<PAGE>
As filed with the Securities and Exchange Commission on March 21, 2000
Registration No. 333-95833
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
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)
---------------
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. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Title of Each Class of Amount Maximum Aggregate Amount of
Securities to be to be Offering Price Offering Registration
Registered Registered(1) Per Share(2) Price(2) Fee(3)
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<S> <C> <C> <C> <C>
Common Stock, $.0001 par
value(1).............. 11,500,000 $15.00 $172,500,000 $45,540
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</TABLE>
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(1) Includes 1,500,000 shares of Common Stock that the underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933,
as amended.
(3) Includes $44,880 previously paid in connection with the initial filing of
this Registration Statement.
---------------
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 March 21, 2000
10,000,000 Shares
[LOGO OF IBEAM BROADCASTING]
COMMON STOCK
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iBEAM Broadcasting Corporation is offering 10,000,000 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 $13.00 and $15.00 per share.
-----------
We have applied to list the common stock on the Nasdaq National Market under
the symbol "IBEM."
-----------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 8.
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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
1,500,000 shares of common stock to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares of common stock
to purchasers on , 2000.
-----------
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
J.P. MORGAN & CO.
ROBERTSON STEPHENS
, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 8
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............................ 35
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management......................... 50
Certain Relationships and Related
Transactions...................... 63
Principal Stockholders............. 66
Description of Capital Stock....... 68
Shares Eligible for Future Sale.... 71
Underwriters....................... 73
Legal Matters...................... 75
Experts............................ 75
Where You Can Find More
Information....................... 75
Index to Financial Statements...... F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is not an offer to sell nor is
it seeking an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted. The information contained in this prospectus
is correct only as of the date of this prospectus, regardless of the time of
the delivery of this prospectus or any sale of these securities.
Until , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This delivery
requirement is in addition to the dealers' obligation to deliver a prospectus
when acting as underwriter with respect to their unsold allotments or
subscriptions.
Our logo and certain titles and logos of our services are our trademarks.
Each trademark, trade name or service mark of any other company appearing in
this prospectus belongs to its holder. The terms iBEAM Broadcasting, iBEAM and
MaxCaster are our service marks or trademarks that are registered or otherwise
protected under the laws of various jurisdictions.
----------------
We were incorporated in Delaware in March 1998. Our principal executive
offices are located at 645 Almanor Avenue, Suite 100, Sunnyvale, CA 94086 and
our telephone number is (408) 523-1600. Our website is www.ibeam.com. The
information on the website is not a part of this prospectus.
<PAGE>
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 the
entire prospectus, including the more detailed information and the financial
statements and related notes appearing elsewhere in this prospectus.
iBEAM BROADCASTING
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. Streaming is a media distribution
process that allows simultaneous broadcasting and playback of video and audio
content. Our terrestrial and wireless based network uses point-to-multipoint
satellite broadcasting, which is the use of satellite technology to broadcast
streaming content simultaneously to large, geographically dispersed audiences.
Our network broadcasts 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
currently uses 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, ad insertion and business-to-
business communications services.
The Internet was not designed to support the trafficload created by
broadcasting full-motion video or high-fidelity audio simultaneously to large
audiences. Users, however, are investing in high-speed Internet connections to
their homes and businesses, such as digital subscriber lines, or DSL, and cable
modems, to improve their viewing and listening quality, and are increasing the
traffic load on the Internet causing web congestion and degradation of viewing
and listening quality. Despite these limitations, existing websites,
traditional media companies, new media companies and creators of new
applications, such as online education, are aggressively trying to attract and
retain Internet users by using greater amounts of streaming audio-visual
content. The Gartner Group projects that more than 50% of websites will include
some streaming media by 2001, a five-fold increase from 1998. Our approach of
using a combination of terrestrial 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.
Our technology combines broadcast management and control software with e-
commerce capabilities and operates 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
February 29, 2000, our network investment, which we will continue to develop,
is sufficient to support 360,000 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 60 content providers. Launch Media,
Pacific Century Group and NetRadio have been our largest customers in terms of
revenue this year through February 29, 2000, accounting for an aggregate of 35%
of our revenue during this period. Our three largest customers in 1999,
ProWebcast, MusicNow and Pixelworld, accounted for 68% of our revenue during
that period. We generate revenue from our broadcasting services
3
<PAGE>
based on the volume of content stored or delivered to end users and from our
other services such as encoding and event production based on hourly or fixed
price billing. As part of the build-out of our broadcasting network, we have
agreements to locate servers with over 40 ISPs, including America Online, the
largest U.S. Internet access provider, and Covad Communications and Northpoint
Communications, two high-speed Internet access providers that have developed
networks with national reach.
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
. Globally Build Out Our High-Fidelity Internet Broadcast Network
. Further Leverage Our Broadcast Network to Drive Economies of Scale
. Introduce New Value Added Features and Services
. Pursue Additional Commercial Relationships and Joint Ventures
. Create Open Platform for New Applications
Recent Developments
Acquisition of webcasts.com
On March 21, 2000 we entered into a definitive agreement to acquire
webcasts.com, a provider of interactive broadcasting services and proprietary
tools that give businesses the ability to conduct live and on-demand Internet
broadcasts for use in distance learning, corporate communications, sales
presentations, on-line trade shows and interactive television. Webcasts.com's
most significant customers in terms of revenue in 1999 were Lotus/IBM and
America Online.
The services and tools we gain by acquiring webcasts.com include:
. Vuser(TM)--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
on 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 will issue approximately 7,993,000 shares of our series F preferred stock
to webcasts.com shareholders and will assume webcasts.com outstanding options
which will convert into approximately 764,000 shares of our series F preferred
stock in connection with the acquisition. The series F preferred stock will
convert into the same number of shares of common stock upon the completion of
this offering. We will also issue a $3.0 million note to webcasts.com's
redeemable preferred stockholders. In addition, the former securityholders of
webcasts.com may receive approximately 1,095,000 additional shares of our stock
if our webcasts.com division meets revenue targets in the twelve months after
the closing of the acquisition.
4
<PAGE>
Agreement with America Online
In February 2000, we entered into an agreement with America Online to deploy
our streaming media distribution network within the America Online network. The
agreement will increase 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.
In addition, in February 2000, America Online purchased $5.0 million of our
series E preferred stock, which will convert into 500,726 shares of our common
stock upon the closing of this offering. America Online also 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 $14.00 per share would be
384,024 shares.
Joint Venture with Pacific Century CyberWorks
In January 2000, we signed a letter of intent with Pacific Century
CyberWorks Limited, or PCCW, a Hong Kong based Internet services and investment
company, to establish a joint venture company to introduce iBEAM's streaming
media services to its cable customers. This will include deployment and
operation of our servers into ISPs and Internet access providers and
distributing video and audio content from media companies to end users in Asia.
We expect the joint venture, which will be 51% owned by PCCW and 49% owned by
iBEAM, to launch its services by mid-2000. In addition, in February 2000, PCCW
purchased $30.0 million of our series E preferred stock which will convert into
3,004,363 shares of our common stock upon the closing of this offering.
Investment by The Walt Disney Company
In March 2000, The Walt Disney Company agreed to purchase $10.0 million of
our series G preferred stock at a purchase price equal to the price of the
common stock to be sold in this offering. The series G 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 $14.00 per share, Walt
Disney will purchase 714,285 shares of our series G preferred stock.
5
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common stock offered................................ 10,000,000 shares
Common stock to be outstanding after this offering.. 104,333,927 shares
Use of proceeds..................................... For general corporate
purposes, including
working capital and
capital expenditures
Proposed Nasdaq National Market symbol.............. IBEM
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on 94,333,927 shares of common stock outstanding or deemed outstanding as
of February 29, 2000. This includes:
. 7,992,961 shares of our series F preferred stock to be issued in
exchange for outstanding shares of webcasts.com capital stock; and
. 714,285 shares of our series G preferred stock to be issued to The Walt
Disney Company for $10.0 million at a price equal to the price to the
public in this offering.
This number excludes:
. 23,195,049 shares of common stock authorized for issuance under our
stock option plans, of which 12,151,232 shares at a weighted average
exercise price of $3.50 per share were subject to outstanding options as
of February 29, 2000;
. 763,646 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
$3.60 per share and up to additional 1,095,000 shares of common stock
issuable if our webcasts.com division meets revenue targets in the
twelve months after the closing of the acquisition;
. 1,412,353 shares of common stock issuable upon exercise and conversion
of outstanding preferred stock warrants as of February 29, 2000 at a
weighted average exercise price of $1.19 per share; and
. 384,024 shares of common stock issuable upon exercise of a warrant held
by America Online at an exercise price equal to the price to the public
in this offering, less estimated underwriting discounts and commissions.
Unless otherwise indicated, all of the information in this prospectus:
. reflects the conversion of all outstanding shares of preferred stock
into 75,196,787 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 to be effected in
March 2000;
. assumes no exercise of the underwriters' over-allotment option; and
. has been computed assuming an initial public offering price of $14.00
per share.
6
<PAGE>
SUMMARY FINANCIAL DATA
The pro forma column in the statements of operations data below gives effect
for the acquisition of webcasts.com, Inc. as if the transaction had occurred on
January 1, 1999. As a result of this acquisition, our historical statements of
operations are not representative of the financial results to be expected for
future periods. See Unaudited Pro Forma Combined Financial Information included
elsewhere in this prospectus.
Weighted average shares used in computing the pro forma basic and diluted
net loss per share have been calculated assuming the conversion of all
outstanding shares of convertible preferred stock outstanding into common stock
as if the shares had converted immediately upon issuance.
The pro forma column in the balance sheet data below gives effect to (i) the
conversion of all outstanding shares of our redeemable convertible preferred
stock outstanding as of December 31, 1999 into 62,984,452 shares of common
stock upon the closing of this offering; (ii) the issuance in February 2000 of
2,181,818 shares of series E redeemable convertible preferred stock to PCCW for
$30.0 million and 363,636 shares of series E redeemable convertible preferred
stock to America Online for $5.0 million, and the conversion of those shares
into 3,505,089 shares of common stock; (iii) the pending acquisition of
webcasts.com as if it had occurred on December 31, 1999 and the conversion of
the related issuance of 7,992,961 shares of series F redeemable convertible
preferred stock into the same number of shares of common stock; and (iv) the
issuance in March 2000 of 714,285 shares of our series G redeemable convertible
preferred stock 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 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 10,000,000 shares of common stock in this offering, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses.
<TABLE>
<CAPTION>
Period from Year Ended
March 20, 1998 December 31, 1999
(Inception) to ----------------------
December 31, 1998 Actual Pro Forma
----------------- --------- -----------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C>
Statements of Operations Data:
Revenue.............................. $ -- $ 149 $ 5,054
Total operating costs and expenses... 4,352 30,317 81,721
Loss from operations................. (4,352) (30,168) (76,667)
Net loss............................. (4,227) (29,968) (78,354)
Net loss per share--basic and
diluted............................. $ (0.78) $ (3.43) $ (4.69)
Weighted average common shares
outstanding......................... 5,438 8,726 16,718
Pro forma net loss per share--basic
and diluted (unaudited)............. $ (0.63) $ (1.41)
Pro forma weighted average common
shares outstanding (unaudited)...... 47,435 55,427
<CAPTION>
As of December 31, 1999
----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
----------------- --------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
investments......................... $29,840 $76,620 $205,070
Working capital...................... 24,751 66,039 194,489
Total assets......................... 44,741 218,350 346,800
Long term obligations, net of current
portion............................. 3,627 4,759 4,759
Redeemable convertible preferred
stock............................... 61,192 -- --
Total stockholders' equity
(deficit)........................... (26,033) 201,083 329,533
</TABLE>
7
<PAGE>
RISK FACTORS
You should consider carefully the following risks before you decide to buy
our common stock. If any of the following risks actually materializes, our
business, financial condition or results of operations would likely suffer. In
such case, the trading price of our common stock could fall, and you could
lose all or part of the money paid to buy our common stock.
Risks Related to Our Business
Because we are a development stage company that has generated limited
revenues and only recently began offering our services in October 1999, our
business and prospects are unproven and difficult to evaluate.
We were founded in March 1998 and began offering our Internet broadcasting
services for streaming video and audio in October 1999. The revenue and income
potential of our services and business are, and the size of our market is,
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.
In addition, we have entered into an agreement with Microsoft to provide
content providers in Microsoft's broadband streaming initiative with six
months of free service provided that the value of the services to these
participants does not in the aggregate exceed $200,000. Microsoft has not yet
requested that we provide these free services. If they do so, our revenues
would be harmed.
8
<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. During this year, we expect the deployment of
our network to allow us to provide our services to approximately 50% of U.S.
Internet users 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 and we believe
deployment of our network will reduce incoming data costs for these providers,
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.
Because our Internet broadcasting network is complex and is deployed in
complex environments, it may have errors or defects that could seriously harm
our business.
Our Internet broadcasting network is highly complex and is deployed in
complex environments. Because of the nature of our services, we can only fully
test it when it is fully deployed in very large networks with high traffic
volumes. Given the current early stage of deployment of our network, we cannot
test it for all possible defects. However, as a result of testing conducted to
date, we and our customers have from time to time discovered errors and
defects in our software. Since we commenced offering our services in October
1999, we have experienced two network outages due to failure of our network
software. While we are investing in systems and procedures for early detection
of outages and have invested in redundant servers, we may continue to
experience problems with our software. Outages that have occurred to date have
resulted in between one and five hours of network downtime during which time
we were prevented from delivering our services to our customers. These
downtimes resulted in lost revenues for usage not billed during down periods.
In the future, there may be additional errors and defects in our software
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.
9
<PAGE>
Any failure of our network infrastructure or the 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 quality and low-cost Internet broadcasting services through our network.
To meet these customer requirements, we must protect our network
infrastructure against damage from:
. Human error;
. Network software errors;
. Physical or electronic security breaches;
. Fire, earthquake, flood and other natural disasters;
. Power loss; and
. Sabotage and vandalism.
Our costs are generally higher and quality of service is generally lower
when we deliver content to end users from our data 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 that 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 over our terrestrial 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-quality streaming video
and audio content.
Since we commenced offering our services in October 1999 we have
experienced two network outages due to failure of our infrastructure or the
communications services provided to us. Outages that have occurred to date
have resulted in between one and five hours of network downtime during which
time we were prevented from delivering our services to our customers. These
downtimes resulted in lost revenues for usage not billed during down periods.
We may have inaccurately predicted our satellite capacity needs and may
find it difficult to add capacity when needed on reasonable terms.
We may need to add additional satellite capacity as we take on additional
content provider customers that distribute their content over our network. 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
our necessary capacity would limit revenue growth.
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The market for Internet broadcasting services is new and our business will
suffer if it does not develop as we expect.
The market for Internet broadcasting services is new and rapidly evolving.
Content providers, such as existing Web-based companies and traditional media
and entertainment companies, may not increasingly seek to broadcast streaming
video and audio over the Internet. Therefore, we cannot be certain that a
viable market for our services will emerge or be sustainable. If this market
does not develop, or develops more slowly than we expect, our revenues will
suffer and we may not become profitable.
The markets in which we operate are highly competitive and we may be unable
to compete successfully against new entrants and established companies with
greater resources.
We compete in a market that is new, intensely competitive, highly
fragmented and rapidly changing. We have experienced and expect to continue to
experience increased competition. Many of our current competitors, as well as
a number of our potential competitors, have longer operating histories,
greater name recognition and substantially greater financial, technical and
marketing resources than we do. Some of our current and potential 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 four market segments:
. Internet content distribution networks which accelerate delivery of web
pages, such as Akamai and Enron;
. Internet webcasting companies that deliver streaming media through
terrestrial networks, such as InterVu which has recently been acquired
by Akamai;
. Internet software vendors that reduce the cost of content distribution
by storing content near the end user, such as Inktomi; and
. Internet production and event services companies, such as Broadcast.com
and Network24 Communications which was acquired by Akamai.
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.
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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 whom compete with us. This consolidation could lead to the
formation of more formidable competitors and could result in increased
pressure on us to decrease our prices. In addition, consolidation among
Internet content providers could reduce the number of potential customers for
our services and may increase the bargaining power of these organizations,
which could force us to lower prices.
Because our Internet content provider customers may terminate the use of
our services at any time without penalty, revenues from these customers may
decrease significantly without notice.
We do not have exclusive contracts with our Internet content provider
customers. These customers may refrain from using our services or shift to use
the services of our competitors at any time without penalty. There 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 any of our commercial relationships terminate, then our business could
be harmed.
We entered into a commercial relationship with Microsoft Corporation in
September 1999, with Covad Communications in October 1999 and with America
Online in February 2000. Our agreement with Microsoft provides that Microsoft
will recommend us as a critical service provider for the delivery of broadband
streaming media over the Internet. Considering the widespread acceptance of
Microsoft's Windows technology, we believe Microsoft's recommendation in this
regard will be an important source of customers for us. This agreement may be
terminated by either Microsoft or us if the other party materially breaches
the agreement. A termination of, or significant adverse change in, our
relationship with Microsoft could harm our ability to obtain customers and
develop new technologies that complement our existing service offerings.
Our agreement with America Online provides that we will deploy our servers
in America Online's facilities throughout 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 Covad provides that we will deploy our servers in
Covad's hubs throughout North America. Considering the size of Covad's network
and market position as a provider of broadband access using 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 with 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 significant adverse change in, our
relationship with Covad could harm our efforts to deploy our edge servers and
our ability to develop new technologies that complement our existing service
offerings.
Our agreement with Northpoint provides that we will deploy our services in
Northpoint's Network throughout North America. Considering the size of
Northpoint's network and market position as a provider of broadband access,
our agreement is important to the deployment of our edge servers. The
agreement has a three year term and is terminable by either party with 60 days
notice in the first year of the agreement. In the second
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and third years of the agreement, either party may terminate the agreement due
to a material breach by the other. A termination of, or a significant adverse
change in, our relationship with Northpoint could harm our efforts to deploy
our edge servers.
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
February 29, 2000, our network supported 360,000 simultaneous end users, of
which 40% were served by our edge servers. 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.
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 our accumulated deficit was $34.2 million as of that date.
Considering that operating expenses are expected to increase in future periods
we will need to increase our revenues significantly to achieve profitability.
We have never been profitable. We have incurred significant losses since
inception, including operating losses of $30.2 million for the year ended
December 31, 1999. As of December 31, 1999, we had an accumulated deficit of
$34.2 million. In fiscal 2000, based on the planned deployment of our network,
we expect to have capital expenditures of at least $35.0 million of which
approximately $20.0 million will be spent in the first quarter. We expect to
continue to incur increasing operating losses in the future. We will apply the
proceeds from this offering to pay for our capital expenditures and to fund
these losses.
We cannot be certain that our revenue will grow or that we will achieve
sufficient revenue to achieve profitability. Our failure to significantly
increase our revenue would seriously harm our business and operating results.
We have large fixed expenses, and we expect to continue to incur significant
and increasing sales and marketing, product development, administrative and
other expenses, including fees to obtain access to bandwidth transport of data
over our network while we build out our network to the edge of the Internet.
As a result, we will need to generate significantly higher revenues to achieve
and maintain profitability. If our revenue grows more slowly than we
anticipate or if our operating expenses increase more than we expect or cannot
be reduced in the event of lower revenue, we may not become profitable.
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The uncertainty in the sales and installation cycles for our service
resulting from our limited operating history may cause revenue and operating
results to vary significantly and unexpectedly from quarter to quarter, which
could adversely affect our stock price.
Because of our limited operating history and the nature of our business, we
cannot predict our sales and installation cycles. The uncertain sales and
installation cycles may cause our revenue and results of operations to vary
significantly and unexpectedly from quarter to quarter. If this occurs and our
quarterly operating results fall below the expectations of our investors or
securities analysts, if any are covering our common stock, then the market
price of our common stock could decline.
We expect the rates we can charge for our services to decline over time,
which could reduce our revenue and could cause our business and financial
results to suffer.
We expect the prices we can charge for our Internet broadcasting services
will decline over time as a result of, among other things, the increasing
availability of bandwidth at reduced costs and existing and new competition in
the markets we address. If we fail to accurately predict the decline in costs
of bandwidth or, in any event, if we are unable to sell our service at
acceptable prices relative to our costs, or if we fail to offer additional
services from which we can derive additional revenue, our revenue will
decrease and our business and financial results will suffer.
We are currently pricing our services at levels that exceed our 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 and prospects depend on consumer demand for streaming video
and audio content over the Internet.
Consumer demand for streaming video and audio content on the Internet has
only begun to build in recent years, and our success will depend in large part
on the growth in the use of the Internet for these purposes, if any. Market
demand for streaming video and audio content on the Internet is subject to a
high level of uncertainty and is dependant on a number of factors, including:
. The growth in consumer access to interactive technologies such as the
Internet;
. The enactment of laws and regulations applicable to content delivery and
commerce over the Internet;
. Consumer acceptance of new interactive technologies; and
. Users' demand for bandwidth.
If the Internet as a source for video and audio content fails to develop or
develops more slowly than expected, our business and prospects will suffer. In
addition, critical issues concerning the use of the Internet, including
security, reliability, cost, ease of access, quality of service, regulatory
initiatives and necessary increases in bandwidth availability, remain
unresolved and are also likely to affect the development of the market for our
services.
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
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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' organization. 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 in our Internet broadcasting. 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 expect that over the
next two years these costs will significantly exceed any revenues that we
receive for our services. We expect to apply the proceeds from this offering
to the payment of these expenses. If our revenues do not grow in the future,
these costs may never be recuperated and we may not become profitable.
We face a number of risks related to our pending acquisition of
webcasts.com, and we may face similar risks in the future if we acquire other
businesses or technologies.
In March 2000, we entered into an agreement to acquire webcasts.com. If we
are unable to effectively integrate webcasts.com's products, personnel and
systems, our business and operating results are likely to suffer. This
integration will be made more difficult because webcasts.com operations are
located in Oklahoma City, Oklahoma, where we currently have no operations. We
will begin to integrate webcasts.com with our operations after the completion
of the acquisition, which we expect to occur in April 2000. We expect this
integration to place a significant burden on our management team.
