreement as expressly provided elsewhere in this Agreement
or:
(a) Immediately upon written notice at any time, if the other party is in
material breach of any material warranty, term, condition or covenant
of this Agreement, other than those contained in Section 6, and fails
to cure that breach within [*] after written notice thereof; or
(b) Immediately upon written notice at any time, if the other party is in
material breach of Section 6.
9.2 Effect of Termination.
---------------------
(a) Neither party shall be liable to the other for damages of any sort
resulting solely from terminating this Agreement in accordance with its
terms.
(b) Termination of this Agreement shall not affect any other agreement
between the parties.
(c) Should either iBEAM or Microsoft terminate for cause pursuant to
Section 8.1, 9.1(a), or 9.1(b), neither party shall have any further
obligations to the other under Sections 2.1-2.9, Section 3.1-3.8, or
Section 4.1-4.3, with the exception that Microsoft shall be entitled in
its discretion either (i) to use, within [*] of such termination, any
Network Credits representing amounts previously paid by Microsoft
under this Agreement which have not been recouped via use of Network
Credits as of the termination of this Agreement; or (ii) to require
iBEAM to refund the portion of the Network Credit Fee Amount then
having been paid by Microsoft and not (as of the termination date)
used to provide iBEAM Services for the parties and purposes specified
in Section 2.1 and Exhibit A, provided that in no event shall iBEAM
be obligated to refund more than [*] of the total Network Credit Fee
Amount paid to iBEAM by Microsoft during the twelve (12) months prior
to Termination. Without limiting the generality of the foregoing,
Microsoft will have no obligation following termination of this
Agreement to make any additional payments or provide any further
services to iBEAM under Section 2 of this Agreement.
9.3 Survival. In the event of termination or expiration of this Agreement for
--------
any reason, Sections 1, 2.9, and 5-11 shall survive termination and
continue in effect in accordance with their terms.
10. Limitation Of Liabilities
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL, INDIRECT,
INCIDENTAL, PUNITIVE OR SPECIAL DAMAGES WHATSOEVER, INCLUDING, WITHOUT
LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF
BUSINESS INFORMATION, AND THE LIKE,
[*] 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.
Microsoft Confidential & Proprietary Page 13
<PAGE>
ARISING OUT OF THIS AGREEMENT OR THE USE OF OR INABILITY TO USE THE MICROSOFT
SOFTWARE OR EITHER PARTY'S CONFIDENTIAL INFORMATION, CONTENT, OR SERVICES, EVEN
IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
THIS SECTION SHALL NOT APPLY TO SECTION 6 (REGARDING CONFIDENTIALITY), NOR TO
iBEAM'S INDEMNITY OBLIGATIONS WITH RESPECT TO THIRD PARTY CLAIMS AS PROVIDED IN
SECTION 8 OF THIS AGREEMENT.
11. General Provisions
11.1 Notices. All notices and requests in connection with this Agreement shall
-------
be deemed given as of the day they are received either by messenger,
delivery service, or in the United States of America mails, postage
prepaid, certified or registered, return receipt requested. Any such
notices to iBEAM should be sent to the address set forth in the Initial
Definitions Table on the first page of this Agreement, and sent to the
attention of the iBEAM Contact named in such Initial Definitions Table. Any
such notices to Microsoft should be addressed as follows:
--------------------------------------------------
Address:
--------------------------------------------------
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: Patty Jackson
--------------------------------------------------
Phone: (425)882-8080
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Fax: (425)936-7329
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Copy to: Law and Corporate Affairs
--------------------------------------------------
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: Law & Corporate Affairs
--------------------------------------------------
Phone: (425)882-8080
--------------------------------------------------
Fax: (425)936-7409
--------------------------------------------------
or to such other address as a party may designate pursuant to this notice
provision.
11.2 Independent Parties. Nothing in this Agreement shall be construed as
-------------------
creating an employer-employee relationship, an agency relationship, a
partnership, or a joint venture between the parties.
11.3 Governing Law. This Agreement will be governed by the laws of the State of
-------------
Washington, without reference to the conflict of law principles thereof.
Any action or litigation concerning this Agreement will take place
exclusively in the federal or state courts in King County, Washington, and
the parties expressly consent to jurisdiction of and venue in such courts
and waive all defenses of lack of personal jurisdiction and forum non
conveniens
Microsoft Confidential & Proprietary Page 14
<PAGE>
with respect to such courts. iBEAM hereby agrees to service of process by
mail or other method acceptable under the laws of the State of Washington.
11.4 Attorneys' Fees. In any action or suit to enforce any right or remedy
---------------
under this Agreement or to interpret any provision of this Agreement, the
prevailing party shall be entitled to recover its costs, including
reasonable attorneys' fees.