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 impacting our financial results. For example, as a result of the
webcasts.com
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acquisition, we will have goodwill and acquired intangibles of approximately
$123.7 million, which will be amortized over three years. 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;
. Diversion of management's attention from other businesses concerns;
. 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.
We will require additional capital in the future and may not be able to
secure adequate funds on terms acceptable to us.
The expansion and development of our business will require significant
capital, which we may be unable to obtain, to fund our capital expenditures
and operating expenses, including working capital needs. In fiscal 2000 we
expect to make $35.0 million in capital expenditures, of which $20.0 million
has been spent in the first quarter to date, including investments in edge
servers, data centers and our network operations center, and we expect to
incur significant and increasing losses.
During the next twelve 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.
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.
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
235 on March 10, 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,
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. 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 on our business plan, which would curtail our
growth and harm our results of operations.
In addition, we have recently hired and plan to hire in the near future a
number of key employees and officers. To become integrated into our company,
these individuals must spend a significant amount of time learning our
business model and management system, in addition to performing their regular
duties. Accordingly, the integration of new personnel has resulted and will
continue to result in some disruption to our ongoing operations. If we fail to
integrate new employees in an efficient manner, our business and financial
results will suffer.
The unpredictability of our quarterly results may adversely affect the
trading price of our common stock.
Our revenue and operating results will vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control
and any of which may cause our stock price to fluctuate. The primary factors
that may affect our quarterly results include the following:
. 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;
. The length of the sales cycle for our services;
. 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.
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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 only three services: iBEAM On-Stage, iBEAM On-Air and
iBEAM On-Demand. Sales of our On-Stage service accounted for over 70% of our
net revenue in the quarter ended December 31, 1999. We substantially depend on
this service for our near-term revenue. Any decline in the price of, or demand
for, our On-Stage service, or its failure to achieve broad market acceptance,
would seriously harm our business. In addition, we believe that our future
growth and a significant portion of our future revenue will depend on the
commercial success of our On-Air and On-Demand services. If our customers do
not widely adopt, purchase and successfully deploy our services, our revenues
will not grow significantly and our business will be seriously harmed.
We rely on a limited number of customers, and any decrease in revenues
from, or loss of, these customers, without a corresponding increase in
revenues from other customers, would harm our operating results.
Our customer base is limited and highly concentrated. We began recognizing
revenues from sales of our products in the quarter ended December 31, 1999.
Three customers accounted for an aggregate of 68% of our revenue in the
quarter December 31, 1999: ProWebCast accounted for 40%, MusicNow, Inc.
accounted for 15% and Pixelworld accounted for 13% of our revenue. We expect
that the majority of our revenues will continue to depend on sales of our
products to a small number of customers. If current customers do not continue
to place significant orders, we may not be able to replace these orders. In
addition, any downturn in the business of existing customers could result in
significantly decreased sales to these customers, which could seriously harm
our revenues and results of operations. Sales to any single customer may vary
significantly from quarter to quarter.
Two customers accounted for an aggregate of 20.4% of webcasts.com's revenue
in 1999: Lotus/IBM accounted for 14.6% and America Online accounted for 5.8%
of its revenue. The loss of either of these customers or a significant
reduction in the level of webcasts.com's services used by either customer,
could seriously harm our results of operations.
We expect to amortize stock-based compensation expense over the next four
years, which will decrease our net earnings during this period.
In connection with the grant of stock options to employees and consultants
in 1998 and 1999, we recorded unearned stock-based compensation of $19.0
million, of which $5.4 million was amortized during 1999. For the period from
January 1, 2000 to February 29, 2000, we issued options to purchase 4,025,906
shares and will record an additional $10.6 million of unearned stock-based
compensation. In addition, in January 2000, we issued to a consultant 908,820
shares of common stock subject to a right of repurchase which lapses over four
years. Based on the fair market value of our common stock at February 29,
2000, this grant will result in an additional $8.3 million of unearned stock-
based compensation, assuming no change in the underlying value of our common
stock. If our stock price increases, the amount of stock-based compensation we
may be required to record would increase. We expect to amortize stock-based
compensation related to these grants and issuance of $16.1 million in 2000,
$9.3 million in 2001, $5.0 million in 2002, and $2.1 million in 2003. 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.
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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 recently entered into a
letter of intent with Pacific Century CyberWorks to establish a joint venture
to introduce our services to Asia. In order to bring our services to Asia
under this joint venture we will need to deploy our network of servers in Asia
which will involve large capital expenditures and operating expenses for the
joint venture. While the details of the joint venture have yet to be
determined, we expect to incur approximately 50% of the capital expenditures
and operating expenses of the joint venture. In addition, in connection with
our expansion into Asia, Europe, Latin America, Africa and the Middle East
pursuant to our agreement with InterPacket, we will incur capital expenditures
in connection with our deployment of servers in InterPacket's network.
Interpacket's network serves developing countries and there can be no
assurance that these markets will develop sufficiently to justify our
investments.
We 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.
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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;
. 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 37.6% 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 37.6% 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.
We will have a staggered board of directors, are subject to the "interested
stockholder" provisions of Delaware law and have in place procedures that
proscribe the ability of our stockholders to act without a meeting and limit
the ease with which a stockholder meeting can be called. 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. For a more complete description of
these provisions, see "Description of Capital Stock--Delaware Law and Certain
Provisions of Our Certificate of Incorporation and Bylaws."
In addition, each of Microsoft, Sony, Pacific Century Cyberworks, American
Online, Covad and Liberty Media, which in the aggregate will own 16.7% of our
common stock upon the closing of this offering, have agreed to vote their
securities as directed by our Board of Directors in any merger in which more
than 50% of our voting power is transferred or in a sale of substantially all
of our assets. This obligation lapses for each of these companies if and when
it owns less than 5% of our voting power. Microsoft, Sony, Pacific Century
Cyberworks, America Online and Covad have each also agreed not to acquire more
than 15% of our voting stock at any time before October 2004 without our
permission. Our agreement with these stockholders could make it more difficult
for a third party or one of these entities to acquire us, even if doing so
would be beneficial to our stockholders.
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 104,333,927 shares of common
stock outstanding, or 105,833,927 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 certain 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 104,333,927 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>
10,000,000 Immediately
82,121,591 180 days from the date of the prospectus
for the offering
12,212,336 Various dates thereafter
</TABLE>
After this offering and expiration or release of the lock-up agreements,
holders of 75,196,168 shares of the common stock and the holders of warrants
to purchase approximately 1,285,077 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
February 29, 2000, options to purchase 12,151,232 shares of common stock with
a weighted average exercise price per share of $3.50 were outstanding, 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.
Morgan Stanley & Co. Incorporated at its sole discretion may decide at any
time, without notice, to allow us or any of our stockholders subject to a
lock-up agreement to sell shares of our common stock prior to 180 days from
the date of the prospectus for the offering. We have no agreement with Morgan
Stanley & Co. Incorporated for a waiver of these lock-up restrictions.
However, Morgan Stanley & Co. Incorporated may, in its discretion, release
them. In some cases underwriters have agreed to waive lock-up restrictions
when a company's stock has performed well and market conditions are favorable,
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.
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 $14.00 per share, if you purchase our common
stock in this offering, you will incur immediate dilution of $11.99 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 February 29, 2000, we had outstanding options to
purchase 12,151,232 shares of common stock at a weighted average exercise
price of $3.50 per share and, on an as converted basis, warrants to purchase
1,796,377 shares of common stock at a weighted average exercise price of $3.93
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 10,000,000 shares of common stock
in this offering at an assumed public offering price of $14.00 per share are
estimated to be approximately $128.5 million, or approximately $148.0 million
if the underwriters' over-allotment option is exercised in full, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
The principal purposes of this offering are to obtain additional working
capital, to establish a public market for our common stock, to increase our
visibility in the marketplace and to facilitate future access to public
capital markets.
We expect to use the net proceeds for general corporate purposes, including
working capital and capital expenditures, and to fund operating losses. We
anticipate spending at least $15.0 million of the proceeds of this offering on
capital expenditures primarily for the purpose of expanding our network
operations. Our management will retain broad discretion in the allocation of
the remaining net proceeds of this offering. Although we may use a portion of
the proceeds to acquire other businesses, products or technologies that are
complementary to our business, we have no specific acquisitions planned.
Pending such uses, we intend to invest the net proceeds of this offering in
short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently intend
to retain all of our future earnings to finance the growth and development of
our business. We do not intend to pay cash dividends on our common stock in
the foreseeable future.
23
<PAGE>
CAPITALIZATION
The following table sets forth our cash, cash equivalents and investments
and capitalization at December 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect (i) the conversion of all outstanding
shares of our redeemable convertible preferred stock outstanding as of
December 31, 1999 into 62,984,452 shares of common stock upon the
closing of this offering; (ii) the issuance in February 2000 of
2,181,818 shares of series E redeemable convertible preferred stock to
PCCW for $30.0 million and 363,636 shares of series E redeemable
convertible preferred stock to America Online for $5.0 million, and the
conversion of those shares into 3,505,089 shares of common stock; (iii)
the pending acquisition of webcasts.com as if it had occurred on
December 31, 1999 and the conversion of the related issuance of
7,992,961 shares of series F redeemable convertible preferred stock into
the same number of shares of common stock; and (iv) the issuance in
March 2000 of 714,285 shares of our series G redeemable convertible
preferred stock to The Walt Disney Company for $10.0 million at a price
equal to the public in the offering and the conversion of those shares
into the same number of shares of common stock; and
. on a pro forma basis as adjusted for the sale by us of 10,000,000 shares
of common stock in this offering and the receipt of the estimated net
proceeds therefrom, after deducting the estimated underwriting discounts
and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands, except per
share data)
<S> <C> <C> <C>
Cash, cash equivalents, and investments......... $29,840 $ 76,620 $205,070
======= ======== ========
Long term obligations, net of current portion... $ 3,627 $ 4,759 $ 4,759
------- -------- --------
Redeemable convertible preferred stock, $0.0001
par value; actual--20,000 shares authorized;
15,247 shares issued and outstanding; pro forma
and pro forma as adjusted--10,000 shares
authorized; no shares issued or outstanding.... 61,192 -- --
------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.0001 par value; actual--40,000
shares authorized; 17,132 shares issued and
outstanding; pro forma--300,000 shares
authorized; 93,030 shares issued and
outstanding; pro forma as adjusted--300,000
shares authorized; 103,030 shares issued and
outstanding................................... 2 9 10
Additional paid-in capital..................... 21,773 248,882 377,331
Unearned stock-based compensation.............. (13,613) (13,613) (13,613)
Deficit accumulated during development stage... (34,195) (34,195) (34,195)
------- -------- --------
Total stockholders' equity (deficit)........ (26,033) 201,083 329,533
------- -------- --------
Total capitalization........................ $38,786 $205,842 $334,292
======= ======== ========
</TABLE>
This capitalization table excludes the following shares as of December 31,
1999:
. 9,443,214 shares at a weighted average exercise price of $0.87 per
share were subject to outstanding options as of December 31, 1999;
. 1,412,353 shares of common stock issuable upon exercise and conversion
of outstanding convertible preferred stock warrants as of December 31,
1999 at a weighted average exercise price of $1.19 per share and 384,024
shares of common stock issuable upon exercise of a warrant issued to
America Online in February 2000 at an exercise price equal to the price
to the public in the offering, less underwriting discounts and
commissions; and
For the period from January 1, 2000 to February 29, 2000, we issued options
to purchase 4,025,906 shares of our common stock to employees and consultants
at a weighted average exercise price of $8.86 per share. We also issued
908,820 shares of common stock issued to a consultant, subject to a right of
repurchase, at $4.84 per share in January 2000. We expect to continue to issue
additional shares as we increase our hiring.
24
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999, was $77.4
million or $0.84 per share of common stock. Our pro forma net tangible book
value per share as of December 31, 1999 represents the amount of our total
tangible assets reduced by the amount of our total liabilities and divided by
the total number of shares of our common stock outstanding assuming (i) the
conversion of all outstanding shares of our redeemable convertible preferred
stock as of December 31, 1999 into 62,984,452 shares of common stock upon the
closing of this offering; (ii) the issuance in February 2000 of 2,181,818
shares of series E redeemable convertible preferred stock to PCCW for $30.0
million and 363,636 shares of series E redeemable convertible preferred stock
for $5.0 million to America Online, and the conversion of those shares into
3,505,089 shares of common stock; (iii) the pending acquisition of
webcasts.com as if it occurred on December 31, 1999 and the conversion of the
related issuance of 7,992,961 shares of series F redeemable convertible
preferred stock into the same number of shares of common stock; and (iv) the
issuance in March 2000 of 714,285 shares of our series G redeemable
convertible preferred stock to The Walt Disney Company for $10.0 million at
the price to the public in the offering and the conversion of those shares
into the same number of shares of common stock. After giving effect to the
sale by us of the 10,000,000 shares of common stock offered hereby at an
assumed initial public offering price of $14.00 per share, after deduction of
estimated underwriting discounts and commissions and estimated offering
expenses, our pro forma as adjusted net tangible book value at December 31,
1999 would have been $205.9 million or $2.01 per share. This represents an
immediate increase in net tangible book value to existing stockholders of
$1.17 per share and an immediate dilution to new investors of $11.99 per
share. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $14.00
Pro forma net tangible book value per share as of December
31, 1999.................................................... $0.84
Increase in pro forma net tangible book value per share
attributable to new investors............................... 1.17
-----
Pro forma as adjusted net tangible book value per share after
the offering................................................. 2.01
------
Dilution per share to new investors........................... $11.99
======
</TABLE>
The following table sets forth on a pro forma basis as of December 31,
1999, the difference between the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
(1) the existing stockholders giving effect to the issuance in February 2000
of 2,181,818 shares of series E redeemable convertible preferred stock to PCCW
for $30.0 million and 363,636 shares of series E redeemable convertible
preferred stock to America Online for $5.0 million; (2) the investors in the
private placements of preferred stock that will convert into common stock at
the public offering price, which includes 7,992,961 shares of series F
redeemable convertible preferred stock issued in the pending acquisition of
webcasts.com and the issuance in March 2000 of 714,285 shares of our series G
redeemable convertible preferred stock to The Walt Disney Company for $10.0
million at the price to the public in the offering, and by (3) the new
investors in this offering (before deduction of estimated underwriting
discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------- -------------------- Price
Number Percent Amount Percent Per Share
----------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 83,621,640 82% $ 97,334,602 27% $ 1.16
Private Investors at the
initial public offering
price..................... 8,707,246 8 121,901,444 34 14.00
New investors in this
offering.................. 10,000,000 10 140,000,000 39 14.00
----------- --- ------------ ---
Total.................... 103,030,420 100% $359,236,046 100%
=========== === ============ ===
</TABLE>
The table assumes no exercise of the underwriters over-allotment option and
no exercise of stock options or warrants outstanding at December 31, 1999. As
of December 31, 1999, there were options outstanding to purchase a total of
9,443,214 shares at a weighted average exercise price of $0.87 per share,
while 3,099,725 shares were reserved for future grants under our 1998 Stock
Plan. As of December 31, 1999, there were warrants outstanding
25
<PAGE>
to purchase 1,412,353 shares of common stock issuable upon exercise and
conversion of outstanding convertible preferred stock warrants at a weighted
average exercise price of $1.19 per share. In February 2000, we granted a
warrant to America Online to acquire 384,024 shares of common stock at per
share exercise price equal to price to the public in the offering, less
estimated underwriting discounts and commissions. From January 1, 2000 to
February 29, 2000, we granted options to purchase an additional 4,025,906
shares of common stock at a weighted average exercise price of $8.86 per share
and will assume all outstanding options granted under webcasts.com's 1999
Stock Option Plan, which will convert into options to purchase 763,646 shares
of series F redeemable convertible preferred stock at a weighted average
exercise price of $3.60 per share. In January 2000, we issued 908,820 shares
of common stock, subject to a right of repurchase, at $4.84 per share to a
consultant. To the extent there are exercises of any of these options, there
will be further dilution to new investors. See "Capitalization," "Management--
Compensation of Directors," and "--Executive Compensation."
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 combined balance sheet gives effect to the
acquisition of webcasts.com as if it occurred on December 31, 1999 and
combines the balance sheet of iBEAM as of December 31, 1999 and the
consolidated balance sheet of webcasts.com as of December 31, 1999. On October
15, 1999, webcasts.com completed its acquisition of all the outstanding
capital stock of The Rock Island Group, Inc., or 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 pro forma financial information should also be read in conjunction with
the historical financial statements and notes to webcasts.com, which are
included elsewhere in this prospectus, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The unaudited pro
forma combined information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the transactions had been consummated at the dates
indicated, nor is it necessarily indicative of the future operating results or
the financial position of the combined companies.
<TABLE>
<CAPTION>
Period from
March 20, 1998 Year Ended
(Inception) to December 31, 1999
December 31, ---------------------------
1998 Actual Pro Forma
---------------- ------------ -------------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C>
Statements of Operations Data:
Revenue......................... $ -- $ 149 $ 5,054
----------- ------------ ------------
Operating costs and expenses:
Cost of services (direct and
indirect).................... -- 8,249 11,788
Engineering and development... 1,468 4,531 4,801
Sales and marketing........... 1,788 10,363 11,438
General and administrative.... 1,096 7,174 12,468
Amortization of goodwill and
acquired intangibles......... -- -- 41,226
----------- ------------ ------------
Total operating costs and
expenses................... 4,352 30,317 81,721
----------- ------------ ------------
Loss from operations............ (4,352) (30,168) (76,667)
Other income and expense, net... 125 200 110
Dividends and accretion related
to preferred stock and
warrants....................... -- -- (1,797)
----------- ------------ ------------
Net loss........................ $ (4,227) $ (29,968) $ (78,354)
=========== ============ ============
Net loss per share--basic and
diluted........................ $ (0.78) $ (3.43) $ (4.69)
=========== ============ ============
Weighted average common shares
outstanding.................... 5,438 8,726 16,718
=========== ============ ============
Pro forma net loss per share--
basic and diluted (unaudited).. $ (0.63) $ (1.41)
============ ============
Pro forma weighted average
common shares outstanding
(unaudited) ................... 47,435 55,427
============ ============
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------------------
1999
1998 --------------------
Actual Actual Pro Forma
------ ------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and investments............ $2,198 $29,840 $31,620
Working capital................................... 1,071 24,751 21,039
Total assets...................................... 4,207 44,741 173,350
Long term obligations, net of current portion..... -- 3,627 4,759
Redeemable convertible preferred stock............ 6,905 61,192 182,116
Total stockholders' deficit....................... (3,950) (26,033) (26,033)
</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 March 2000 we entered into an agreement to acquire
webcasts.com, Inc., a provider of production consulting services and tools.
Webcasts.com services assist content providers with integrating streaming
media and e-commerce functions such as chat, e-commerce data base links and
pay-per-view.
iBEAM commenced operations in March 1998 and began offering streaming media
delivery service in October 1999. Since our inception, we have incurred
significant losses and as of December 31, 1999, we had an accumulated deficit
of $34.2 million. We have not achieved profitability on a quarterly basis, and
anticipate that we will continue to incur substantial and increasing net
losses. We expect to incur significant and increasing engineering and
development and sales, general and administrative expenses and, as a result,
we will need to generate significant revenues to achieve profitability.
Acquisition of webcasts.com
We entered into a definitive merger agreement to acquire privately-held
webcasts.com, a provider of interactive broadcasting services and proprietary
Internet tools on March 21, 2000. We intend to account for the transaction as
a purchase business combination. The acquisition is intended to qualify as a
tax-free reorganization.
We will issue 7,992,961 shares of our series F preferred stock to
webcasts.com's security holders in connection with the acquisition and will
assume webcasts.com's outstanding options which will convert into 763,646
shares of our series F preferred stock. We will also issue a $3.0 million note
to webcasts.com's redeemable preferred shareholders. In addition, the former
security holders of webcasts.com may receive an additional 1,095,000 shares of
stock if our webcasts.com division meets certain revenue targets in the twelve
months after the closing of the acquisition.
As result of the acquisition, we expect to expect to incur merger-related
costs of up to $1.7 million and to record approximately $123.7 million of
intangible assets and goodwill on our balance sheet, which will result in
amortization expense of approximately $30.9 million in 2000, $41.2 million in
2001 and 2002 and $10.4 in 2003. These charges will increase our expenses and
losses during each of these periods and delay our ability to achieve
profitability.
Revenue
We derive our revenue from charging content providers for services that
include encoding, production and event management, custom Web integration with
chat and e-commerce tools, and broadcasting content to Internet users. We
expect broadcasting services to provide the largest and fastest growing
revenue element of our services.
Our broadcasting services are charged based on the volume of content stored
or delivered to end-users as measured in megabytes or megabits consumed and
therefore varies with the number of users, the access speeds
29
<PAGE>
of the users and time users spend viewing content broadcast by us. On-Air and
On-Stage services are typically priced based on peak usage, which is the
maximum megabits delivered per second per month, while On-Demand services are
typically priced based on actual usage, which is the total amount of megabits
transferred during the month. Other services such as encoding, event
production and management, customization and integration with e-commerce tools
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 operations monitoring center. The cost of other
services such as encoding, event management and customization 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 terrestrial communication
land lines. In proportion, the largest direct cost is terrestrial land lines.
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
terrestrial landline costs. Therefore it is our goal to increase the amount of
content we deliver to the edge of the Internet. 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. Some of
the ISPs to which we deliver content have negotiated access fees, however
these fees have represented lower costs to iBEAM than paying for terrestrial
landlines. The fees we pay to ISPs are based on a percentage of revenue
derived from content delivered through their network, ranging from 15% to 20%.
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 calendar 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.
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
in 1998 and 1999, we recorded unearned stock-based compensation of $19.0
million, representing the difference between the deemed fair value
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of our common stock at the date of grant and the exercise price of such
options. Such an amount, net of amortization, is presented as a reduction of
stockholders' equity and amortized over the vesting period of the applicable
option. We expect to amortize unearned stock-based compensation of $7.7
million in 2000, $3.7 million in 2001, $1.6 million in 2002 and $0.6 million
2003.
For the period from January 1, 2000 to February 29, 2000, we issued options
to purchase 3,943,286 shares to employees at a weighted average exercise price
of $8.86 per share. In connection with such grants, we will record an
additional $10.6 million of unearned stock-based compensation. In addition, in
January 2000, we issued 908,820 shares of common stock subject to a right of
repurchase, to a consultant, which lapses over four years. Based on the fair
market value of our common stock at February 29, 2000, this grant will result
in an additional $8.3 million of unearned stock-based compensation, assuming
no change in the underlying value of our common stock. We expect to amortize
additional stock-based compensation expense related to these grants and
issuances of $8.4 million in 2000, $5.6 million in 2001, $3.3 million in 2002,
and $1.6 million in 2003.
Stock-based compensation expense related to stock options granted to
consultants is recognized as the stock options are earned. At each reporting
date, we re-value the stock-based compensation using the Black-Scholes option
pricing model. As a result, the stock-based compensation expense will
fluctuate as the fair market value of our common stock fluctuates.
iBeam's Results of Operations for Period from March 20, 1998 (Inception) to
December 31, 1998 and the Year Ended December 31, 1999
Revenue. We began generating revenue in August 1999 after we commercially
introduced our content delivery service and have recognized $149,000 through
December 1999. Fees for On-Stage, On-Air and On-Demand services accounted for
74%, 6% and 3%, respectively, of total revenue for the year ended December 31,
1999. As we continue to expand our network and as more companies distribute
content over our network, we expect our revenue will increase in future
periods. We also expect our On-Air and On-Demand services will increase as a
percentage of total revenue, while On-Stage and other services will decrease
as a percentage of total revenue.
The following table summarizes operating costs and expenses, excluding the
non-cash amortization of stock-based compensation of $39,000 in 1998 and $5.4
million in 1999 (in thousands):
<TABLE>
<CAPTION>
Period from March
20, 1998
(Inception) to Year Ended
December 31, 1998 December 31, 1999
----------------- -----------------
(in thousands)
<S> <C> <C>
Operating costs and expenses:
Cost of services (direct and indirect).... $ -- $ 7,488
Engineering and development............... 1,449 4,202
Sales and marketing....................... 1,780 9,759
General and administrative................ 1,084 3,475
------ -------
Total operating costs and expenses...... $4,313 $24,924
====== =======
</TABLE>
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
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salaries and related taxes of $1.0 million as additional engineers were hired
in 1999. Headcount included in engineering and development rose from 23 at
December 31, 1998 to 45 at December 31, 1999.
Sales and Marketing. Sales and marketing expenses increased by $8.0
million, or 448%, from $1.8 million in 1998 to $9.8 million in 1999. This
increase was primarily due to salaries, bonuses and related taxes of
$2.9 million and advertising and promotional expenses of $4.5 million,
resulting from the development of a sales and marketing organization and the
marketing of our network and corporate brand, which was publicly launched in
October 1999. Headcount included in sales and marketing rose from 13 at
December 31, 1998 to 36 at December 31, 1999.
General and Administrative. General and administrative expenses increased
by $2.4 million, or 221%, from $1.1 million in 1998 to $3.5 million in 1999.
This increase was primarily due to salaries and related taxes of $1.0 million
as we began to provide infrastructure to support our growing operations.
Headcount included in general and administrative rose from six at December 31,
1998 to 21 at December 31, 1999.
Amortization of Stock-Based Compensation. Amortization of employee stock-
based compensation increased by $4.9 million from $31,000 in 1998 to $5.0
million in 1999 due primarily to the grant of stock options to newly hired
employees. In connection with the grant of stock options to consultants, we
recorded stock-based compensation of $8,000 in 1998 and $0.4 million in 1999.
Other Income and Expense, Net. Other income and expense, net increased from
$125,000 in 1998 to $200,000 primarily due to an increase in interest income
based on higher cash balances.
Income Taxes. We have incurred operating losses for all periods. As of
December 31, 1999, we had net operating loss carryforwards for federal and
state tax purposes of approximately $25.8 million. These federal and state tax
loss carryforwards are available to reduce future taxable income and expire in
varying amounts beginning in 2004. Under the provisions of the Internal
Revenue Code, some substantial changes in our ownership may limit the amount
of net operating loss carryforwards that could be utilized annually in the
future to offset taxable income.
Net loss. Net loss increased by $25.8 million from $4.2 million in 1998 to
$30.0 million in 1999. The increase in net loss is primarily attributable to
increases in operating costs and expenses of $26.0 million, which includes an
increase in amortization of stock-based compensation of $5.4 million.
Webcasts.com Results of Operations for Years ended December 31, 1999 and
December 31 1998
Webcasts.com was incorporated in 1995 and commenced its current Web
production services business in 1997. Webcasts.com had total revenue of $2.0
million in 1998 and $2.4 million in 1999. Webcasts.com costs of revenues
increased from $1.3 million in 1998 to $1.8 million in 1999, and its operating
expenses increased from $.9 million to $4.3 million primarily due to increased
selling expenses partially as a result of its acquisition of the Rock Island
Group, Inc. and stock-based compensation. As of December 31, 1999,
webcasts.com had an accumulated deficit of $4.1 million.
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 $61.2 million from the sale of our preferred stock.
Net cash used in operating activities was $3.2 million in 1998 and $19.2
million in 1999, resulting primarily from our net loss partially offset by an
increase in accounts payable and accrued liabilities of $2.2 million,
amortization of stock-based composition of $5.4 million, depreciation and
amortization of $1.7 million and the issuance of a warrant for $1.0 million.
Net cash used in investing activities was $1.5 million in 1998, resulting
from the purchase of property and equipment. Net cash used in investing
activities was $12.5 million in 1999 and consisted of $7.5 million in
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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 February 29, 2000, we had approximately $41.3 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 February 2000 we have raised $96.0 million from
the sale of preferred stock and $8.5 million from equipment lease lines that
are repayable over three years. We expect to make at least $35.0 million in
capital investments in 2000, of which $20.0 million has been spent in the
first quarter to date, and will require significant capital to fund other
operating expenses. We expect to raise enough proceeds from our initial public
offering to fund our operations for at least twelve to eighteen months.
Thereafter, we will need to raise additional capital in 2001 and we may seek
to raise additional capital sooner. Since our expenditure levels will depend
on discretionary factors within our control and competitive factors outside
our control we are not able to determine the amount of future capital we will
need to raise with a high degree of certainty.
Qualitative and Quantitative Disclosures About Market Risk
We offer our services in the United States and anticipate distributing
U.S.-based content in Asia and Europe in 2000. As a result, our financial
results could be affected by factors including weak economic conditions in
foreign markets. Our interest income is sensitive to changes in the general
level of U.S. interest rates. Due to the short-term nature of our investments,
we believe that there is no material risk exposure; therefore, no quantitative
tabular disclosures are required.
Year 2000 Readiness Disclosure
The year 2000 issue is the potential for system and processing failures of
date-related data and is the result of the computer-controlled systems using
two digits rather than four to define the applicable year. For example,
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
We have designed our network and our service for use in the year 2000 and
beyond. To date, our service and our networks have not revealed any
significant year 2000 problems. Our network generally integrates sophisticated
hardware and software products incorporating the latest technologies at the
time of purchase.
As of February 29, 2000 we have not experienced any significant issues 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
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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 believe that the impact of SAB No. 101
will have no material effect on our financial position or results of
operations.
You Should Not Rely On Forward-Looking Statements
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" "may," "will," "should," "estimates,"
"predicts," "potential," "continue" and similar expressions to identify such
forward-looking statements. This prospectus also contains forward-looking
statements attributed to certain third parties relating to their estimates
regarding the growth of certain markets. You should not rely on forward-
looking statements in this prospectus. Forward-looking statements are subject
to known and unknown risks, uncertainties and other factors that may cause our
actual results to differ materially from expectations. These risks,
uncertainties and other factors include, among others, those identified under
"Risk Factors" and elsewhere in this prospectus.
Some of the forward-looking statements included in this prospectus involve
our indirect broadcasting costs, our unearned stock-based compensation and our
capital expenditures over the next twelve months. As to our revenue, we have
made forward-looking statements as to changes in the amount of our revenues
and the percentages of revenue attributable to each of our On-Air, On-Demand
and On-Stage services. In addition, we have made forward-looking statements
regarding the build-out and reach of our network.
These forward-looking statements apply only as of the date of this
prospectus. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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BUSINESS
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. Our terrestrial and
wireless based network uses 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 uses iBEAM
servers located in the facilities of Internet service providers, or ISPs and
other companies which host Internet applications and services.
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, ad insertion and business-to-business
communications services.
Our technology combines broadcast management and control software with e-
commerce capabilities and operates with a variety 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 February 29, 2000, our network investment, which we will
continue to develop, is sufficient to support 360,000 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 60 content providers. Launch Media,
Pacific Century Group and NetRadio have been our largest customers in terms of
revenue this year through February 29, 2000, accounting for an aggregate of
35% of our revenue during this period. Our three largest customers in 1999,
ProWebCast, MusicNow and Pixelworld, accounted for an aggregate of 68% of our
revenue during that period. 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 40 ISPs including America Online,
the largest U.S. Internet access provider, and Covad Communications and
Northpoint, two high-speed Internet access providers which have developed
networks with national reach.
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 quality 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 and music file
before viewing or listening.
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 tour of a product, combined with the interactive
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and user-controlled capability of the Internet, are factors that increase
consumer interest and purchases. This enriched content is made possible
through streaming media. New media companies have emerged to address the
growing audience of Internet users with news and entertainment content. RHK
Research recently reported in a press release that streaming media now
comprises 10% of total Internet traffic.
Traditional Media and Entertainment Companies
Traditional media and entertainment companies are emerging as another
factor driving the demand for Internet distribution of streaming content. This
demand is in part to provide new content and to retain existing audiences
which are increasingly finding the Internet an attractive alternative to
television. Forrester Research recently reported that consumers between the
ages of 16 and 24 watch 47% less television because of the Internet.
Platform for New Applications
The demand for streaming media, at both the enterprise and consumer level,
will be driven by a host of new applications that currently are under
development or are not yet commercially available for sustained on-line 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, 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 use of
many forms of entertainment.
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 format (user datagram protocol) 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 increasing the traffic
load on the Internet causing further congestion and quality degradation. These
two characteristics, increasing packet loss and more high-speed Internet
connections, are combining to significantly degrade the end user's streaming
media experience.
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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 bandwith, 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 which approaches the quality of a VCR video (a 300 kilobit
stream) would typically exceed advertising revenue derived by the content
provider from such transmission. 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, 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 Solutions
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 solution 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 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 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
provide a complete solution for large scale, high fidelity Internet
broadcasting. Our Internet broadcast network leverages the best attributes of
many of these solutions and combines them with our proprietary streaming
software to deliver a cost effective streaming media broadcasting solution
that offers high fidelity content distribution to large numbers of
simultaneous users.
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The iBEAM Solution
We provide a global Internet broadcast network that delivers streaming
media with viewing and listening quality that approaches television and radio.
Our broadcast network offers content providers the ability to serve large
audiences of simultaneous users. Our network uses a combination of terrestrial
networks and satellite broadcasting to deliver Internet content to iBEAM
servers located at the edge of 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 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 encoding, event management and e-commerce 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 software and network
architecture 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 a combination of terrestrial networks and
satellites 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 satellites to transmit a single stream to an unlimited
number of servers, allow us to serve large audiences of simultaneous
users. As we add streaming capacity through additional investments in
servers and data 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 solution for content providers comprises, among
other things, event planning, encoding and acquisition 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 event production, encoding
and monitoring 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 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
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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 for the entertainment, media
and business markets. 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 60 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 (motion picture, television, sports, newspapers and radio companies)
as customers, which we believe will increasingly seek to broadcast video and
audio over the Internet. To accomplish these goals, we intend to expand our
sales force and to further invest in marketing activities and services and
building the iBEAM brand. The acquisition of webcasts.com will expand our
customer base by adding customers who use webcasts.com's business to business
e-commerce services including Lotus/IBM and America Online, which were its
largest customers by revenue in 1999.
Globally Build Out Our High-Fidelity Internet Broadcast Network. We plan to
build out our network internationally through joint ventures, partnerships and
other commercial arrangements with global technology and media companies that
have the local resources and expertise to extend our broadcast network to
international customers. This will serve to increase the worldwide number of
users that are 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 North American explosion of
Internet and data related transmission growth will be repeated in numerous
regions across the globe, including Europe, Asia and Latin America. In January
2000, we signed a letter of intent with Pacific Century Cyberworks to
establish a joint venture company called iBEAM Asia. iBEAM Asia will focus on
deploying our servers into ISPs in Asia as well as distributing video and
audio content in Asia. We expect the joint venture, which will be 51% owned by
PCCW and 49% owned by iBEAM, to be operational by mid-year 2000. In addition,
we recently entered into an agreement with Interpacket, a satellite-based IP
network serving ISPs in 80 countries, to deliver our customers' streaming
content via Interpacket points of presence in Asia, Europe, Latin America,
Africa and the Middle East.
Further Leverage Our Broadcast Network to Drive Economies of Scale. We have
developed a proprietary software platform that allows a number of standard
Internet applications to be run across a global network of distributed edge
servers. The inherent advantage of our network and its associated broadcast
software platform is its ability to allow standard Internet applications to
reach large audiences. Because we have deployed a point-to-multipoint network
architecture, we are 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.
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Introduce New Value Added Features and Services. In addition to offering
high-quality streaming performance at competitive prices, we believe we can
attract new streaming media customers through the introduction of advanced
features such as real-time traffic reporting and advanced data management that
simplify the task of streaming content on the Internet. We intend to
aggressively pursue these new applications and new markets. An example of a
new application we intend to pursue is the introduction of targeted streaming
advertising into our edge-delivered broadcast. Our servers may eventually have
the capability to locally insert directed advertisements into each copy of the
broadcast stream it serves. We believe that this capability will allow content
providers to enhance their revenue by charging advertisers a premium for
advertising targeted directly to the end user. By the second half of 2000, we
expect to be able to insert streaming advertising which will be targeted at
the end user based on the geographic location of the user and the nature of
the website the user is visiting. Although we have not yet developed a pricing
structure for these services, we do expect to generate revenue from targeted
advertising in the future. In addition, we intend to serve enterprise
customers with needs for new applications such as Internet enabled distance
learning, virtual roadshows, digital downloads and video conferencing.
Pursue Additional Commercial Relationships and Joint Ventures. We currently
have commercial relationships with various media, entertainment and technology
companies and ISPs, including Pacific Century Cyberworks, America Online,
Microsoft, Covad Communications 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, who 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 further
secure our strong 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 the efficiencies 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. All services are priced on a monthly usage basis, with
typical prices ranging from $500-$1,000 per megabit per second for one month
depending on volume commitments. Content providers are charged for the
bandwidth served by us to end users.
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 occasional or event-based customer.
Target customers for iBEAM On-Stage include concerts, trade
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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 intelligent network agent iDirector that manages the
replication of stored on-demand content across the array of iBEAM MaxCaster
servers. iBEAM On-Demand files are typically broadcast to the remote
MaxCasters using our satellite backbone. 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 event management, encoding and
acquisition services. These services are typically billed on a consulting or
usage basis.
Production Services. We have a team of service consultants and tools that
enable the creation and management of user interfaces that enable the
integrated presentation of streaming media, chat boxes, e-commerce links and
access management controls.
Event Management. We have a team of event managers that will travel on-site
for high profile 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 60 content providers. The following
is a partial list of our customers and webcasts.com's customers by category in
order of amount of revenue generated in 2000 through February 29, 2000:
Internet Media
Film
America Online atom films
Warner Bros. Interactive iFilm Corporation
Microsoft Corporation Cinema Now
Jumpcut Always Independent Films
Value Vision Zoie Films
Music/Music-Video - Radio
News
Launch Media MSNBC
NetRadio BBC World
Entertainment Blvd. ZDTV
Hollywood Stars TV
Ministry of Sound
ChoiceRadio
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Sports Business to Business
Max Broadcasting Lotus/IBM
ProWebCast Prepaid Legal
Sports Capsule Pacific Century Group
Sport Vision Technimedia
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.
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. We provided iBeam On-Stage service to Microsoft to broadcast
a broadband video feed from the concert at the House of Blues in Los Angeles
to our network of MaxCasters deployed around the country.
Launch Media
We were chosen by Launch Media to provide iBEAM On-Demand hosting services
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 satellite delivery of iBEAM On-Air, as well as the high
quality edge delivery of iBEAM On-Demand. MSNBC's continuous live video news
feed is streamed over our satellite network. We also use the satellite to
deploy and update news highlights that are available on-demand to MSNBC users.
In December 1999, a single 100 kilabit 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 terrestrial 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 40 ISP 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 which charge ISPs
for delivery of content. Furthermore, in some cases, we share a portion of our
revenue derived from content providers with the ISP.
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In addition to our network of MaxCaster edge servers, we have deployed a
series of regional data centers. The regional data 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 data centers
provide a second tier of redundancy--if the MaxCaster is unavailable for any
reason, users are automatically routed to our nearest regional data center.
The third layer of redundancy in our network is achieved by the deployment
of master data centers, are located in co-location facilities of companies
such as Abovenet and Exodus Communications. The master data centers provide a
third layer of redundancy, filling in for any regional data 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.
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 terrestrial 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 February 29, 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
intelligently process the content to perform functions, such as inserting
streaming advertising that is targeted to each individual user.
iRelay--the reliable transport layer
The second element of our broadcast platform is the iRelay transport layer.
The iRelay transport layer allows us to accept an input from several types of
sources, including live audio or video feed and FTP file delivery, and deliver
it to all of our servers without the potential for packet loss or the
atmospheric disturbances of satellite transmission. If a packet should be lost
or scrambled during transmission, the iRelay software will re-transmit the
missing packet to any downlink that did not receive the original data. iRelay
is a key component in enabling us to harness the full broadcast power of
satellites to deliver uninterrupted Internet streams to large numbers of our
servers located close to the end user.
iDirector--the intelligent network controller
The third element of our broadcast platform is a proprietary technology
called iDirector. The iDirector technology is an intelligent agent that
receives the end user request for content. For example, if a user types
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www.msnbc.com to look at an MSNBC news feed, iDirector identifies where the
end user is located, then makes an assessment of network conditions, satellite
link availability, and server availability to connect the end user to the
optimal server. If any component of our network is down, the iDirector system
automatically routes the end user to a different part of the network to ensure
continued service. All of this routing happens transparently to the end user.
The end user is only aware that she typed www.msnbc.com and received a high
quality, uninterrupted video stream.
Acquisition of webcasts.com
On March 21, 2000 we entered into a definitive agreement to acquire
webcasts.com, a provider of interactive broadcasting services and proprietary
tools that give businesses the ability to conduct live and on-demand Internet
broadcasts for use in distance learning, corporate communications, sales
presentations, on-line trade shows and interactive television.
Webcasts.com's service and tools offerings include:
. Vuser(TM)--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 solution to
customers, intended to making it easier to initiate and continue broadcasting
on the Internet.
Webcasts.com's customers include Lotus/IBM and America Online, which were
its two largest customers in 1999. Webcasts.com had 95 employees as of March
17, 2000.
Commercial Relationships
We have commercial relationships with America Online, Pacific Century
Cyberworks, Covad Communications, InterPacket, Microsoft Corporation, and Sony
Corporation, and intend to enter into additional relationships with media,
entertainment and technology companies to accelerate market acceptance of our
services and to expand and enhance our global network. We believe
relationships with technology and media companies can accelerate market
acceptance of our technology and services, increase our brand recognition and
improve access to our target customer base.
America Online
In February 2000, we entered an agreement with America Online to deploy our
streaming media distribution network within the America Online network. The
agreement will increase the availability of content delivered through our
network on the edge of the Internet. We will deploy our Internet broadcast
platform to deliver live streams into the America Online network, providing
America Online's members with direct access to streaming content through our
network.
In addition, in February 2000, America Online purchased $5 million of our
series E preferred stock which will convert into 500,726 shares of common
stock upon the closing of the offering and received a warrant to purchase $5.0
million of our common stock at an exercise price equal to the price to the
public in this offering, less estimated underwriting discounts and
commissions, which at an assumed offering price of $14.00 per share would be
384,024 shares.
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Pacific Century CyberWorks
In March 2000, we signed a letter of intent with Pacific Century CyberWorks
Limited, a Hong Kong based Internet services and investment company, to
establish a joint venture company to introduce iBEAM's streaming media
services to its cable customers. The joint venture will include deployment and
operation of MaxCaster servers into ISPs and Internet access providers and
distributing video and audio content from media companies to end users in the
over 50 countries in Asia served by PCCW. We expect the joint venture, which
will be 51% owned by PCCW and 49% owned by iBEAM, to be operational by mid-
year 2000.
In addition, in February 2000, PCCW purchased $30 million of our series E
preferred stock which will convert into 3,004,363 shares of our common stock
upon the closing of this offering.
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 landline communication providers. Under the
terms of the agreement, we will deploy our MaxCaster servers in Covad hubs in
North America thereby enlarging the edge of our network. As part of this
deployment initiative, we have collaborated with Covad on technical efforts
aimed at enabling new services including quality of service management,
subscriber management and pay-per-view.
Covad also purchased shares of our series D preferred stock for an
aggregate purchase price of approximately $2.0 million in October 1999 which
will convert into 386,239 shares of our common stock upon the closing of this
offering.
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. InterPacket realizes revenue through delivering our streaming
content, and we benefit by accelerating international deployment of our
network to the edge of the Internet.