11.5 Assignment. This Agreement and any rights or obligations hereunder may not
----------
be assigned by iBEAM (including without limitation via merger, stock
purchase, a sale of substantially all assets, or otherwise by operation of
law) without Microsoft's prior written approval which shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, iBEAM may
assign this Agreement in its entirety as part of a change in control of
iBEAM, provided that the assignee is not a software platform provider
(e.g., and without limitation, [*]) and does not develop and license
Streaming Media technologies or platforms (e.g., and without limitation
[*]); the parties further agree that it shall be deemed reasonable for
Microsoft to elect in its discretion not to approve a proposed assignment
to a software platform provider or a developer/licensor of Streaming Media
technologies or platforms. Any attempted assignment, sub-license, transfer,
encumbrance or other disposal by iBEAM which requires Microsoft's approval
and which has not been so approved will be void and will constitute a
material default and breach of this Agreement for which Microsoft may
terminate this Agreement in accordance with Section 9.1. Except as
otherwise provided, this Agreement will be binding upon and inure to the
benefit of the parties' successors and lawful assigns.
11.6 Force Majeure. Neither party shall be liable to the other under this
-------------
Agreement for any delay or failure to perform its obligations under this
Agreement if such delay or failure arises from any cause(s) beyond such
party's reasonable control, including by way of example labor disputes,
strikes, acts of God, floods, fire, lightning, utility or communications
failures, earthquakes, vandalism, war, acts of terrorism, riots,
insurrections, embargoes, or laws, regulations or orders of any
governmental entity.
11.7 Construction. If for any reason a court of competent jurisdiction finds
------------
any provision of this Agreement, or portion thereof, to be unenforceable,
that provision of the Agreement will be enforced to the maximum extent
permissible so as to effect the intent of the parties, and the remainder of
this Agreement will continue in full force and effect. Failure by either
party to enforce any provision of this Agreement will not be deemed a
waiver of future enforcement of that or any other provision. This Agreement
has been negotiated by the parties and their respective counsel and will be
interpreted fairly in accordance with its terms and without any strict
construction in favor of or against either party.
11.8 Entire Agreement. This Agreement does not constitute an offer by Microsoft
----------------
and it shall not be effective until signed by both parties. This Agreement
constitutes the entire agreement between the parties with respect to the
subject matter hereof and merges all prior and contemporaneous
communications. It shall not be modified except by a written agreement
dated subsequent to the date of this Agreement and signed on behalf of
iBEAM and Microsoft by their respective duly authorized representatives.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
Effective Date written above.
[*] 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.
Microsoft Confidential & Proprietary Page 15
<PAGE>
- ------------------------------------------------------------------------------
MICROSOFT CORPORATION IBEAM BROADCASTING
CORPORATION
- ------------------------------------------------------------------------------
By: /s/ William Poole By: /s/ Chris Dier
- ------------------------------------------------------------------------------
Name (print): William Poole Name (print): Chris Dier
- ------------------------------------------------------------------------------
Title: General Manager Title: C.F.O.
- ------------------------------------------------------------------------------
Date: 9/22/99 Date: 9/20/99
- ------------------------------------------------------------------------------
Microsoft Confidential & Proprietary Page 16
<PAGE>
EXHIBIT A
IBEAM SERVICES GUIDELINES
1. Approval of Program Participants
--------------------------------
Microsoft shall have sole discretion regarding the designation of Broadband
Streaming Initiative ICP Participants and allocation of Network Credits for use
by such entities and/or Microsoft's internal use under this Agreement.
Microsoft shall make reasonable efforts to provide Network Credits to customers
and programs that iBEAM recommends for the Broadband Streaming Initiative. In
no event shall iBEAM provide any Microsoft Confidential Information to any
customer or prospective customer except with Microsoft's express written
approval. Microsoft shall notify iBEAM from time to time in writing of approved
Broadband Streaming Initiative ICP Participants, the particular iBEAM Services
to be used by each such entity pursuant to this Agreement, and the approved
allocation of Network Credits among such entities and Microsoft (if applicable).
Microsoft and iBEAM will cooperate in good faith following the Effective Date to
develop and implement operational procedures, including prior approvals for
sales programs, to coordinate the use of Network Credits in accordance with this
Agreement.
2. Terms of Service
----------------
Notwithstanding anything to the contrary in the foregoing paragraph, the
relationship between iBEAM and any Broadband Streaming Initiative ICP
Participant shall be separate from iBEAM's relationship with Microsoft and iBEAM
shall have the right to choose, in its sole discretion, not to do business with
any Broadband Streaming Initiative ICP Participant. iBEAM shall enter into a
separate agreement, in a timely manner, with each Broadband Streaming Initiative
ICP Participant to which iBEAM intends to provide iBEAM Services pursuant to
this Agreement, and iBEAM shall perform all such iBEAM Services in a manner as
mutually agreed upon by iBEAM and each such Broadband Streaming Initiative ICP
Participant. iBEAM shall be solely responsible for all services it provides to
Broadband Streaming Initiative ICP Participants, including without limitation
the iBEAM Services, and for enforcing the terms of any services or other
agreements it enters into with Broadband Streaming Initiative ICP Participants.