Microsoft Corporation
We entered into a collaboration agreement with Microsoft, effective as of
September 20, 1999, to improve the delivery of streaming media over the
Internet. Under the agreement, Microsoft recommends us as a critical 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 each content provider that is a participant in
Microsoft's broadband streaming initiative, provided that the value of these
services to such participants does not exceed $200,000 in the aggregate. 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.
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 purchased shares of our series D preferred stock 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
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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.
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.
Sony purchased shares of our series D preferred stock 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 January 25, 2000, we had 25 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.
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 three systems engineers and
five program managers, supports our sales efforts by providing implementation
services for on-stage streaming events as well as on-air and Internet radio
and media on-demand services.
Our marketing strategy is to build a brand associated with high-fidelity
streaming media delivery. To support this objective, we have been engaged in a
direct marketing campaign that includes a presence at key trade shows,
speaking engagements at industry forums and iBEAM sponsored events and
seminars. We have also undertaken an advertising campaign aimed at our target
content provider customers. The advertising campaign consists of a mixture of
traditional media as well as Internet based advertising.
Patents and Proprietary Rights
Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret and copyright laws and contractual
restrictions to protect the proprietary aspects of our technology. These legal
protections afford only limited protection for our technology. We have filed
eight patent applications and intend to file an additional ten patent
applications in the near future. These patent applications relate to our
streaming platform standard, content management, distribution capabilities and
subscriber management.
We seek to limit disclosure of our intellectual property by requiring
employees and consultants with access to our proprietary information to
execute confidentiality agreements with us and by restricting access to our
source code. Due to rapid technological change, we believe that factors such
as the technological and creative skills of our personnel, new product
developments and enhancements to existing products are more important than the
various legal protections of our technology to establishing and maintaining a
technology leadership position.
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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 will agree with our
conclusion or not pursue a claim or litigation against us. If this competitor
does pursue a claim against us, we intend to vigorously defend against any
such claim. However, a claim, if successful, could subject us to significant
liability for damages and invalidate our propriety rights.
Any potential intellectual property litigation also could force us to do
one or more of the following:
. cease selling, incorporating or using products or services that
incorporate the infringed intellectual property;
. obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on acceptable terms, if at all; or
. redesign those products or services that incorporate the disputed
technology.
We may in the future initiate claims or litigation against third parties
for infringement of our proprietary rights or to determine the scope and
validity of our proprietary rights or the proprietary rights of competitors.
These claims could result in costly litigation and the diversion of our
technical and management personnel. As a result, our operating results could
suffer and our financial condition could be harmed.
Competition
The market for Internet broadcasting services is new, highly competitive,
and rapidly evolving. We expect competition to increase both from existing
competitors and new market entrants for various components of our service.
Unlike many of our competitors, we regard ourselves as the only Internet
broadcast network, with a combination of satellite and terrestrial enabled
streaming media as our primary business mission.
Our competitors primarily come from three market segments:
. Internet webcasting companies that deliver streaming media through
terrestrial networks, such as InterVu, which was recently acquired by
Akamai;
. Internet content distribution networks that accelerate delivery of web
pages, such as Akamai and Enron Communications; and
. Internet software vendors that reduce that cost of delivery of content
to users by storing content closer to the end user, such as Inktomi.
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We compete on price and quality of delivery, customer service, and network
features. We believe we currently have several primary competitive advantages,
including the quality of our network architecture, our proprietary technology
and our early entrance into the market for Internet broadcast services.
However, our competitors may be able to respond more quickly than we can to
new or emerging technologies and changes in customer requirements. Some of our
competitors may bundle their services with Internet related products or
services from Internet device vendors or Internet service providers. These
bundling relationships may inhibit our ability to sell service to Internet
content providers or to deploy servers at Internet service providers.
Increased competition could result in price reductions, fewer customer
orders, reduced gross margins or loss of market share. Any of these conditions
could materially and adversely affect our business, financial condition, and
operational results.
Facilities
Our headquarters are currently located in approximately 59,000 square feet
of leased office space in Sunnyvale, California. We recently obtained an
additional 23,000 square feet of office space near our headquarters.
We are building a network operations center in our headquarters which we
believe will be completed by April 2000. We have budgeted $4.0 million for
this purpose, of which $500,000 was spent as of December 31, 1999.
Webcasts.com's principal offices are in Oklahama City, Oklahoma and
Phoenix, Arizona with sales offices in various U.S. cities.
Employees
As of February 29, 2000 we had a total of 235 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 on our
continued ability to attract, integrate, retain, train and motivate highly
qualified personnel, and upon the continued service of our senior management
and key personnel. Competition for qualified personnel is intense,
particularly in the Silicon Valley area, where our headquarters is located.
There can be no assurance that we will successfully attract, integrate,
retain, train and motivate a sufficient number of qualified personnel to
conduct our business in the future.
Development of our Business
We believe that the net proceeds of this offering, together with our
available funds, will be sufficient to meet our anticipated needs for working
capital and capital expenditures for the next 12 to 18 months. We expect to
spend at least $35.0 million in 2000 for capital expenditures, $20.0 million
of which will be spent in the first quarter to date. 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, data 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 which are difficult to predict, including the
level of competition we will experience and the availability for hire of
qualified sales, marketing and engineering personnel.
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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 $10.0 million and seeks a determination from the Court that he is
entitled to shares of our capital stock. Based on our investigation to date,
we believe Mr. Chew's lawsuit is without merit and we intend to defend the
action vigorously. Litigation is inherently uncertain, however, 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.
49
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth information regarding our directors and
executive officers and their ages as of February 29, 2000:
<TABLE>
<CAPTION>
Executive Officers: Age Position
------------------- --- --------
<C> <C> <S>
Peter Desnoes.................... 56 President, Chief Executive Officer and
Director
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..................... 37 Vice President, Product Marketing
Daniel Sroka..................... 37 Vice President and General Counsel
Directors:
----------
Barry Baker(2)................... 47 Director
Frederic Seegal.................. 52 Director
Richard Shapero(1)(2)............ 52 Director
Peter Wagner(1)(2)............... 34 Director
Robert Wilmot.................... 55 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Peter Desnoes joined our board of directors in June 1998. He has served as
our President and Chief Executive Officer since January 1999. 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
50
<PAGE>
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. From October 1995 to June 1996, he served as Senior
Director of Business Development at VDOnet Corporation. Prior to this time,
Mr. Strehlow served in various capacities at Oracle Corporation 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.
51
<PAGE>
Daniel Sroka joined us in January 2000 as our General Counsel and has
served as our Vice President and General Counsel since February 2000. Prior to
joining us, Mr. Sroka was a partner at the law firm of Brooks, Pierce,
McLendon, Humphrey & Leonard, L.L.P. Prior to becoming partner in August 1995
and since joining the firm in 1989, Mr. Sroka was an associate with Brooks,
Pierce, McLendon, Humphrey & Leonard. Mr. Sroka's practice has specialized in
mergers and acquisitions, commercial transactions, corporate finance,
formation and capitalization of business entities, commercial real estate and
taxation. He graduated from the University of Wisconsin, Madison with a degree
in Business Administration Accounting and received his law degree from Wake
Forest School of Law.
Barry Baker has served as a member of our board of directors since January
2000. Since March 1999, Mr. Baker has been with USA Networks, Inc., 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, 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 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. Prior to joining the Wasserstein entities, Mr. Seegal was Managing
Director/Co-Head of Domestic Corporate Finance at Salomon Brothers during the
period of 1990 through 1994. From 1982 to 1990, Mr. Seegal was in charge of
Lehman Brothers investment banking activities in the Media & Communications
Industries, where he served as Managing Director of Lehman Brothers. Mr.
Seegal holds a Bachelors Degree from Cornell University and graduated from
Harvard Law School and Harvard Business School in 1974.
Rich Shapero has served as a member of our board of directors since
April 1998. Mr. Shapero has been a general partner of Crosspoint Venture
Partners, L.P., a venture capital investment firm, since April 1993. From
January 1991 to June 1992, he served as Chief Operating Officer of Shiva
Corporation, a computer network company. Previously, he was a Vice President
of Sun Microsystems, Senior Director of Marketing at AST, and held marketing
and sales positions at Informatics General Corporation and UNIVAC's
Communications Division. Mr. Shapero serves as a member of the board of
directors of Covad Communications Group, Inc., Sagent Technology, Inc. and
several privately held companies. Mr. Shapero received a B.A. in English
literature from the University of California at Berkeley.
Peter Wagner has served as a member of the board of directors since
June 1998. Mr. Wagner joined Accel Partners, a Palo Alto-based private equity
investing firm, in July 1996, and has been a General Partner since January
1998, where he specializes in investing in companies in the communications
sector, including networking, telecommunications and wireless technology. From
September 1992 to July 1996, Mr. Wagner was a Product Line Manager for Silicon
Graphics. Mr. Wagner serves on the board of directors of NorthPoint
Communications Group, Inc. and several privately held companies. Mr. Wagner
holds a B.S. in Physics and an M.B.A. from Harvard.
Robert Wilmot is one of our founders and has served as a member of our
board of directors since our inception in March 1998. Dr. Wilmot has been
Chairman at Wilmot Consulting Inc. 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. 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.
52
<PAGE>
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 also 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 and M.S.
from Polytechnic Institute of New York, both in Electrical Engineering.
Robert Hawk is President of Hawk Communications. He previously served as
President and Chief Executive Officer of US WEST Multimedia Communications,
Inc., where he headed the cable, data and telephony communications business
from May 1996 to April 1997. He was president of the Carrier Division of US
West Communications, a regional telecommunications service provider, from
September 1990 to May 1996. Prior to that time, Mr. Hawk was Vice President of
Marketing and Strategic Planning for CXC Corporation. Prior to joining CXC
Corporation, Mr. Hawk was director of Advanced Systems Development for
AT&T/American Bell. He currently serves on the boards of PairGain
Technologies, COM21, Concord Communications, Covad Communications Group,
Radcom, Efficient Networks and several privately held companies. Mr. Hawk
received an M.B.A. from the University of San Francisco and a B.B.A. from the
University of Iowa.
Jon Kannegaard is Senior Vice President of Sun Labs. Mr. Kannegaard has
held several positions at Sun during his 12-year tenure, including Acting
President for Software Products and Platforms, Vice President and General
Manager, Java Platform, and President of SunSoft. Prior to Sun, Mr. Kannegaard
worked with Motorola for over 10 years and previously held positions at
Information Systems and Boeing Aerospace.
Rod Perth is President of Jim Henson Television Group Worldwide. Mr. Perth
has full responsibility for managing prime time and children's programming
network development and production at Henson Television. He also supervises
global television entertainment. In his previous term as President of
Entertainment at USA Networks, Mr. Perth led all programming efforts for both
the USA Network and the Sci-Fi Channel.
Philip Rosedale is an Entrepreneur-in-Residence at Accel Partners. Prior to
joining Accel in August 1999, Mr. Rosedale spent three and one-half years at
RealNetworks, most recently serving as Vice President and Chief Technology
Officer. His extensive work there included the creation of RealVideo,
development and deployment of the RealSystem 5.0 and G2 products, and
management of audio and video compression research. Before 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.
53
<PAGE>
Tony Werner is Vice President of Engineering and Technical Operations and
Chief Technology Officer for AT&T Broadband & Internet Services. Mr. Werner is
currently responsible for managing AT&T's broadband rollout and new service
implementation, including interactive TV, high-speed data and residential
telephone service. Prior to AT&T, Mr. Werner was the Vice President of
Operations Engineering for Rogers Communications, Inc. He also served the top
engineering role for Hong Kong Cable Communications, a joint venture between
US West, Shaw, Coditel, Sung Hun Kai and Wharf.
Board of Directors
Our board of directors currently consists of six members. Upon completion
of this offering, our board of directors will be divided into three classes,
each serving staggered three year terms. The term of office and directors
consisting of each class is as follows:
<TABLE>
<CAPTION>
Class Directors Term of Office
----- --------------------------------- ---------------------------------
<C> <C> <S>
Class I Frederic Seegal and Robert Wilmot . expires at the annual meeting
of stockholders in 2001 and at
each third succeeding annual
meeting thereafter
Class II Richard Shapero and Peter Wagner . expires at the annual meeting
of stockholders in 2002 and at
each third succeeding annual
meeting thereafter
Class III Peter Desnoes and Barry Baker . expires at the annual meeting
of stockholders in 2003 and at
each third succeeding annual
meeting thereafter
</TABLE>
The classification of directors has the effect of making it more difficult
to change the composition of the board of directors. See "Description of
Capital Stock--Delaware Law and Certain Provisions of Our Certificate of
Incorporation and Bylaws."
Our board of directors appoints our executive officers on an annual basis
to serve until their successors have been elected and qualified. There are no
family relationships among any of our directors or officers.
Voting Agreement for Directors
Under the terms of a voting agreement between us and the stockholders that
purchased shares of our preferred stock prior to the completion of this
offering, holders of our series A preferred and series B preferred had an
agreement to vote their shares at the election of directors in favor of a
director nominated by Crosspoint Venture Partners and Accel Partners. Mr.
Shapero is the nominee of Crosspoint Venture Partners and was elected to our
board of Directors as a result. Mr. Wagner is a nominee of Accel Partners and
was elected to our board of Directors as a result. This agreement terminates
with respect to these provisions upon the closing of our initial public
offering.
Board Committees
Our Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee of the Board of Directors consists of Messrs. Shapero,
Wagner and Baker. The Audit Committee reviews our financial statements and
accounting practices and makes recommendations to our Board of Directors
regarding the selection of independent auditors.
The Compensation Committee of the Board of Directors consists of Messrs.
Shapero and Wagner. The Compensation Committee makes recommendations to the
Board of Directors concerning salaries and incentive compensation for our
officers and employees and administers our employee benefit plans.
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.
Some of our non-employee directors have received grants of options to purchase
shares of our common stock. See "Principal Stockholders"
54
<PAGE>
and "Certain Relationships and Related Transactions--Option Grants to Certain
Directors." Our 2000 Director Option Plan provides for the automatic grant of
non-statutory stock options to purchase 82,620 shares of common stock to non-
employee directors who join us after this offering. For further information
regarding the provisions of the 2000 Director Option Plan, see "--Employee and
Director Benefit Plans."
Limitations on Directors' Liability and Indemnification
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
. Any breach of their duty of loyalty to the corporation or its
stockholders;
. Acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. Unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. Any transaction from which the director derived an improper personal
benefit.
The limitation of liability does not apply to liabilities arising under the
federal securities law and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and officers and may indemnify our employees and other agents to
the fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence on the part of indemnified parties. Our
bylaws also permit us to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
their capacity as an officer, director, employee or other agent, regardless of
whether the bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our bylaws. These
agreements provide, among other things, for indemnification for judgments,
fines, settlement amounts and expenses, including attorneys' fees incurred by
director, or executive officer in any action or proceeding, including any
action by or in our right, arising out of the person's services as a director
or executive officer, any of our subsidiaries or any other company or
enterprise to which the person provides services at our request. We believe
that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
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."
55
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all compensation paid by us for services
rendered to us in all capacities during our fiscal year ended December 31,
1999, by (i) our chief executive officer and (ii) our four most highly
compensated executive officers who earned more than $100,000 in salary and
bonus during the fiscal year ended December 31, 1999, whom we refer to as the
"named executive officers."
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Number of
1999 Annual Compensation Shares
------------------------------ Underlying
Name and Principal Other Annual Options All Other
Position (1) Salary Bonus Compensation Granted (#) Compensation (4)
- ------------------ -------- -------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Peter Desnoes (2)....... $255,769 $157,000 $83,262(3) 1,982,880 $1,103
President and Chief
Executive Officer
Chris Dier.............. 182,500 13,500 -- 151,194 1,434
Vice President and
Chief Financial Officer
Tom Gillis.............. 126,137 -- -- 227,205 1,258
Vice President,
Marketing
Nils Lahr............... 137,311 30,000 -- 305,694 1,244
Chief Architect
Jeremy Zullo............ 142,083 7,500 -- 227,205 1,267
Vice President,
Engineering
</TABLE>
- --------
(1) This table does not include Michael Bowles who served as our Chief
Executive Officer until January 1999 and as Chairman of our Board of
Directors until September 1999. During our fiscal year ended December 31,
1999, Mr. Bowles was paid a salary of $126,769 based on an annualized
salary of $160,000. During fiscal 1999, we paid premiums for life
insurance in the amount of $1,007 on Mr. Bowles' behalf. Mr. Bowles did
not receive a bonus during fiscal 1999.
(2) Mr. Desnoes commenced full-time employment with us in February 1999. Mr.
Desnoes' salary on an annualized basis was $300,000 during fiscal 1999.
(3) Mr. Desnoes was reimbursed this amount for relocation expenses.
(4) Consists of premiums paid by us for term life insurance.
56
<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
14,983,492 shares during 1999. Potential realizable values are net of exercise
price before taxes, and are based on the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until the expiration of the ten-year term. These numbers are calculated
based on SEC requirements and do not reflect our projection or estimate of
future stock price growth.
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------- Potential Realizable Value at
Number of Percentage of Assumed Annual Rates of Stock
Securities Total Options Reassessed Price Appreciation For Option
Underlying Granted to Exercise Fair Term
Options Employees in Price Market Expiration ------------------------------
Name(1) Granted 1999 Per Share(3) Value(4) Date 0% 5% 10%
- ------- ---------- ------------- ------------ ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter Desnoes........... 1,982,880 13.2% $0.040 $0.497 1/11/09 $905,760 $1,525,196 $2,475,533
Chris Dier.............. 151,194 1.0 0.083 0.580 2/24/09 75,103 130,207 214,748
Tom Gillis.............. 61,965 0.4 0.083 1.017 4/1/09 57,870 97,490 158,276
165,240 1.1 3.631 5.810 12/31/09 360,000 963,739 1,889,993
Nils Lahr............... 140,454(2) 0.9 0.083 0.580 2/25/09 69,768 120,958 199,492
82,620 0.6 0.145 1.235 8/12/09 90,000 154,147 252,562
82,620 0.6 3.631 5.810 12/31/09 180,000 481,869 944,996
Jeremy Zullo............ 61,965 0.4 0.083 0.580 2/25/09 30,780 53,364 88,011
61,965 0.4 0.145 1.235 8/12/09 67,500 115,610 189,421
103,275 0.7 3.631 5.810 12/31/09 225,000 602,337 1,181,245
</TABLE>
- --------
(1) Michael Bowles was not granted any options during fiscal 1999.
(2) The repurchase right lapses as to 66,096 of the shares according to the
following schedule: 34% of the shares on the first anniversary of the
grant date and the balance over the next two years.
(3) Exercises prices reflect our board of directors good faith determination
of the fair market value of our common stock on the date of grant.
(4) Based on recent developments, we reassessed the fair market value of our
common stock underlying options at the time of grant.
57
<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 perfomance 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.
On September 24, 1999 we entered into a Settlement Agreement and Mutual
Release with Michael Bowles in connection with his departure from our company.
We paid Mr. Bowles all salary and unused vacation through his employment end
date. In connection with Mr. Bowles' departure, the repurchase right with
respect to his shares of common stock lapsed. In addition, we and Mr. Bowles
agreed to a mutual release.
Employee and Director Benefit Plans
1998 Stock Plan
Our 1998 Stock Plan was adopted by our board of directors in March 1998,
and our stockholders initially approved the plan in April 1998. Our 1998 Stock
Plan provides for the grant of incentive stock options to our employees, and
for the grant of nonstatutory stock options and stock purchase rights to our
employees, directors and consultants.
As of February 29, 2000, we had reserved an aggregate of 23,195,049 shares
of our common stock for issuance under this plan, of which options to purchase
12,151,232 shares of common stock were outstanding and 653,214 shares were
available for future grant. As of the date of this prospectus, we will not
grant any additional stock options under our 1998 stock plan. Instead we will
grant options under our 2000 Stock Plan.
The 1998 Stock Plan provides that in the event of a change in control, each
outstanding option shall be accelerated and become fully vested and
exercisable if such option is not assumed or substituted for by the successor
corporation.
2000 Stock Plan
Our 2000 Stock Plan was adopted by our board of directors in January 2000,
and we expect to submit the plan to our stockholders for approval in April
2000. This plan provides for the grant of incentive stock options to employees
and nonstatutory stock options and stock purchase rights to employees,
directors and consultants.
As of March 2000, a total of 9,639,000 shares of common stock were reserved
for issuance pursuant to the 2000 Stock Plan. No options have yet been issued
pursuant to the 2000 Stock Plan. The number of shares reserved for issuance
under 2000 Stock Plan will increase annually on January 1st of each calendar
year, effective beginning in 2001, equal to the lesser of:
. 5% of the outstanding shares of common stock on the first day of the
year,
. 5,508,000 shares, or
. such lesser amount as our board of directors may determine.
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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. If termination is due to death or disability, the option will
generally remain exercisable for 12 months following such termination. In all
other cases, the option will generally remain exercisable for three months.
However, an option may never be exercised later than the expiration of its
term. The administrator determines the exercise price of stock purchase rights
granted under our 2000 Stock Plan. Unless the administrator determines
otherwise, the restricted stock purchase agreement will grant us a repurchase
option that we may exercise upon the voluntary or involuntary termination of
the purchaser's service with us for any reason (including death or
disability). The purchase price for shares we repurchase will generally be the
original price paid by the purchaser. The administrator determines the rate at
which our repurchase option will lapse. Our stock option plan generally does
not allow for the transfer of options or stock purchase rights and only the
optionee may exercise an option and stock purchase right during his or her
lifetime.
Our 2000 Stock Plan provides that in the event of our merger with or into
another corporation or a sale of substantially all of our assets, the
successor corporation will assume or substitute for each option or stock
purchase right. If the outstanding options or stock purchase rights are not
assumed or substituted for, all outstanding options and stock purchase rights
will become fully vested and exercisable prior to the merger or sale of
assets.
Our 2000 Stock Plan will automatically terminate in 2010, unless we
terminate it sooner. In addition, our board of directors has the authority to
amend, suspend or terminate the stock option plan provided it does not
adversely affect any option previously granted under our stock option plan.
2000 Employee Stock Purchase Plan
Concurrently with this offering, we intend to establish an employee stock
purchase plan. A total of 688,500 shares of our common stock will be made
available for sale. In addition, our plan provides for annual increases in the
number of shares available for issuance under the Purchase Plan on January 1st
of each year, beginning in 2001, equal to the lesser of 2% of the outstanding
shares of our common stock on the first day of the calendar year, 1,927,800
shares, or such other lesser amount as may be determined by our board of
directors. Our board of directors or a committee of our board administers the
plan. Our board of directors or its committee has full and exclusive authority
to interpret the terms of the plan and determine eligibility. All of our
employees are eligible to participate if they are customarily employed by us
or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, an employee may not be granted an
option to purchase stock under the plan if such employee:
. immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
. whose rights to purchase stock under all of our employee stock purchase
plans accrues at a rate that exceeds $25,000 worth of stock for each
calendar year.
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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 November 1 and May 1 of each year, except
for the first such offering period which will commence on the first trading
day on or after the effective date of this offering and will end on the last
trading day on or before October 31, 2000.
The plan permits participants to purchase common stock through payroll
deductions of up to 15% of their eligible compensation which includes a
participant's base straight time gross earnings and commissions but excluding
all other compensation paid to our employees. A participant may purchase no
more than 10,000 shares during any 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. If the fair
market value at the end of a purchase period is less than the fair market
value at the beginning of the offering period, participants will be withdrawn
from the current offering period following their purchase of shares on the
purchase date and will be automatically re-enrolled in a new offering period.
Participants may end their participation at any time during an offering
period, and will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us.
A participant may not transfer rights granted under our employee stock
purchase plan other than by will, the laws of descent and distribution or as
otherwise provided under the plan.
In the event of our merger with or into another corporation or a sale of
all or substantially all of our assets, a successor corporation may assume or
substitute each outstanding option. If the successor corporation refuses to
assume or substitute for the outstanding options, the offering period then in
progress will be shortened, and a new exercise date will be set.
Our plan will terminate in 2010. However, our board of directors has the
authority to amend or terminate our plan, except that, subject to certain
exceptions described in the plan, no such action may adversely affect any
outstanding rights to purchase stock under our plan.
2000 Director Option Plan
Our board of directors adopted the 2000 Director Option Plan in January
2000 and we expect to submit the plan to our stockholders for approval in
April 2000. As of March 2000, a total of 688,500 shares were reserved for
issuance under the Director Plan, none of which were subject to outstanding
options as of this date. The number of shares reserved for issuance under our
Director Plan will increase annually on January 1st of each calendar year,
effective beginning in 2001, by an increase equal to that number of shares
granted pursuant to options under the Director Plan in the prior fiscal year
or a lesser amount determined by the board of directors.
All grants of options to our non-employee directors under the Director Plan
are automatic. We will grant each non-employee director an option to purchase
82,620 shares upon the date when such person first becomes a non-employee
director (except for those directors who became non-employee directors by
ceasing to be employee directors).
All options granted under our Director Plan have a term of ten years and an
exercise price equal to fair market value on the date of grant. Each option
becomes vests and becomes exercisable as to 1/48th of the shares subject to
the option on each monthly anniversary of the date of grant, provided the non-
employee director remains a director on such dates. After termination as a
non-employee director with us, an optionee must exercise an option at the time
set forth in his or her option agreement. If termination is due to death or
disability, the option will remain exercisable for 12 months. In all other
cases, the option will remain exercisable for a period of 6 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 3 months. If the outstanding options are not assumed or
substituted for, our board of directors will notify each non-employee director
that he or she has the right to exercise the option as to all shares subject
to the option for a period of 90 days following the date of the notice. The
option will terminate upon the expiration of the 90-day period.
Unless terminated sooner, our Director Plan will automatically terminate in
2010. Our board of directors has the authority to amend, alter, suspend, or
discontinue the Director Plan, but no such action may adversely affect any
grant made under the Director Plan.
401(k) Plan
Our employee savings and retirement plan is qualified under Section 401 of
the Internal Revenue Code. Our employees may elect to reduce their current
compensation by up to the statutorily prescribed annual limit and have the
amount of such reduction contributed to the 401(k) plan. We may make matching
or additional contributions to the 401(k) plan in amounts to be determined
annually by our board of directors.
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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. 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.
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
Series B As Converted
Preferred Shares of
Purchaser Stock Common Stock
--------- --------- ------------
<S> <C> <C>
Accel Partners...................................... 1,787,943 7,385,992
Crosspoint Venture Partners 1997.................... 696,995 2,879,286
Media Technology Ventures........................... 666,690 2,754,096
</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
Series C As Converted
Preferred Shares of
Purchaser Stock Common Stock
--------- --------- ------------
<S> <C> <C>
Intel Corporation................................... 877,194 3,623,688
Crosspoint Venture Partners 1997.................... 621,200 2,566,177
Accel Partners...................................... 570,454 2,356,545
Media Technology Ventures........................... 212,712 878,713
Peter Desnoes....................................... 80,000 330,480
Michael Bowles...................................... 29,240 120,790
Chris Dier.......................................... 8,772 36,237
</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
Series C As Converted
Preferred Shares of
Purchaser Stock Common Stock
--------- --------- ------------
<S> <C> <C>
Intel Corporation................................... 1,639,584 6,773,121
Microsoft Corporation............................... 1,677,852 6,931,206
Accel Partners...................................... 1,090,604 4,505,285
Crosspoint Venture Partners 1997.................... 1,090,604 4,505,285
Media Technology Ventures........................... 385,906 1,594,177
Peter Desnoes IRA................................... 10,906 45,052
Leonard Grossi...................................... 8,400 34,700
Frederic Seegal..................................... 8,389 34,654
Chris Dier.......................................... 2,000 8,262
Tom Gillis.......................................... 2,000 8,262
David Strehlow...................................... 2,000 8,262
Robert Davis........................................ 2,000 8,262
</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. Our founders include
Robert Wilmott, who is currently serving as one of our directors. The Wilmott
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. Wilmott continues to serve as our employee or consultant. In
connection with the formation of our company, Mr. Wilmott 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 a 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 monthly 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.
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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.
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. In connection with this agreement, Mr. Seegal purchased
908,820 shares of our common stock which are subject to our right of
repurchase. Our repurchase right lapses with respect to 12.5% of the shares
six months from the date of the purchase and our repurchase right lapses with
respect to 1/48th of the remaining shares each month thereafter. We loaned Mr.
Seegal $1,999,998 to apply to the purchase price for these shares. This loan
is evidenced by a full recourse promissory note in our favor.
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 critical 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 each content provider that is a
participant in Microsoft's broadband streaming initiative, provided that the
value of these services to such participants does not exceed $200,000 in the
aggregate. Our agreement with Microsoft will extend through September 2002.
Microsoft has agreed to pay us $500,000 through April 15, 2000, all of which
Microsoft may use to purchase our services either for itself or on behalf of
other Internet content providers. Microsoft's obligations under the agreement
are conditioned upon the performance of our obligations under the agreement
and our meeting certain performance criteria for our services. On June 20,
1999, we also entered into an agreement with Microsoft providing that
Microsoft pay us $200,000. In consideration for this payment we agreed to
provide up to an aggregate of $200,000 in services to content providers
designated by Microsoft. This agreement extends through June 30, 2000 unless
terminated by either party. This agreement may be terminated by either party
upon material breach of the other.
Agreement with Brewer Consulting. In connection with the hiring of David
Brewer, our Vice President of Operations, we agreed to purchase at least $2.0
million of services from Brewer Consulting Networks, a company controlled by
Mr. Brewer, beginning January 1, 2000 and ending December 31, 2001. Brewer
Consulting Networks provides us with consulting services related to the
installation of our network servers. Our obligation to purchase these services
from Brewer Consulting Networks is contingent on Mr. Brewer relinquishing
operational or ownership control of Brewer Consulting Networks. We paid Brewer
Consulting Networks an aggregate of $702,395 for services provided in 1999.
Indemnification
We have entered into indemnification agreements with each of our directors
and officers. These indemnification agreements and our certificate of
incorporation and bylaws require us to indemnify our directors and officers to
the fullest extent permitted by Delaware law. See "Management -- Limitations
on Directors' Liability and Indemnification."
Conflict of Interest Policy
We believe that all transactions with affiliates described above were made
on terms no less favorable to us than could have been obtained from
unaffiliated third parties. Our policy is to require that a majority of the
independent and disinterested outside directors on our board of directors
approve all future transactions between us and our officers, directors,
principal stockholders and their affiliates. These transactions will continue
to be on terms no less favorable to us than we could obtain from unaffiliated
third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of February 29, 2000 (assuming conversion of all outstanding shares of
preferred stock into common stock upon the closing of this offering and as
adjusted to reflect the sale of the shares offered by this prospectus) by:
. each person who is known by us to beneficially own more than 5% of our
common stock;
. each of the named executives and each of our directors; and
. all of our officers and directors as a group.
Percentage of ownership is based on 94,333,927 shares outstanding as of
February 29, 2000, assuming conversion of the preferred stock, and 104,333,927
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 February 29, 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 16.0% 14.5%
2925 Woodside Road
Woodside, CA 94062
Accel Partners (1)................ 14,247,817 15.1 13.7
428 University Avenue
Palo Alto, Ca 94301
Intel Corporation................. 10,396,809 11.2 10.0
2200 Mission College Blvd.
Santa Clara, CA 95052-8119
Microsoft Corporation (2)......... 7,585,566 8.0 7.2
One Microsoft Way
Redmond, WA 98052-6399
Media Technology Ventures, L.P.
(3).............................. 5,226,985 5.5 5.0
One First Street
Los Altos, CA 94022
Executive Officers and Directors:
Peter Desnoes (4)................. 2,469,949 2.6 2.4
Chris Dier (5).................... 732,723 * *
Tom Gillis (6).................... 392,445 * *
Nils Lahr (7)..................... 460,605 * *
Jeremy Zullo (8).................. 417,231 * *
Barry Baker (9)................... 82,620 * *
Frederic Seegal................... 1,191,334 1.3 1.1
Robert Wilmot (10)................ 2,743,190 2.9 2.6
Richard Shapero (11).............. 15,114,498 16.0 14.5
Peter Wagner (12)................. 14,247,817 15.1 13.7
All executive officers and
directors as a group (15 persons)
(13)............................. 40,271,936 41.5 37.6
</TABLE>
- --------
* Represents less than 1% of our outstanding common stock.
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(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 February 29, 2000.
(3) Includes 314,943 shares held by Media Technology Entrepreneurs Fund,
L.P., 282,787 shares held by Media Technology Ventures Entrepreneurs
Fund, L.P. and 4,629,255 shares held by Media Technology Ventures L.P.
(4) Includes 45,052 shares held by Peter Desnoes, IRA for which the Guarantee
& Trust Company is trustee.
(5) Includes 171,849 shares subject to options, all of which were exercisable
within 60 days of February 29, 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 February 29, 2000.
(7) Includes 230,096 shares subject to options, all of which were exercisable
within 60 days of February 29, 2000.
(8) All of these shares are subject to options and immediately exercisable.
(9) All of these shares are subject to options, all of which were exerisable
within 60 days of February 29, 2000.
(10) All of these shares are held in the name of the Wilmot Living Trust, of
which Mr. Wilmot and his spouse are trustees.
(11) All of these shares are held by Crosspoint Venture Partners 1997. Mr.
Shapero is a general partner of Crosspoint Venture Partners 1997 and is
one of our directors. Mr. Shapero disclaims beneficial ownership of
shares held by this entity, except to the extent of his proportional
partnership interest in Crosspoint Venture Partners 1997.
(12) All of these shares are held by entities affiliated with Accel Partners
(as described in footnote 2). Mr. Wagner is a general partner of Accel
Partners and is one of our directors. Mr. Wagner disclaims beneficial
ownership of shares held by these entities, except to the extent of his
proportional interest arising from his partnership interest in Accel
Partners.
(13) Includes 2,732,219 shares subject to options, all of which were
exercisable within 60 days of February 29, 2000.
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DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, we will be authorized to issue
300,000,000 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 February 29, 2000, there were 94,333,927 shares of common stock
outstanding, assuming the conversion of all outstanding shares of preferred
stock into common stock, which were held of record by approximately 254
stockholders. This number includes:
. 66,489,541 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;
. 7,992,961 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; and
. 714,285 shares of our series G preferred stock to be issued to The Walt
Disney Corporation for $10.0 million at a price equal to the public in the
offering and the conversion of these shares into the same number 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 February 29, 2000, there were warrants
outstanding to purchase a total of 1,796,377 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 384,024 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 75,196,788 shares of
common stock and the holders of warrants to purchase approximately 1,285,077
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
69
<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 and Covad 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 16.7% 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 104,333,927
shares of common stock, assuming the issuance of 10,000,000 shares of common
stock offered by us and no exercise of options outstanding after February 29,
2000. All of the 10,000,000 shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
except for shares purchased by our affiliates, as defined under the Securities
Act. The Securities Act defines affiliates to be persons that directly, or
indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, iBEAM. These persons typically include our
executive officers and directors. Shares purchased by affiliates would be
subject to the limitations and restrictions that are described below.
The remaining 94,333,927 shares of common stock held by existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. All these shares will be
subject to lock-up agreements, described below, on the date of this
prospectus. Upon expiration of the lock-up agreements, 82,121,591 shares will
become eligible for sale pursuant to Rule 144(k), Rule 144, and Rule 701.
Thereafter, 12,212,336 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 10,000,000 Freely tradable shares sold in
prospectus.............. this offering
180 days after the date 82,121,591 All shares subject to lock-up
of this prospectus...... agreements released; shares saleable
under Rules 144, 144(k) and 701
Thereafter............... 12,212,336 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 1,043,339 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
71
<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 75,196,788 shares of common stock and the holders of warrants to
purchase approximately 1,285,077 shares of common stock will be entitled to
certain rights with respect to the registration of these shares for sale in
the public market. See "Description of Capital Stock--Registration Rights."
Registration of these shares under the Securities Act would result in these
shares becoming freely tradeable in the public market without restriction.
Stock Options
As of February 29, 2000, there were a total of 12,151,232 shares of common
stock subject to outstanding options under our 1998 Stock Plan, subject to
lock-up agreements similar to those described below. Immediately after the
completion of the offering, we intend to file registration statements on Form
S-8 under the Securities Act to register all of the shares of common stock
issued or reserved for future issuance under our 1998 Stock Plan, 2000 Stock
Plan, 2000 Director Stock Option Plan, and 2000 Employee Stock Purchase Plan.
After the effective dates of these registration statements, shares purchased
upon exercise of options granted under the 1998 Stock Plan, 2000 Stock Plan,
2000 Director Stock Plan and 2000 Employee Stock Purchase Plan will be
available for resale in the public market.
Lock-up Agreements
All of our officers and directors and substantially all of our
stockholders, have agreed, subject to limited exceptions, not to offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise transfer or dispose of, directly or indirectly, or
enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of any shares of
common stock or any securities convertible into or exercisable or exchangeable
for shares of common stock for a period ending 180 days after the date of this
prospectus, without the prior written consent of Morgan Stanley & Co.
Incorporated. In addition, certain of the participants in the directed share
program, as described in the section entitled "Underwriters," will be subject
to similar lock-up restrictions.
Morgan Stanley & Co. Incorporated at its sole discretion may decide at any
time, without notice, to allow us or any of our stockholders subject to a
lock-up agreement to sell shares of our common stock prior to 180 days from
the date of the prospectus for the offering. We have no agreement with Morgan
Stanley & Co. Incorporated for a waiver of these lock-up restrictions.
However, Morgan Stanley & Co. Incorporated may, in its discretion, release
them. In some cases underwriters have agreed to waive lock-up restrictions
when a company's stock has performed well and market conditions are favorable,
in order to allow a follow-on offering of common stock. Any decision by Morgan
Stanley & Co. Incorporated to waive the lock-up restrictions would depend on a
number of factors, including market conditions, the performance of our common
stock in the market and our financial condition at that time. If Morgan
Stanley & Co. Incorporated were to waive the lock-up restrictions prior to the
expiration of the 180-day period, and our stockholders were to sell additional
shares of common stock to the public, the market price of our common stock
could decline.
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<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., J.P. Morgan
Securities Inc. and FleetBoston Robertson Stephens Inc. are acting as
representatives, have severally agreed to purchase, and iBEAM has agreed to
sell to them, severally, the number of shares indicated below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ----------
<S> <C>
Morgan Stanley & Co. Incorporated.................................
Bear, Stearns & Co. Inc. .........................................
J.P. Morgan Securities Inc. ......................................
FleetBoston Robertson Stephens Inc. ..............................
----------
Total........................................................... 10,000,000
==========
</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 1,500,000
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. Among the 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 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.
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<PAGE>
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 shares offered hereby for directors,
officers, employees, business associates, and related persons of iBEAM. The
shares of common stock available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares which are not so purchased will be offered by the underwriters to the
general public on the same basis as the other shares offered hereby.
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. Among the 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.
74
<PAGE>
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for iBEAM by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California. An investment partnership composed of current and
former members of and persons associated with Wilson Sonsini Goodrich &
Rosati, Professional Corporation, beneficially owns series D preferred stock
convertible into 34,654 shares of our common stock upon completion of this
offering. Davis Polk & Wardwell, Menlo Park, California, is representing the
underwriters in connection with this offering.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and for the
period from March 20, 1998 (inception) to December 31, 1998 and 1999 and for
the year ended December 31, 1999 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of webcasts.com as of December 31,
1998 and 1999, and for the years then ended have been included herein in
reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act in connection with this
offering. This prospectus does not contain all of the information in the
registration statement and the accompanying exhibits and schedules. For
further information with respect to our company and our common stock, we refer
you to the registration statement and the accompanying exhibits and schedules.
Statements contained in this prospectus as to the contents of any contract or
any other document referred to are not necessarily complete. In each instance,
we refer you to the copy of such contract or document filed as an exhibit to
the registration statement, and each such statement is qualified in all
respects by such reference. The registration statement, including the
accompanying exhibits and schedules, may be inspected without charge at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, Suite 1300, New York, New York 10048 and
Northwestern Atrium Center, 500 Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of these materials may be obtained from the public
reference section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a website that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's website is www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and will
file periodic reports, proxy statements and other information with the
Commission. Such periodic reports, proxy statements and other information will
be available for inspection and copying at the regional offices, public
reference facilities and website of the Commission referred to above.
75
<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-20
webcasts.com, Inc. and Subsidiary
Independent Auditors' Report............................................ F-25
Consolidated Balance Sheets............................................. F-26
Consolidated Statements of Operations................................... F-27
Consolidated Statements of Stockholders' Equity (Deficit)............... F-28
Consolidated Statements of Cash Flows................................... F-29
Notes to Consolidated Financial Statements.............................. F-30
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
iBEAM Broadcasting Corporation
The stock split described in Note 2 to the financial statements has not been
completed at March 20, 2000. When it has been completed, we will be in a
position to furnish the following report:
"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 1999 and for the year
ended 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."