At Microsoft's sole discretion, iBEAM may perform iBEAM Services for
Microsoft acting on behalf of a Broadband Streaming Initiative ICP Participant,
in which event such provision of iBEAM Services shall be subject to the terms of
this Agreement and any further services agreement that Microsoft and iBEAM may
mutually agree upon.
3. Rate Schedule
-------------
In applying Network Credits under this Agreement for Microsoft's internal
use or provision to Broadband Streaming Initiative ICP Participants, iBEAM will
calculate use of Network Credits on the basis of the lower of (a) a discount of
twenty percent (20%) from iBEAM's then-current list rates for iBEAM Services;
and (b) any more favorable rate charged by iBEAM from time to time to any other
customer which is purchasing iBEAM Services in aggregate volumes that are
comparable to those being purchased by Microsoft in connection with this
Agreement. Net Credits consumed by iBEAM customers shall be in accordance with
terms mutually approved by Microsoft and iBEAM and included in the operational
procedures specified in paragraph 1 above.
Microsoft Confidential & Proprietary Page 17
<PAGE>
EXHIBIT B
Get Windows Media(TM) player
Link Logo Guidelines
Get Windows Media(TM) Player logo usage instructions
- ----------------------------------------------------
To put the logo and link on your Web site, follow these easy steps:
1. Read our policy below on using the Get Windows Media Player logo.
2. Copy the Get Windows Media Player logo.gif file image to your desktop.
[ICON APPEARS HERE]
3. Move the Get Windows Media Player logo .gif file from your desktop to your
Web server.
4. Insert the following HTML code on your Web page. Be sure to point the (IMG
SRC) to the location of the Get Windows Media Player logo .gif file on your
server:
(BR)(CENTER)
(A HREF="http://www.microsoft.com/windows/mediaplayer/download/default.
asp")
(IMG SRC="type path to logo image here" WIDTH="65"
HEIGHT="57" BORDER="0"
ALT="Get Windows Media Player" VSPACE="7")(/A)
(/CENTER)(BR)
5. You can modify this HTML code to fit your formatting as long as you follow
the guidelines outlined below.
Get Windows Media(TM) Player logo usage guidelines
--------------------------------------------------
1. Except as Microsoft may authorize elsewhere, non-Microsoft Web sites may
display only the Get Windows Media(YM) Player logo provided above ("Logo").
By downloading the Logo to your Web site, you agree to be bound by these
Policies.
2. You may only display the Logo on your Web site, and not in any other manner.
It must always be an active link to the download page for the Windows Media
Player at http://www.microsoft.com/windows/mediaplayer/download/default.asp.
3. The Logo GIF image includes the words "Get Windows Media Player" describing
the significance of the Logo on your site (that the Logo is a link to the
download page for the Microsoft Windows Media Player, not an endorsement of
your site). You may not remove or alter any element of the Logo.
4. The Logo may be displayed only on Web pages that make accurate references to
Microsoft or its products or services or as otherwise authorized by
Microsoft. Your Web page title and other trademarks and logos must appear at
least as prominently as the Logo. You may not display the Logo in any manner
that implies sponsorship, endorsement, or license by Microsoft except as
expressly authorized by Microsoft.
5. The Logo must appear by itself, with a minimum spacing (30 pixels) between
each side of the Logo and other distinctive graphic or textual elements on
your page. The Logo may not be displayed as a feature or design element of
any other logo.
6. You may not alter the Logo in any manner, including size, proportions,
colors, elements, or animate, morph, or otherwise distort its perspective or
appearance, except in the event expressly authorized by Microsoft.
Microsoft Confidential & Proprietary Page 18
<PAGE>
7. You may not display the Logo on any site that infringes any Microsoft
intellectual property or other rights, or violates any state, federal, or
international law.
8. These Policies do not grant a license or any other right to Microsoft's
logos or trademarks. Microsoft reserves the right at its sole discretion to
terminate or modify permission to display the Logo at any time. Microsoft
reserves the right to take action against any use that does not conform to
these Policies, infringes any Microsoft intellectual property or other
right, or violates other applicable law.
9. MICROSOFT DISCLAIMS ANY WARRANTIES THAT MAY BE EXPRESS OR IMPLIED BY LAW
REGARDING THE LOGO, INCLUDING WARRANTIES AGAINST INFRINGEMENT.
(C)1999 Microsoft Corporation. All rights reserved. Terms of Use.
Microsoft Confidential & Proprietary Page 19
<PAGE>
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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<PAGE>
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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<PAGE>
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 three (3) years from the
Effective Date unless earlier terminated in accordance with its terms.
12.2 Termination Without Cause After Two Years.
Beginning two (2) 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 $264,000 in connectivity
charges excluding local loop charges). After the first six months, there will
be a monthly minimum commitment of $44,000 (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 $25,000 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 $80,000 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 third paragraph of Note 2,
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.
PricewaterhouseCoopers LLP
San Jose, California
May 15, 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
May 15, 2000