San Jose, California
January 28, 2000, except as to the second
paragraph of Note 2 and Note 10,
which is as of March 20, 2000
F-2
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
----------------- December 31,
1998 1999 1999
------- -------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 2,198 $ 24,863
Short-term investments...................... -- 4,977
Accounts receivable......................... -- 70
Prepaid expenses and other current assets... 125 796
------- --------
Total current assets....................... 2,323 30,706
Property and equipment, net.................. 1,477 12,912
Other assets................................. 407 1,123
------- --------
$ 4,207 $ 44,741
======= ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................ $ 815 $ 3,055
Accrued liabilities......................... 437 879
Deferred revenue............................ -- 448
Current portion of capital lease
obligations................................ -- 1,573
------- --------
Total current liabilities.................. 1,252 5,955
Capital lease obligations, net of current
portion..................................... -- 3,627
------- --------
Total liabilities.......................... 1,252 9,582
------- --------
Commitments and contingencies (Note 6)
Redeemable convertible preferred stock,
$0.0001 par value; 20,000 shares authorized;
4,582, 15,247, and no (unaudited) shares
issued and outstanding (aggregate
liquidation value at December 31, 1999 of
$61,398).................................... 6,905 61,192 $ --
------- --------
Stockholders' equity (deficit):
Common stock, $0.0001 par value; 40,000
shares authorized; 9,827, 17,132 and 80,117
(unaudited) shares issued and outstanding.. 1 2 6
Additional paid-in capital.................. 853 21,773 82,961
Unearned stock-based compensation........... (577) (13,613) (13,613)
Deficit accumulated during development
stage...................................... (4,227) (34,195) (34,195)
------- -------- --------
Total stockholders' equity (deficit)....... (3,950) (26,033) $ 35,159
------- -------- ========
$ 4,207 $ 44,741
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from Period from
March 20, 1998 March 20, 1998
(Inception) to Year Ended (Inception) to
December 31, December 31, December 31,
1998 1999 1999
-------------- ------------ --------------
<S> <C> <C> <C>
Revenue............................ $ -- $ 149 $ 149
------- -------- --------
Operating costs and expenses:
Cost of services.................. -- 8,249 8,249
Engineering and development....... 1,468 4,531 5,999
Sales and marketing............... 1,788 10,363 12,151
General and administrative........ 1,096 7,174 8,270
------- -------- --------
Total operating costs and
expenses........................ 4,352 30,317 34,669
------- -------- --------
Loss from operations............... (4,352) (30,168) (34,520)
Interest income.................... 125 579 704
Loss on disposal of assets......... -- (199) (199)
Interest expense................... -- (180) (180)
------- -------- --------
Net loss........................... $(4,227) $(29,968) $(34,195)
======= ======== ========
Net loss per share--basic and
diluted........................... $ (0.56) $ (3.43)
======= ========
Weighted average common shares
outstanding....................... 7,488 8,726
======= ========
Pro forma net loss per share--basic
and diluted (unaudited)........... $ (0.63)
========
Pro forma weighted average common
shares outstanding (unaudited).... 47,435
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Convertible Deficit
Preferred Accumulated
Stock Common Stock Additional Unearned During Total
-------------- ------------- Paid-in Stock-based Development Stockholders'
Shares Amount Shares Amount Capital Compensation Stage Equity
------ ------- ------ ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 20,
1998 (Inception)
Issuance of common stock
in March 1998........... -- $ -- 7,636 $ 1 $ 1 $ -- $ -- $ 2
Issuance of series A
redeemable convertible
preferred stock at $1.20
per share, less issuance
costs of $33, in April
1998.................... 1,333 1,567 -- -- -- -- -- --
Issuance of series B
redeemable convertible
preferred stock at $1.65
per share, less issuance
costs of $22, in June
and July 1998........... 3,249 5,338 -- -- -- -- -- --
Exercise of employee
stock options........... -- -- 2,191 -- 17 -- -- 17
Issuance of warrants in
connection with capital
leases (Note 7)......... -- -- -- -- 219 -- -- 219
Unearned stock-based
compensation, net....... -- -- -- -- 616 (577) -- 39
Net loss................ -- -- -- -- -- -- (4,227) (4,227)
------ ------- ------ --- ------- -------- -------- --------
Balance at December 31,
1998 4,582 6,905 9,827 1 853 (577) (4,227) (3,950)
Issuance of series C
redeemable convertible
preferred stock at $3.42
per share, less issuance
costs of $83, in
February 1999........... 3,592 12,201 -- -- -- -- -- --
Issuance of series D
redeemable convertible
preferred stock at $5.96
per share, less issuance
costs of $67, in October
1999.................... 7,073 42,086 -- -- -- -- -- --
Exercise of employee
stock options, net...... -- -- 6,987 1 685 -- -- 686
Issuance of common stock
for services rendered... -- -- 318 -- 232 -- -- 232
Issuance of warrants in
connection with capital
leases (Note 7)......... -- -- -- -- 574 -- -- 574
Issuance of warrant to
an investor in October
1999 (Note 7)........... -- -- -- -- 1,000 -- -- 1,000
Unearned stock-based
compensation, net....... -- -- -- -- 18,429 (13,036) -- 5,393
Net loss................ -- -- -- -- -- -- (29,968) (29,968)
------ ------- ------ --- ------- -------- -------- --------
Balance at December 31,
1999 15,247 $61,192 17,132 $ 2 $21,773 $(13,613) $(34,195) $(26,033)
====== ======= ====== === ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from Period from
March 20, 1998 March 20, 1998
(Inception) to Year Ended (Inception) to
December 31, December 31, December 31,
1998 1999 1999
-------------- ------------ --------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss........................... $(4,227) $(29,968) $(34,195)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization.... 65 1,707 1,772
Loss on disposal of assets....... -- 199 199
Amortization of stock-based
compensation.................... 39 5,393 5,432
Issuance of common stock for
services........................ -- 232 232
Issuance of warrant (see Note
7).............................. -- 1,000 1,000
Changes in assets and
liabilities:
Accounts receivable............. -- (70) (70)
Prepaid expenses and other
assets......................... (313) (813) (1,126)
Accounts payable................ 815 2,240 3,055
Accrued liabilities............. 437 442 879
Deferred revenue................ -- 448 448
------- -------- --------
Net cash used in operating
activities.................... (3,184) (19,190) (22,374)
------- -------- --------
Cash flows from investing
activities:
Purchase of property and
equipment......................... (1,542) (7,491) (9,033)
Purchase of investments............ -- (4,977) (4,977)
------- -------- --------
Net cash used in investing
activities.................... (1,542) (12,468) (14,010)
------- -------- --------
Cash flows from financing
activities:
Issuance of convertible preferred
stock............................. 6,905 54,287 61,192
Issuance of common stock........... 19 686 705
Payment of capital lease
obligations....................... -- (650) (650)
------- -------- --------
Net cash provided by financing
activities.................... 6,924 54,323 61,247
------- -------- --------
Net increase in cash and cash
equivalents........................ 2,198 22,665 24,863
Cash and cash equivalents at
beginning of period................ -- 2,198 --
------- -------- --------
Cash and cash equivalents at end of
period............................. $ 2,198 $ 24,863 $ 24,863
======= ======== ========
Supplemental non-cash investing and
financing activities:
Property and equipment purchased
under capital lease obligations... $ -- $ 5,850 $ 5,850
======= ======== ========
Issuance of warrants in connection
with equipment lease line......... $ 219 $ 574 $ 793
======= ======== ========
Supplemental cash flows disclosures:
Cash paid for interest............. $ -- $ 140 $ 140
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
1. The Company
iBEAM Broadcasting Corporation (the "Company"), formerly Bowles, Inc., was
incorporated on March 20, 1998 in Delaware. iBEAM provides an Internet
broadcast network that enables content providers to broadcast content over the
Internet. The network uses point-to-multipoint satellite broadcasting of
Internet content to intelligent iBEAM servers located at the edge of the
Internet, which is the Internet access point closest to the end user.
The Company is in the development stage, devoting substantially all of its
efforts to product development and raising capital financing. The Company has
funded its operating losses since inception through capital lease obligations
and the sale of equity securities. Management's plans for funding operations
includes generating revenue while controlling costs, the sale of equity
securities and the utilization of equipment lease lines (see Note 5). The
Company's failure to sell its services or to raise sufficient capital would
unfavorably impact the Company.
2. Significant Accounting Policies
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Stock split
The Company's Board of Directors authorized a 3-for-1 stock split of the
Company's common stock in January 2000. In March 2000, the Company's Board of
Directors authorized a 1.377-for-1 stock split of the Company's common stock.
All common and per share information in these financial statements has been
retroactively adjusted to reflect these stock splits. As a result of these
splits, the conversion rate of Series A, B, C, and D redeemable convertible
preferred stock into common stock automatically adjusts from 1:1 to 1:4.131
and has been retroactively adjusted in these financial statements (see note
7). The Company issued Series E redeemable convertible preferred stock in
February 2000. The conversion rate of Series E redeemable convertible
preferred stock into common stock automatically adjusts from 1:1 to 1:1.377.
Risks and uncertainties
The Company is subject to all of the risks inherent in an early stage
company conducting electronic services over the Internet. These risks include,
but are not limited to, a limited operating history, limited management
resources, dependence upon consumer acceptance of the Internet and the
changing nature of the electronic broadcasting industry. The Company's
operating results may be materially affected by the foregoing factors.
Cash, cash equivalents, restricted cash and investments
The Company considers all highly liquid investments purchased with original
or remaining maturities of three months or less at the date of purchase to be
cash equivalents. Restricted cash of $107,000 consists of a certificate of
deposit held as collateral against the Company's corporate credit cards and is
included in other assets.
F-7
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company classifies all short-term investments as available-for-sale in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
Company's short-term investments are invested in high-grade corporate
securities and government bonds maturing approximately twelve months or less
from the date of purchase. At December 31, 1999, these investments are carried
at cost, which approximates fair value. Material unrealized gains or losses,
if any, are reported in stockholders' equity and included in other
comprehensive income. The cost of securities sold is based on the specific
identification method. For the year ended December 31, 1999, realized gains
and losses on available-for-sale securities were immaterial.
Fair value of financial instruments
The reported amounts of certain of the Company's financial instruments,
including cash and cash equivalents, short-term investments, accounts
receivable, accounts payable and accrued liabilities approximate fair value
due to their short maturities.
Concentration of credit risk
Cash and cash equivalents are deposited in large domestic financial
institutions that management believes are creditworthy. With respect to
accounts receivable, the Company's customer base is dispersed across many
geographic areas primarily within the United States. The Company performs
ongoing credit evaluations of its customers financial condition, generally
requires no collateral from its customers, and establishes allowances for bad
debt as warranted.
Property and equipment
Property and equipment are stated at cost. Depreciation is generally
computed using the straight-line method over the estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Network equipment, computers, software and 3 years
other equipment.............................
Furniture and fixtures....................... 5-7 years
Leasehold improvements....................... Shorter of the lease term or
the estimated useful life
</TABLE>
Long-lived assets
The Company evaluates the recoverability of its long-lived assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," which requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets.
Revenue recognition
The Company derives revenue from the sale of its services under contracts
with terms typically ranging from a single event to a service period of three
to twelve months. These contracts may also provide for minimum monthly fees.
Distribution services are billed based on the volume of content stored or
delivered to end-users and revenue from other services are billed based on
time incurred. The Company recognizes revenue as services are performed.
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
F-8
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
development costs associated with internal use software to be charged to
operations until certain capitalization criteria are met. For the year ended
December 31, 1999, software development costs of approximately $800,000 were
capitalized and included in property and equipment.
Advertising expense
Expenses related to advertising and promotion of products is charged to
sales and marketing expense as incurred. Advertising expense for the period
from March 20, 1998 (inception) to December 31, 1998 and for the year ended
December 31, 1999 was $23,000 and $2,621,000, respectively.
Stock-based compensation expense
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25 ("APB
No. 25"), "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation expense is based on the
difference, if any, on the date of grant, between the fair value of the
Company's shares and the exercise price of the option. Equity instruments
issued to nonemployees are accounted for in accordance with the provisions of
SFAS No. 123 and Emerging Issues Task Force ("EITF") 96-18.
Comprehensive income (loss)
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity (net assets) during a
period from non-owner sources. There is no difference between net loss and
comprehensive loss.
Net loss per share
Basic and diluted net loss per share is computed by dividing the net loss
for the period by the weighted average number of shares of common stock
outstanding during the period. The calculation of diluted net loss per share
excludes potential common shares if the effect is antidilutive. Potential
common shares are comprised of common stock subject to repurchase rights and
incremental shares of common and preferred stock issuable upon the exercise of
stock options or warrants and upon conversion of Series A, Series B, Series C
and Series D convertible preferred stock (collectively, "Preferred Stock").
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Period from
March 20, 1998
(Inception) to Year Ended
December 31, December 31,
1998 1999
-------------- ------------
<S> <C> <C>
Net loss........................................... $(4,227) $(29,968)
======= ========
Basic and diluted:
Weighted average common shares outstanding........ 9,610 14,678
Weighted average unvested common shares subject to
repurchase....................................... (2,122) (5,952)
------- --------
Weighted average shares used to compute basic and
diluted net loss per share....................... 7,488 8,726
======= ========
Net loss per share--basic and diluted.............. $ (0.56) $ (3.43)
======= ========
</TABLE>
F-9
<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,
-------------
1998 1999
------ ------
<S> <C> <C>
Convertible preferred stock upon conversion to common stock..... 18,930 62,984
Convertible preferred stock warrants upon conversion to common
stock.......................................................... 381 1,413
Unvested common shares subject to repurchase.................... 2,191 7,101
Options to purchase common stock................................ 4,513 9,443
------ ------
26,015 80,941
====== ======
</TABLE>
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of the Company's
Preferred Stock into shares of common stock effective upon the closing of the
offering, as if such conversion occurred on January 1, 1999 or at the date of
original issuance, if later. The resulting pro forma adjustment includes an
increase in the weighted average shares used to compute basic and diluted net
loss per share of 38,709,000 shares for the year ended December 31, 1999.
Pro forma stockholders' equity (unaudited)
Immediately prior to the effective date of the offering, the Preferred
Stock outstanding will automatically convert into common stock at a one-to-one
ration. The pro forma effects of this transaction is unaudited and has been
reflected in the accompanying Pro Forma Stockholders' Equity as of December
31, 1999.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value. The Company, to date, has not engaged in derivative
and hedging activities, and accordingly does not believe that the adoption of
SFAS No. 133 will have a material impact on the financial reporting and
related disclosures of the Company. The Company will adopted SFAS No. 133 as
required by SFAS No. 137, "Deferral of the Effective Date of the FASB
Statement No.133," beginning with the third quarter of fiscal 2000.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements," which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
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.
F-10
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Balance Sheet Components (in thousands)
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------ -------
<S> <C> <C>
Property and equipment, net:
Network software and equipment............................. $ 366 $ 8,224
Computers, software and equipment.......................... 705 5,494
Furniture and fixtures..................................... 456 631
Leasehold improvements..................................... 15 180
------ -------
1,542 14,529
Less: Accumulated depreciation and amortization............ (65) (1,617)
------ -------
$1,477 $12,912
====== =======
Accrued liabilities:
Accrued payroll and related liabilities.................... $ 54 $ 489
Other accrued liabilities.................................. 236 390
Deferred rent.............................................. 147 --
------ -------
$ 437 $ 879
====== =======
</TABLE>
4. Income Taxes
No provision for federal and state income taxes has been recorded as the
Company has incurred net operating losses since inception. The components of
the Company's deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Net operating loss carryforwards........................... $ 1,343 $10,552
Nondeductible expenses..................................... 333 588
Research and development credit carryovers................. 58 477
Other...................................................... -- 187
------- -------
1,734 11,804
Less: Valuation allowance.................................. (1,734) (11,804)
------- -------
$ -- $ --
======= =======
</TABLE>
Management believes that, based on a number of factors, it is more likely
than not that the deferred tax assets will not be utilized; and accordingly, a
full valuation allowance has been recorded. The change in the valuation
allowance was $1,734,000 and $10,070,000 for the period from March 20, 1998
(inception) to December 31, 1998 and for the year ended December 31, 1999,
respectively.
At December 31, 1999, the Company had approximately $25.8 million of
federal and state net operating loss carryforwards available to offset future
taxable income which expire in varying amounts beginning in 2004. Under the
Tax Reform Act of 1986, the amounts of and benefits from net operating loss
carryforwards may be impaired or limited in certain circumstances. Events
which cause limitations in the amount of net operating losses that the Company
may utilize in any one year include, but are not limited to, a cumulative
ownership change of more than 50%, as defined, over a three year period.
F-11
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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................................................................. 4,028
2002................................................................. 5,692
-------
$12,464
=======
</TABLE>
F-12
<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-13
<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
F-14
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
from the effective date of the Company's initial public offering and were
valued using the Black-Scholes option pricing model applying an expected life
of seven years, a weighted average risk free rate of 6%, a dividend yield of
zero percent and volatility of 80%. The fair value of approximately $1,000,000
represents a non-cash inducement to enter into future commercial agreements
and was included in sales and marketing expense during the quarter ended
December 31, 1999.
8. Benefit Plans
Stock Option Plan
On March 23, 1998, the Company adopted the 1998 Stock Option Plan (the
"Plan"). The Plan provides for the granting of stock options to employees and
consultants of the Company. Options granted under the Plan may be either
incentive stock options or non-qualified stock options. Incentive stock
options ("ISO") may be granted only to Company employees (including officers
and directors who are also employees). Non-qualified stock options ("NSO") may
be granted to Company employees and consultants. As of December 31, 1999, the
Company had reserved approximately 22,038,000 shares of common stock for
issuance under the Plan.
Options under the Plan may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO and NSO shall not be less than 100% and 85% of
the estimated fair value of the shares on the date of grant, respectively, and
(ii) the exercise price of an ISO and NSO granted to a 10% shareholder shall
not be less than 110% of the estimated fair value of the shares on the date of
grant. Options are exercisable immediately subject to repurchase options held
by the Company which lapse with the options vesting schedule. Options may have
a maximum term of up to 10 years as determined by the Board of Directors. To
date, options granted generally vest over four years.
The following table summarizes activity under the Plan since inception (in
thousands, except per share data):
<TABLE>
<CAPTION>
Period from March 20, 1998 Year Ended
(Inception) to December 31, 1998 December 31, 1999
--------------------------------------- -------------------------
Weighted Average Weighted Average
Options Exercise Price Options Exercise Price
---------------- -------------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 4,513 $0.04
Granted................ 6,704 0.03 14,983 0.59
Exercised.............. (2,191) 0.01 (8,901) 0.09
Cancelled.............. -- -- (1,152) 0.06
---------------- ------
Outstanding at end of
period................. 4,513 0.04 9,443 0.87
================ ======
Options vested at end of
period................. 16 0.04 2,488 0.07
================ ======
</TABLE>
At December 31, 1998 and 1999, shares of common stock subject to a
repurchase option held by the Company totaled approximately 2,191,000 and
7,101,000 shares at a weighted average price of $0.02 and $0.24 per share,
respectively.
F-15
<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
$0.08 751 8.8 years 0.08
$0.15 902 8.8 years 0.15
$0.29 3,950 9.0 years 0.29
$1.45 1,156 9.9 years 1.45
$3.63 1,414 10.0 years 3.63
-----
$0.04-$3.63 9,443 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 and $17,290,000 of
unearned stock-based compensation for the excess of the deemed fair market
value over the exercise price at the date of grant for the period from March
10, 1998 (inception) to December 31, 1998 and for the year ended December 31,
1999, respectively. The compensation expense is being recognized, using the
multiple option method as prescribed by FASB Interpretation No. 28, over the
option's
F-16
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
vesting period of generally four years. As a result, the Company recorded
stock-based compensation expense of $31,000 and $4,974,000 for the period from
March 20, 1998 (inception) to December 31, 1998 and for the year ended
December 31, 1999, respectively, and expects to amortize stock-based
compensation of $7,313,000 in 2000, $3,491,000 in 2001, $1,533,000 in 2002 and
$556,000 in 2003.
Stock-based compensation expense related to stock options granted to
consultants is recognized as the stock options are earned. At each reporting
date, the Company re-values 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. In connection with the grant of stock options to consultants, the
Company recorded stock-based compensation expense of $8,000 and $419,000 for
the period from March 20, 1998 (inception) to December 31, 1998 and for the
year ended December 31, 1999, respectively. As of December 31, 1999, the
Company expects to amortize stock-based compensation expense of $720,000 over
future periods assuming no change in the underlying value of the Company's
common stock.
401(k) Plan
The Company's employee savings and retirement plan is qualified under
Section 401 of the Internal Revenue Code. Employees may elect to reduce their
current compensation by up to the statutorily prescribed annual limit and have
the amount of such reduction contributed to the 401(k) Plan. The Company
currently does not make matching or additional contributions to the 401(k)
Plan on its employees' behalf.
9. Segment Information
The Company currently operates in a single business segment as there is
only one measurement of profitability for its operations. Through December 31,
1999, foreign operations have not been significant in either revenues or
investments in long-lived assets.
A summary of the Company's revenues by service offering is as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
<S> <C>
iBEAM On-Air.................................................... $ 9
iBEAM On-Stage.................................................. 110
iBEAM On-Demand................................................. 5
Other services.................................................. 25
----
$149
====
</TABLE>
For the year ended December 31, 1999, the Company's significant customers
were ProWebCast, MusicNow, Inc. and Pixelworld, which represented 40%, 15% and
13% of total revenue, respectively. At December 31, 1999, Pacific Century
Group and Pixelworld represented 43% and 28%, respectively, of the accounts
receivable balance.
10. Subsequent Events (unaudited):
Acquisition of webcasts.com, Inc.
In March 2000, the Company entered into an agreement to acquire with
webcasts.com, Inc. ("webcasts.com") in a transaction to be accounted for as a
purchase business combination with an expected purchase price of $125.6
million. Webcasts.com provides interactive broadcasting services and
proprietary tools
F-17
<PAGE>
iBEAM BROADCASTING CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
that give businesses the ability to conduct live and on-demand Internet
broadcasts for use in distance learning, corporate communications, sales
presentations, on-line trade shows and interactive television.
Under the terms of the agreement, all issued and outstanding shares and
warrants of webcasts.com will be exchanged for shares of the Company's series
F redeemable convertible preferred stock ("Series F") equal to 8% of the
fully-diluted capitalization of the combined companies immediately following
the acquisition. Using the capitalization of the companies as of February 29,
2000, the Company expects to issue 7,992,961 shares, at $14.00 per share, for
a value of approximately $111.9 million. In addition, based on an exchange
ratio of 0.3419 shares of iBEAM for every share of webcasts.com, all of the
outstanding options granted under the webcasts.com 1999 Stock Option Plan will
be converted into options to purchase 763,646 shares of the Company's Series
F. The fair value of these options of approximately $9.0 million was
determined using the Black-Scholes option pricing model and is included as a
component of the purchase price. The Company will also issue a $3.0 million
note to the webcasts.com's redeemable preferred stockholders, which is payable
on September 30, 2000 and bears interest at 10% per annum. The Company
anticipates incurring approximately $1.7 million in acquisition related
expenses, which consist primarily of financial advisory, accounting and legal
fees. See Unaudited Pro Forma Combined Financial Information.
America Online, Inc.
In January 2000, the Company entered into a two year commercial agreement
with America Online, Inc. to deploy the Company's streaming media distribution
network within America Online's network. Under the agreement, the Company
agreed to pay an advance against future revenue sharing obligations. In the
event the Company does not deliver a minimum amount of traffic to America
Online, they can terminate this agreement, at which time, a portion of the
advance will be refunded to the Company. In addition, America Online may
purchase services pursuant to the Company's standard service terms and
conditions.
In February 2000, America Online purchased $5 million of series E
redeemable convertible preferred stock ("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 384,024 shares of our common
stock at an exercise price equal to the price to public in this offering, less
underwriting discounts and commissions. The warrant was a condition to the
commercial agreement and was valued using the Black-Scholes option pricing
model. The fair value of $3.1 million represents an expense for receiving
equipment rack space at each of America Online's data centers and will be
recognized ratably over the term of the agreement.
Pacific Century CyberWorks (PCCW)
The Company have entered into an agreement with Pacific Century CyberWorks
Limited (PCCW) to establish a joint venture company that will bring high-
fidelity streaming audio and video to Asia. The new company, to be called
iBEAM Asia will be responsible for extending the Company's current business
and services to Asia. This will include deployment and operation of MaxCaster
servers into ISPs and Internet access providers and distributing video and
audio content from media companies to end users in over 50 countries in Asia.
The joint venture will be 51% owned by PCCW and 49% owned by iBEAM and is
expected to be operational by mid-year 2000. The joint venture will be
accounted for under the equity method of accounting. In addition, in February
2000, PCCW purchased $30 million of Series E for $13.75 per share.
RealNetworks, Inc.
In February 2000, the Company entered into a seven-year Infrastructure
Software License Agreement with RealNetworks, Inc. for an initial payment of
$10 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.
F-18
<PAGE>
iBEAM BROADCASTING CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock option plans
The Company's 2000 Stock Plan (the "2000 Plan") was adopted by the Board of
Directors, subject to stockholder approval, in January 2000. The 2000 Plan
provides for the grant of incentive stock options to employees and non-
statutory stock options and stock purchase rights to employees, directors and
consultants.
A total of 9,639,000 shares of common stock were reserved for issuance
pursuant to the 2000 Plan. No options have yet been issued. The number of
shares reserved for issuance under the 2000 Plan will increase annually on
January 1st of each calendar year, effective beginning in 2001, equal to the
lesser of:
. 5% of the outstanding shares of common stock on the first day of the
year,
. 5,508,000 shares or
. such lesser amount as determined by the Board of Directors.
In January 2000, the Board of Directors adopted, subject to stockholder
approval, the 2000 Director Option Plan (the "Director Plan"). The Director
Plan provides for the periodic grant of nonstatutory stock options to non-
employee directors. A total of 500,000 shares were reserved for issuance under
the Director Plan.
In January 2000, the Board of Directors adopted, subject to stockholder
approval, the 2000 Employee Stock Purchase Plan (the "Purchase Plan"). A total
of 688,500 shares of common stock will be made available under the Purchase
Plan. The Purchase Plan provides for annual increases in the number of shares
available for issuance on January 1st of each year, beginning in 2001, equal
to the lesser of (i) 2% of the outstanding shares of common stock on the first
day of the calendar year, (ii) 1,927,800 shares, or (iii) such other lesser
amount as determined by the Board of Directors. The Purchase Plan is intended
to qualify for preferential tax treatment and contains consecutive,
overlapping 24-month offering periods. Each offering period includes four 6-
month purchase periods. The offering periods generally start on the first
trading day on or after November 1 and May 1 of each year, except for the
first such offering period which will commence on the first trading day on or
after the effective date of this offering and will end on the last trading day
on or before October 31, 2000. The Purchase Plan permits participants to
purchase common stock through payroll deductions of up to 15% of their
eligible compensation which includes a participant's base straight time gross
earnings and commissions but excluding all other compensation paid to our
employees. A participant may purchase no more than 10,000 shares during any 6-
month purchase period. Amounts deducted and accumulated by the participant are
used to purchase shares of our common stock at the end of each 6-month
purchase period. The price is 85% of the lower of the fair market value of our
common stock at the beginning of an offering period or after a purchase period
ends.
For the period from January 1, 2000 to February 29, 2000, we issued options
to purchase 4,025,906 shares to employees at a weighted average exercise price
of $8.86 per share. In connection with such grants, we will record an
additional $10.6 million of unearned stock-based compensation.
Common Stock
In January 2000, we issued 908,820 shares of common stock, subject to a
right of repurchase which lapses over four years, to a consultant. At February
29, 2000, this grant resulted in an additional $8.3 million of unearned stock-
based compensation, assuming no change in the underlying value of our common
stock.
F-19
<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 with webcasts.com,
Inc. ("webcasts.com") in a transaction to be accounted for as a purchase
business combination. Webcasts.com provides interactive broadcasting services
and proprietary tools that give businesses the ability to conduct live and on-
demand Internet broadcasts for use in distance learning, corporate
communications, sales presentations, on-line trade shows and interactive
television.
Under the terms of the agreement, all issued and outstanding shares and
warrants of webcasts.com will be exchanged for shares of the Company's series
F redeemable convertible preferred stock ("Series F") equal to 8% of the
fully-diluted capitalization of the combined companies immediately following
the acquisition. Using the capitalization of the companies as of February 29,
2000, the Company expects to issue 7,992,961 shares, at $14.00 per share, for
a value of approximately $111.9 million. In addition, based on an exchange
ratio of 0.3419 shares of iBEAM for every share of webcasts.com, all of the
outstanding options granted under the webcasts.com 1999 Stock Option Plan will
be converted into options to purchase 763,646 shares of the Company's Series
F. The fair value of these options of approximately $9.0 million was
determined using the Black-Scholes option pricing model and is included as a
component of the purchase price. The Company will also issue a $3.0 million
note to the webcasts.com's redeemable preferred stockholders, which is payable
on September 30, 2000 and bears interest at 10% per annum. The Company
anticipates incurring approximately $1.7 million in acquisition related
expenses, which consist primarily of financial advisory, accounting and legal
fees. In addition, the former securityholders of webcasts.com may receive an
1,095,000 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 $125.6 million was allocated to the assets
acquired, including tangible and intangible assets, and liabilities assumed
based upon the fair value of such assets and liabilities on the date of
acquisition. The total estimated purchase price of the acquisition has been
allocated based on a preliminary basis to assets and liabilities based on
management estimates of their fair value and a preliminary independent
appraisal of certain intangible assets with the excess cost over the net
assets acquired allocated to goodwill. This allocation is subject to change
pending a final analysis of the total purchase price and fair value of the
assets acquired and liabilities assumed. The aggregate purchase price has been
allocated as follows (in thousands):
<TABLE>
<S> <C>
Tangible assets received........................................ $ 4,931
Purchased technology............................................ 3,400
Assembled workforce............................................. 2,150
Non-competition agreements...................................... 4,700
Goodwill........................................................ 113,428
Liabilities assumed............................................. (2,985)
--------
$125,624
========
</TABLE>
The tangible assets consist primarily of cash and cash equivalents,
accounts receivable and property and equipment. The liabilities assumed
consist primarily of accounts and notes payable and a revolving line of
credit. webcasts.com's tangible assets received and liabilities assumed as of
December 31, 1999 were used for purposes of calculating the pro forma
adjustments as they approximate fair value at such date. The amounts allocated
to purchased technology, assembled workforce, and non-competition agreements
are being amortized over their estimated useful lives of three years. The
purchase price in excess of net identified tangible and intangible assets is
allocated as goodwill, which is being amortized over three years.
The acquisition is expected to be structured as a tax-free exchange of
stock, therefore, the differences between the recognized fair values of
acquired assets, including tangible and intangible assets and their historical
tax bases are not deductible for tax purposes.
F-20
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Historical -----------------------
iBEAM webcasts.com Adjustments Combined
ASSETS ---------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $24,863 $ 1,780 $ -- $ 26,643
Short-term investments...... 4,977 -- -- 4,977
Accounts receivable, net.... 70 902 -- 972
Prepaid expenses and other
current assets............. 796 159 -- 955
------- ------- -------- --------
Total current assets....... 30,706 2,841 -- 33,547
Property and equipment, net.. 12,912 2,019 -- 14,931
Goodwill and acquired
intangible assets........... -- 3,939 119,739 (A) 123,678
Other assets................. 1,123 71 -- 1,194
------- ------- -------- --------
$44,741 $ 8,870 $119,739 $173,350
======= ======= ======== ========
<CAPTION>
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
(DEFICIT)
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable............ $3,055 $ 1,178 $ -- $ 4,233
Accrued liabilities......... 879 378 1,700 (B) 2,957
Deferred revenue............ 448 134 -- 582
Current portion of capital
lease obligations.......... 1,573 99 -- 1,672
Current portion of notes
payable.................... -- 64 -- 64
Notes payable to preferred
stockholders............... -- 2,720 280 (C) 3,000
------- ------- -------- --------
Total current liabilities.. 5,955 4,573 1,980 12,508
Revolving line of credit..... -- 978 -- 978
Notes payable, net of current
portion..................... -- 52 -- 52
Capital lease obligations,
net of current portion...... 3,627 102 -- 3,729
------- ------- -------- --------
Total liabilities.......... 9,582 5,705 1,980 17,267
------- ------- -------- --------
Redeemable convertible
preferred stock............. 61,192 -- 120,924 (D) 182,116
------- ------- -------- --------
Redeemable preferred stock... -- 2,483 (2,483)(E) --
------- ------- -------- --------
Stockholders' equity
(deficit):
Preferred stock............. -- -- -- --
Common stock................ 2 -- -- 2
Additional paid-in capital.. 21,773 5,116 (5,116)(E) 21,773
Unearned stock-based
compensation............... (13,613) -- -- (13,613)
Deficit accumulated during
development stage.......... (34,195) (4,434) 4,434 (E) (34,195)
------- ------- -------- --------
Total stockholders' equity
(deficit)................. (26,033) 682 (682) (26,033)
------- ------- -------- --------
$44,741 $ 8,870 $119,739 $173,350
======= ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
F-21
<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)(G) $ 4,905 $ -- $ 5,054
-------- ------- ------- ----- ------- -------- --------
Operating costs and
expenses:
Cost of services....... 8,249 1,800 1,913 (174)(G) 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 (H) 5,294 -- 12,468
Amortization of
goodwill and acquired
intangibles........... -- 97 -- 476 (I) 573 40,653 (F) 41,226
-------- ------- ------- ----- ------- -------- --------
Total operating costs
and expenses......... 30,317 6,581 3,840 330 10,751 40,653 81,721
-------- ------- ------- ----- ------- -------- --------
Loss from operations.... (30,168) (4,150) (1,192) (504) (5,846) (40,653) (76,667)
Other income (expense),
net.................... 200 (86) (472) 468 (J) (90) -- 110
-------- ------- ------- ----- ------- -------- --------
Net loss................ (29,968) (4,236) (1,664) (36) (5,936) (40,653) (76,557)
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) $(40,653) $(78,354)
======== ======= ======= ===== ======= ======== ========
Net loss per share
attributable to common
stock:
Basic and diluted...... $ (3.43) $ (4.69)
======== ========
Weighted average common
shares outstanding.... 8,726 16,718
======== ========
Pro forma net loss per
share attributable to
common
stock: (K)
Basic and diluted...... $ (0.63) $ (1.41)
======== ========
Pro forma weighted
average common shares
outstanding........... 47,435 55,427
======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
F-22
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
1. Basis of presentation
The unaudited pro forma combined balance sheet gives effect to this
acquisition as if it occurred on December 31, 1999 and combines the balance
sheet of iBEAM as of December 31, 1999 and the consolidated balance sheet of
webcasts.com as of December 31, 1999.
On October 15, 1999, webcasts.com completed its acquisition of all the
outstanding capital stock of The Rock Island Group, Inc. ("RIG"). The RIG
acquisition was accounted for using the purchase method of accounting and,
accordingly, the net assets and results of operations of RIG have been
included in the consolidated financial statements of webcasts.com since the
acquisition date.
The unaudited pro forma statement of operations gives effect to the
webcasts.com acquisition as if it had occurred on January 1, 1999 and presents
the results of operations of iBEAM for the year ended December 31, 1999
combined with the unaudited pro forma statement of operations of webcasts.com
for the year ended December 31, 1999. The unaudited pro forma statement of
operations of webcasts.com includes the results of operations of webcasts.com
for the year ended December 31, 1999 combined with the results of operations
of RIG for the period from January 1, 1999 to October 14, 1999 as if the RIG
acquisition occurred on January 1, 1999.
The unaudited pro forma combined information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the transactions had been
consummated at the dates indicated, nor is it necessarily indicative of the
future operating results or the financial position of the combined companies.
2. Pro forma adjustments
The following adjustments were applied to iBEAM's historical financial
statements and those of webcasts.com to arrive at the pro forma combined
financial information:
A To record the incremental goodwill and the acquired intangibles of
$119.7 million to webcasts.com's existing amount of $3.9 million such
that the combined goodwill and acquired intangibles totaled $123.7
million as described in the overview.
B To reflect the anticipated acquisition related expenses of approximately
$1.7 million.
C To reflect the conversion of the note payable to redeemable preferred
stock in February 2000 and the issuance of a $3.0 million note payable
by iBEAM to webcasts.com's redeemable preferred stockholders as
additional consideration.
D To reflect the issuance of 7,992,961 shares of Series F at $14.00 per
share and the assumption of options to purchase 763,646 shares of Series
F valued at approximately $9.0 million.
E To eliminate historical equity accounts of webcasts.com.
F To record the additional amortization of goodwill and acquired
intangibles related to the acquisition of webcasts.com as if the
transaction occurred on January 1, 1999. Goodwill of approximately
$113.4 million and acquired intangibles of approximately $10.3 million
are being amortized on a straight-line basis over three years.
G 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.
H To reflect additional depreciation expense on the fair value of tangible
assets acquired.
F-23
<PAGE>
iBEAM BROADCASTING CORPORATION
(A Development Stage Company)
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION--(Continued)
I To record the additional amortization of goodwill related to the
acquisition of RIG as if the transaction occurred on January 1, 1999.
J 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.
K Pro forma basic and diluted net loss per share for the year ended
December 31, 1999 is computed using the weighted average number of
common shares outstanding, including the pro forma effects of the
automatic conversion of the Company's Series A, B, C and D effective
upon the closing of the Company's initial public offering as if such
conversion occurred on January 1, 1999, or at the date of original
issuance, if later. The shares of Series F, issued as consideration for
the acquisition, are assumed to be converted into the Company's common
stock under the automatic conversion feature and outstanding as of
January 1, 1999. Common stock subject to repurchase rights and
incremental shares of common and preferred stock issuable upon the
exercise of stock options and warrants, aggregating 18,721,000 shares,
have been excluded from the diluted net loss per share calculation
because to do so would be antidilutive.
F-24
<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 no 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-25
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------ -------
ASSETS
<S> <C> <C>
Current assets:
Cash......................................................... $ 23 $ 1,780
Trade accounts receivable, net of allowance for doubtful
accounts of $22 and $31 in 1998 and 1999, respectively...... 411 902
Prepaid expenses and other current assets.................... 6 132
Costs of uncompleted contracts............................... 57 27
------ -------
Total current assets........................................ 497 2,841
------ -------
Equipment..................................................... 138 2,200
Less accumulated depreciation and amortization............... (41) (181)
------ -------
Net equipment................................................. 97 2,019
Goodwill, net of accumulated amortization of $98 ............. -- 3,939
Other assets.................................................. -- 71
------ -------
$ 594 $ 8,870
====== =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Accounts payable............................................. $ 242 $ 1,178
Deferred revenues............................................ 139 134
Accrued liabilities.......................................... 67 378
Notes payable, current portion............................... 203 64
Notes payable to common stockholders......................... 419 --
Notes payable to preferred stockholders...................... -- 2,720
Current portion of capital lease obligations................. 23 99
------ -------
Total current liabilities................................... 1,093 4,573
Revolving line of credit...................................... -- 978
Notes payable, net of current portion......................... -- 52
Capital lease obligations, net of current portion............. 18 102
------ -------
Total liabilities........................................... 1,111 5,705
------ -------
Redeemable Preferred Stock:
Series A Senior Preferred Stock, $.0001 par value with a
redemption and liquidation value of $200 per share; 30
shares authorized, 23 shares issued and outstanding......... -- 1,878
Series B Senior Preferred Stock, $.0001 par value with a
redemption and liquidation value of $200 per share; 4 shares
authorized, 3 shares issued and outstanding................. -- 244
Series C Senior Preferred Stock, $.0001 par value with a
redemption and liquidation value of $200 per share; 5 shares
authorized, 4 shares issued and outstanding................. -- 361
------ -------
Total redeemable preferred stock............................ -- 2,483
------ -------
Stockholders' equity (deficit):
Series D Senior Convertible Preferred Stock, $.0001 par value
with a liquidation value of $17.39 per share, 230 shares
authorized and 210 shares issued and outstanding............ -- --
Common stock, $.00001 par value, 50,000 shares authorized,
12,875 shares issued and 10,787 shares outstanding in 1998
and 12,150 shares issued and outstanding in 1999............ -- --
Warrants to purchase common stock............................ -- 2,292
Additional paid in capital................................... 73 2,824
Accumulated deficit.......................................... (198) (4,434)
Treasury stock, 2,087 shares at cost in 1998................. (392) --
------ -------
Total stockholders' equity (deficit)........................ (517) 682
------ -------
Commitments and contingencies (Notes 3, 4, 8 and 10).......... -- --
------ -------
$ 594 $ 8,870
====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Revenues.................................................... $ 1,997 $ 2,431
Cost of revenues............................................ 1,300 1,800
------- -------
Gross profit.............................................. 622 631
Operating expenses.......................................... 896 4,333
------- -------
Loss from operations........................................ (199) (4,150)
Interest income............................................. -- 33
Interest expense............................................ (48) (119)
------- -------
Net loss.................................................. (247) (4,236)
Preferred stock dividends in arrears and accretion of
discount on preferred stock and redeemable warrants........ -- (1,797)
------- -------
Net loss applicable to common stock....................... $ (247) $(6,033)
======= =======
Net loss per average common share outstanding--basic and
diluted.................................................... $ (0.02) $ (0.51)
======= =======
Weighted average common shares--basic and diluted........... 12,226 11,758
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Series D
Preferred Retained Total
Stock Common Stock Warrants Additional Earnings Stockholders'
------------- -------------- to Purchase Paid-in (Accumulated Treasury Equity
Shares Amount Shares Amount Common Stock Capital Deficit) Stock (Deficit)
------ ------ ------ ------ ------------ ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997 -- $ -- 12,875 $ -- $ -- $ -- $ 77 $ -- $ 77
Distributions to
stockholders........... -- -- -- -- -- -- (28) -- (28)
Purchase of 2,392 shares
of treasury stock, at
cost................... -- -- -- -- -- -- -- (450) (450)
Sale of 304 shares of
treasury stock......... -- -- -- -- -- 73 -- 58 131
Net loss................ -- -- -- -- -- -- (247) -- (247)
--- ---- ------ ---- ------ ------- ------- ----- -------
Balance, December 31,
1998 -- -- 12,875 -- -- 73 (198) (392) (517)
Common stock issued to
employees.............. -- -- 2,031 -- -- 516 -- -- 516
Sale of common stock.... -- -- 859 -- -- 126 -- -- 126
Exercise of stock
options................ -- -- 4 -- -- 1 -- -- 1
Issuance of preferred
stock for acquisition.. 210 -- -- -- -- 4,000 -- -- 4,000
Retirement of treasury
stock.................. -- -- (3,619) -- -- (392) -- 392 --
Sale of Bridge Loan
Warrants............... -- -- -- -- 311 -- -- -- 311
Sale of preferred stock
warrants............... -- -- -- -- 633 -- -- -- 633
Issuance of options and
warrants for services.. -- -- -- -- -- 91 -- -- 91
Accretion of redeemable
preferred stock........ -- -- -- -- -- (276) -- -- (276)
Accretion of warrants to
purchase common stock.. -- -- -- -- 1,348 (1,348) -- -- --
Stock option
compensation........... -- -- -- -- -- 33 -- -- 33
Net loss................ -- -- -- -- -- -- (4,236) -- (4,236)
--- ---- ------ ---- ------ ------- ------- ----- -------
Balance, December 31,
1999 210 $ -- 12,150 $ -- $2,292 $ 2,824 $(4,434) $ -- $ 682
=== ==== ====== ==== ====== ======= ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------
1998 1999
----- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................................... $(247) $(4,236)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.............................. 33 238
Issuance of stock to employees............................. -- 516
Accretion of debt discount................................. -- 31
Issuance of warrants and options for services.............. -- 91
Stock option compensation.................................. -- 33
Net change in:
Accounts receivable....................................... (85) (79)
Prepaid expenses and other current assets................. (2) (103)
Costs of uncompleted contracts............................ (57) 30
Accounts payable.......................................... 3 466
Deferred revenues......................................... 97 (5)
Accrued liabilities....................................... 55 142
----- -------
Net cash used in operating activities.................... (203) (2,876)
----- -------
Cash flows used in investing activities:
Purchase of equipment........................................ (36) (1,598)
Legal fees paid for acquisition.............................. -- (85)
----- -------
Net cash used in investing activities.................... (36) (1,683)
----- -------
Cash flows from financing activities:
Proceeds from sale of preferred stock........................ -- 2,841
Proceeds from sale of common stock........................... -- 77
Proceeds from notes payable.................................. 203 264
Payments on notes payable.................................... -- (420)
Proceeds from notes payable to preferred stockholders........ -- 3,000
Net proceeds from revolving line of credit................... -- 978
Payments on notes payable to stockholders.................... (4) (419)
Cash paid for treasury stock................................. (40) --
Proceeds from sale of treasury stock......................... 130 --
Distributions to stockholders................................ (28) --
Payments on capital lease obligations........................ (23) (24)
Cash received through acquisition............................ -- 19
----- -------
Net cash provided by financing activities................ 238 6,316
----- -------
Net change in cash............................................. (1) 1,757
Cash at beginning of year...................................... 24 23
----- -------
Cash at end of year............................................ $ 23 $ 1,780
===== =======
Supplemental cash flow information:
Cash paid for interest....................................... $ 38 $ 88
Debt exchanged for common stock.............................. -- 50
Acquisition consummated through issuance of preferred stock.. -- 4,000
Accretion of redeemable preferred stock...................... -- 276
Purchase of treasury stock, at cost, through issuance of
notes payable............................................... 410 --
Purchase of equipment through capital leases................. 13 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Organization, Nature of Business and Basis of Presentation
webcasts.com, Inc. (the Company) was founded in 1995 as an interactive
digital marketing agency that also develops proprietary technologies. These
tools include Internet/Web development and CD-Roms which accounted for
approximately 52% of revenues in 1999. The Company also provides custom
programming, consulting, and other digital products and services as well as
network design, implementation and management based upon specific needs of
clients which accounted for approximately 23% of revenues in 1999. During
1997, the Company launched a business to become a web-based interactive
broadcasting provider that enables web site and content owners to provide high
quality streaming of live and on-demand audio and video content over the
Internet which accounted for approximately 13% of revenues in 1999. The
Company provides all of the infrastructure to facilitate end-to-end
broadcasting which includes production capabilities, sponsorship revenue
generation, a network for the delivery of rich media including video, audio,
text, graphics and animations, and an integrated, e-commerce enabled
interface.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of webcasts.com,
Inc. and its 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 due to the short-
term nature of the contracts. Revenue is recognized upon completion of the
contract and contract costs and related revenues are deferred in the balance
sheet until completion. A contract is considered complete when all costs have
been incurred and the product is performing according to specifications or has
been accepted by the customer. The Company also records deferred revenues for
advance payment on customer projects. The deferred revenues are recorded as
income in the period the services are provided.
Costs of revenues include all direct labor and material costs and those
indirect costs related to contract performance. Operating expenses are charged
to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined.
(e) Allowance for Doubtful Trade Accounts Receivable
The Company extends credit to customers in accordance with normal industry
standards and terms. The Company has established an allowance for doubtful
accounts based on known factors surrounding the credit risk of specific
customers, historical trends and other information. The Company may require
that a portion of the estimated billings be paid prior to delivering products
or performing services. In addition, the Company may terminate customer
contracts if outstanding amounts are not paid.
(f) 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
F-30
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
to the debt or preferred stock. The debt is accreted to its face value over
its term and the accretion is recorded as interest expense in the accompanying
statements of operations. Preferred stock which is redeemable for cash at the
option of the holder is accreted to its redemption value and the accretion is
recorded as a decrease to additional paid in capital in the accompanying
statement of stockholders' equity (deficit). Warrants are initially recorded
in stockholders' equity (deficit) and warrants which may be put back to the
Company for cash at the option of the holder are accreted to the put value
over the period from the date of issuance to the earliest put date of the
warrants.
(g) Equipment
Equipment, stated at cost or the present value of minimum lease payments
for assets under capital leases, is depreciated over the estimated useful
lives of the assets using the straight-line method. Estimated useful lives
range from 3 to 7 years. Significant improvements and betterments are
capitalized if they extend the useful life of the asset. Routine repairs and
maintenance are expensed when incurred.
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
(h) Research and Software Development Costs
Research and development costs are charged to operations as incurred.
Software development and prototype costs incurred prior to establishment of
technological feasibility are included in research and development and are
expensed as incurred. Software development costs incurred subsequent to the
establishment of technological feasibility until general market availability
of the product are capitalized, if material. To date, all software development
costs incurred subsequent to the establishment of technological feasibility
have been expensed as incurred due to their immateriality.
(i) Income Taxes
During 1998 the Company was taxed as an S-Corporation under the Internal
Revenue Code. As such, income taxes were the responsibility of the
shareholders and were not accounted for in the consolidated financial
statements of the Company. In 1999, the Company received permission from the
Internal Revenue Service to change its election from an S-Corporation and,
effective January 1, 1999, is taxed as a C-Corporation. As a result, income
taxes are accounted for using the asset and liability method under which
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities and tax operating loss carryforwards. The effect on deferred
taxes for a change in tax rates is recognized in income in the period that
includes the enactment date. The effect of recognizing deferred tax assets and
liabilities due to the change in tax status is included in income tax expense
and is fully offset by the income tax benefit generated in 1999.
(j) Stock Options
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," (APB No. 25), and
F-31
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
related interpretations. Compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeds the exercise
price of the stock options, and the expense is recognized over the vesting
period.
Stock options and warrants issued to non-employees for services rendered
are recorded as expense upon issuance based on their estimated fair value.
(k) Loss per Share
Loss per share is computed by dividing net loss applicable to common stock
by the weighted average number of common shares outstanding for the period.
The effect of warrants to purchase common stock, convertible preferred stock,
and stock options has been excluded since the effect would be anti-dilutive.
(l) Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of
funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
(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 (goodwill) was approximately
$4 million and is being amortized on a straight-line basis over 7 years.
The acquisition was accounted for by the purchase method of accounting for
business combinations. Accordingly, the accompanying consolidated statements
of operations do not include any revenues or expenses related to the
acquisition prior to the closing date.
(3) Notes Payable and Revolving Line of Credit
In February 1998, the Company entered into an agreement to transfer up to
$450,000 of trade receivables with full recourse. The agreement allowed the
Company to remit receivables with an aggregate face value of $450,000 to a
bank; however, the bank had no obligation to purchase the receivables. For a
receivable accepted in accordance with the agreement, the bank would remit 80%
of the face value to the Company. The remaining 20% was remitted to the
Company after collection of the receivable by the bank. Proceeds from the
transfers contemplated by this agreement, which totaled $153,083 at December
31, 1998, are reported as borrowings in accordance with Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities," and are included in notes
payable in the accompanying 1998 balance sheet. The bank received monthly
interest of 2.75% of the average daily balance of the receivables
F-32
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
purchased and an administrative fee of 1% of all receivables purchased. The
administrative fees are included in operating expenses in the accompanying
statement of operations. The borrowings were secured by all assets of the
Company and a personal guaranty of the president of the Company.
The receivable transfer agreement was terminated in May 1999, and replaced
with a revolving line of credit with a separate financial institution in the
amount of $2,000,000 in September 1999. The revolving line of credit is
comprised of a working capital loan not to exceed $1,000,000 and an equipment
loan not to exceed $1,000,000. The working capital loan expires September 15,
2000, and there were no borrowings against the loan at December 31, 1999. The
equipment loan expires September 15, 2002, and there was $978,480 borrowed
against the loan at December 31, 1999. The loans are secured by equipment and
trade accounts receivable and bear interest at the prime rate plus 1%
(approximately 9.5% at December 31, 1999).
In August 1998, the Company borrowed $50,000 from two individuals which was
included in notes payable at December 31, 1998. The promissory notes accrued
interest at 8% and were convertible to common shares of the Company at
maturity of the notes. The notes were converted to common stock in May 1999.
The Company has three promissory notes to a financial institution
outstanding which bear interest at rates ranging from 8.75% to 10.5% at
December 31, 1999. The notes are secured by equipment, fixtures and accounts
receivable. The notes are due as follows: $63,777 in 2000; $17,306 in 2001;
$20,670 in 2002; and $13,596 in 2003.
During 1998, the Company entered into an agreement to purchase 2,392,006
shares of the Company 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 Loan Warrants) and the recorded value is net of amounts allocated to
the Bridge Loan Warrants. The debt has increased approximately $31,100 for the
accretion of the debt to its face value as of December 31, 1999. If the
Company consummates a private placement of equity securities in an amount not
less than $10,000,000 (Qualified Transaction) the holders of the promissory
notes have the option to exchange the notes for the securities issued in the
transaction on the same basis as the other cash investors in the private
placement.
(4) Redeemable Preferred Stock
During May and June 1999, the Company issued 23,093 shares of Series A
Senior Preferred Stock (Series A Stock), 3,000 shares of Series B Senior
Preferred Stock (Series B Stock), and 4,000 shares of Series C Senior
Preferred Stock (Series C Stock) (collectively the Preferred Stock), together
with an aggregate of 7,756,243 detachable warrants to purchase common stock
(Preferred Warrants), for approximately $3,000,000.
F-33
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Preferred Stock is not convertible, ranks senior to the common stock and
Series D Preferred Stock of the Company and has a liquidation preference of
$200 per share plus all accrued, accumulated and unpaid dividends. Dividends
on the Preferred Stock are cumulative and accrue at an annual rate of $8 per
share, payable quarterly when and if declared by the Company. As of December
31, 1999, cumulative dividends in arrears for the Preferred Stock were
approximately $120,000. The Company may elect to pay all or part of dividends
declared before June 30, 2002 by issuing additional Preferred Stock and
Preferred Warrants. All dividends not declared before the earlier of a
Qualified Public Offering, as defined in the Preferred Stock purchase
agreements, or June 30, 2004 will be deemed to have not accumulated and will
not be required to be paid or declared.
The holders of the Series A and B Stock have voting rights equivalent to
23.10 common shares and holders of Series C Stock have voting rights
equivalent to 14.684 common shares. The holders of the Preferred Stock, voting
together as a class, are entitled to elect two directors of the Company,
including Chairman of the Board, and certain actions of the Company require
approval by the holders of the Preferred Stock. These rights terminate upon
redemption of all of the Preferred Stock.
The Preferred Warrants have an exercise price of less than $.01 and may be
exercised at any time prior to expiration. Approximately 6,255,000 of the
Warrants expire in May 2009 and approximately 1,501,000 of the Warrants expire
in June 2009.
The Company may redeem the Preferred Stock for cash at any time for $200
per share plus all accrued, accumulated and unpaid dividends. The owners of
the Preferred Stock have the option anytime after May 14, 2003, to require the
Company to redeem one or more shares of their Preferred Stock at the
liquidation preference of $200 per share. In addition, each owner of the
Preferred Stock, the related Preferred Warrants, and shares obtained through
exercise of the Preferred Warrants, have the option any time after May 14,
2004 but before May 14, 2006 to require the Company to purchase all or part of
their Preferred Stock, Preferred Warrants or shares obtained through exercise
of the Preferred Warrants at the fair value of the securities. The estimated
fair value of the Preferred Warrants is approximately $14,100,000 at December
31, 1999.
(5) Stockholders' Equity (Deficit)
Common Stock
During 1999, the board of directors and shareholders of the Company
approved amended and restated certificates of incorporation which ultimately
authorized 50,000,000 shares of common stock ($.00001 par value) 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 shareholders 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 shareholders.
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 20,000 options to purchase the Series D
Stock were issued in 1999 in connection with the acquisition of RIG. The
Series D Stock ranks senior to the common stock of the Company and has a
liquidation preference of $17.39 per share plus all accrued, accumulated and
unpaid dividends. Dividends on the Series D Stock are cumulative and accrue at
an annual rate of $1.22 per share, payable quarterly when and if declared by
the Company. As of December 31, 1999, cumulative dividends in arrears for the
Series D Stock were approximately $53,000. The
F-34
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
holders of the Series D Stock have voting rights equivalent to those of common
shareholders. The options to purchase additional Series D Stock have an
exercise price of $.01 per share, a term of 10 years and fully vest on March
31, 2000. No options to purchase the Series D Stock have been exercised as of
December 31, 1999.
The Series D Stock and related options are convertible to an aggregate of
2,300,000 shares of the Company's common stock at any time, however, if not
converted prior to the Company's next private placement of equity securities
and the fair value of the Company is determined to be less than $40,000,000 at
the time of the private placement, the Series D Stock and related options are
convertible into 2,400,000 shares of the Company's common stock. In addition,
the Series D Stock and related options are automatically converted upon a
Qualified Public Offering, as defined in the acquisition agreement.
Warrants to Purchase Common Stock
As discussed in note 3, the Company issued unsecured bridge promissory
notes with detachable Bridge Warrants during 1999. The amount of Bridge
Warrants to be issued to each holder is equal to 10% of the unsecured bridge
promissory notes (total of $300,000) divided by (a) the implied value of one
share of common stock in a Qualified Transaction or (b) $1.75 in the event a
private placement does not occur prior to the maturity of the Bridge Warrants
on November 30, 2009. The Bridge Warrants are exercisable anytime after a
Qualified Transaction and before maturity at an exercise price of $.01.
The Company also issued 47,406 warrants to purchase common stock at an
exercise price of $.01 to a third party in exchange for services provided to
the Company. These warrants are exercisable any time prior to expiration in
May 2004.
(6) Equipment
Equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
-----------
1998 1999
---- ------
<S> <C> <C>
Office equipment................................................. $ 16 $ 67
Computer equipment............................................... 122 2,133
---- ------
$138 $2,200
==== ======
</TABLE>
(7) Capital Leases
The Company leases certain equipment under agreements which are classified
as capital leases. The leases have original terms ranging from 2 to 7 years.
Leased capital assets included in property and equipment are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------ ------
<S> <C> <C>
Furniture and fixtures....................................... $ 63 $ 230
Computer equipment........................................... -- 40
------ ------
63 270
Less: Accumulated amortization............................... (23) (59)
------ ------
$ 40 $ 211
====== ======
</TABLE>
F-35
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED 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 $154,000 and $33,000 in 1999 and 1998, respectively. The future
minimum payments by year as of December 31, 1999, are as follows (in
thousands):
<TABLE>
<S> <C>
2000................................................................... $ 232
2001................................................................... 200
2002................................................................... 187
2003................................................................... 100
-----
$ 719
=====
</TABLE>
(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-36
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED 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 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 for the year ended December 31, 1999, is as follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
Weighted-
Number Average
of Exercise
Shares Price
------ ---------
<S> <C> <C>
Balance at December 31, 1998............................... -- $ --
Granted.................................................... 1,396 1.06
Exercised.................................................. (4) 0.32
Forfeited.................................................. (26) 0.32
-----
Balance at December 31, 1999............................... 1,366 1.07
=====
</TABLE>
F-37
<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 approximately 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.
(14) Related Party Transactions
The Company leased certain equipment from a corporation controlled by an
officer of the Company in 1998 and 1999. The leases expire from December 1999
to October 2000. Aggregate lease payments of approximately $29,000 were made
in 1998 and 1999. An aggregate payment of approximately $8,000 will be made in
2000.
(15) Subsequent Event-Proposed Business Combination (Unaudited)
In March 2000, the Company entered into an agreement to merge with iBEAM
Broadcasting Corporation (iBEAM) in a transaction to be accounted for as a
purchase of the Company by iBEAM. Under the terms of the agreement, all issued
and outstanding common and preferred shares and warrants to purchase shares of
the Company will be exchanged for 8.0 million series F redeemable convertible
preferred shares of iBEAM which are convertible into common stock of iBEAM on
a share for share basis. In addition, holders of the Company's securities may
receive approximately an additional 1.1 million shares of common stock if the
Company meets revenue targets in the twelve months following the acquisition.
Options granted under the Company's 1999 stock option plan will be converted
into options to purchase shares of iBEAMs series F redeemable convertible
preferred stock. The transaction is expected to be completed in April 2000.
F-38
<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 February 29, 2000, (the most recent practicable
date) we granted stock options and restricted stock purchase rights to acquire
an aggregate of 25,693,377 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.
(2) From inception through February 29, 2000, we issued an aggregate of
12,326,714 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 $2,129,181. These shares were issued in reliance on Section 4(2) and Rule
701 of the Securities Act.
(3) On March 23, 1998, we sold 7,636,669 shares of common stock to our
three founders 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 one other investor
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. and three other investors for an aggregate purchase price of
$5,360,691.60. 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., three of our executive officers, a
member of our advisory board and 13 other investors 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, nine of our
executive officers and directors, one member of our advisory board and eight
other investors for an aggregate purchase price of $42,153,482.72. 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.
(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 one
of our directors 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.
II-2
<PAGE>
(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 384,024 shares
of common stock at an exercise price of $13.02 (assuming an initial public
offering price of $14.00 per share). This warrant was issued in reliance on
Section 4(2) of the Securities Act.
(15) On February 28, we issued 363,636 shares of our Series E Preferred
Stock to America Online, Inc. at a per share purchase price of $13.75 for an
aggregate consideration of $5,000,000. These shares were issued in reliance on
Section 4(2) of the Securities Act.
(16) On March 21, 2000 we entered into an Agreement and Plan of Merger
pursuant to which we will acquire webcasts.com. In connection with the
acquisition, we will issue 7,992,961 shares of our Series F Preferred Stock in
exchange for outstanding shares of webcasts.com capital stock. The issuance of
these shares will be completed in reliance of Section 4(2) of the Securities
Act and Regulation D promulgated thereunder.
(17) On March 16, 2000 we entered into an agreement with The Walt Disney
Company pursuant to which The Walt Disney Company has agreed to purchase
$10,000,000 of our Series G Preferred Stock prior to the closing of this
offering at a price to the public in the offering. Based on an assumed public
offering price of $14.00 per share, The Walt Disney Company will purchase
714,285 shares of our Series G Preferred Stock. These shares will be issued in
reliance on Section 4(2) of the Securities Act.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Relationships and Related Transactions" in the form of prospectus included
herein.
II-3
<PAGE>
Item 16. Exhibits And Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Agreement and Plan of Merger, dated March 21, 2000, by and among
the Registrant, WAC Acquisition Corporation, and Webcasts.com, Inc.
3.1 Restated Certificate of Incorporation of the Registrant.
3.2** Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed prior to the closing of this offering.
3.3** By-Laws of the Registrant.
3.4** Form of Amended and Restated By-Laws of the Registrant, to be
effective upon the closing of this offering.
4.1* Form of Registrant's Common Stock certificate.
4.2 Amended and Restated Investors' Rights Agreement dated February 15,
2000.
4.3** Series D Stock Purchase Warrant dated October 14, 1999 held by
Microsoft Corporation.
4.4 Amended and Restated Voting Agreement dated February 15, 2000.
4.5** Voting Agreement with Liberty IB, Inc. dated February 12, 1999.
4.6 Stock Subscription Warrant dated February 25, 2000 held by America
Online, Inc.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati Professional
Corporation.
10.1** Form of Indemnification Agreement entered into by the Registrant
with each of its directors and executive officers.
10.2** Employment Agreement dated January 12, 1999 between the Registrant
and Peter Desnoes.
10.3** 1998 Stock Plan and forms of agreement thereunder.
10.4** 2000 Stock Plan and forms of agreement thereunder.
10.5** 2000 Employee Stock Purchase Plan.
10.6** 2000 Director Option Plan.
10.7** Sublease Agreement dated July 6, 1998 between Netscape
Communications, Inc. and the Registrant with respect to
Registrant's facilities in Sunnyvale, California.
10.8**+ iBEAM and Microsoft Broadband Streaming Initiative Agreement dated
September 20, 1999.
10.9**+ iBEAM Network Membership Agreement by and between the Registrant
and Covad Communications Group dated October 5, 1999.
10.10**+ Teleport Services Agreement dated December 13, 1999 between
Williams Vyvx Services, a business unit of Williams Communications,
Inc., and the Registrant.
10.11+ System Services Agreement dated January 27, 2000 between America
Online, Inc. and the Registrant.
10.12+ iBEAM Network Membership Agreement by and between the Registrant
and NorthPoint Communications, Inc. dated September 30, 1999.
10.13 Employment Letter between the Registrant and Chris Dier dated
November 18, 1998.
10.14 Employment Letter between the Registrant and Jeremy Zullo dated
July 9, 1999.
10.15 Employment Letter between the Registrant and Nils Lahr dated July
9, 1999.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of KPMG LLP, Independent Auditor.
23.3* Consent of Counsel. Reference is made to Exhibit 5.1.
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
Item 17. Undertakings
We hereby undertake to provide to the underwriters at the closing specified
in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification by us for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of iBEAM pursuant to the provisions referenced in Item 14 of this Registration
Statement or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by a director, officer, or
controlling person of iBEAM in the successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered hereunder, we will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
We hereby undertake that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by iBEAM pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Sunnyvale, State of California, on the 21st day of March, 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 March 21, 2000
____________________________________ Executive Officer and
Peter Desnoes Chairman of the Board
(Principal Executive
Officer)
/s/ Chris Dier Vice President and Chief March 21, 2000
____________________________________ Financial Officer
Chris Dier (Principal Financial and
Accounting Officer)
Barry Baker* Director March 21, 2000
____________________________________
Barry Baker
Frederic Seegal* Director March 21, 2000
____________________________________
Frederic Seegal
Richard Shapero* Director March 21, 2000
____________________________________
Richard Shapero
Peter Wagner* Director March 21, 2000
____________________________________
Peter Wagner
Robert Wilmot* Director March 21, 2000
____________________________________
Robert Wilmot
</TABLE>
*By: /s/ Chris Dier
________________________
Chris Dier
Attorney-in-fact
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Agreement and Plan of Merger, dated March 21, 2000, by and among the
Registrant, WAC Acquisition Corporation, and Webcasts.com, Inc.
3.1 Restated Certificate of Incorporation of the Registrant.
3.2** Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed prior to the closing of this offering.
3.3** By-Laws of the Registrant.
3.4** Form of Amended and Restated By-Laws of the Registrant, to be
effective upon the closing of this offering.
4.1* Form of Registrant's Common Stock certificate.
4.2 Amended and Restated Investors' Rights Agreement dated February 15,
2000.
4.3** Series D Stock Purchase Warrant dated October 14, 1999 held by
Microsoft Corporation.
4.4 Amended and Restated Voting Agreement dated February 15, 2000.
4.5** Voting Agreement with Liberty IB, Inc. dated February 12, 1999.
4.6 Stock Subscription Warrant dated February 25, 2000 held by America
Online, Inc.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati Professional Corporation.
10.1** Form of Indemnification Agreement entered into by the Registrant with
each of its directors and executive officers.
10.2** Employment Agreement dated January 12, 1999 between the Registrant
and Peter Desnoes.
10.3** 1998 Stock Plan and forms of agreement thereunder.
10.4** 2000 Stock Plan and forms of agreement thereunder.
10.5** 2000 Employee Stock Purchase Plan.
10.6** 2000 Director Option Plan.
10.7** Sublease Agreement dated July 6, 1998 between Netscape
Communications, Inc. and the Registrant with respect to Registrant's
facilities in Sunnyvale, California.
10.8**+ iBEAM and Microsoft Broadband Streaming Initiative Agreement dated
September 20, 1999.
10.9**+ iBEAM Network Membership Agreement by and between the Registrant and
Covad Communications Group dated October 5, 1999.
10.10**+ Teleport Services Agreement dated December 13, 1999 between Williams
Vyvx Services, a business unit of Williams Communications, Inc., and
the Registrant.
10.11+ System Services Agreement dated January 27, 2000 between America
Online, Inc. and the Registrant.
10.12+ iBEAM Network Membership Agreement by and between the Registrant and
NorthPoint Communications, Inc.
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.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of KPMG LLP, Independent Auditor.
23.3* Consent of Counsel. Reference is made to Exhibit 5.1.
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested.
<PAGE>
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION OF
iBEAM BROADCASTING CORPORATION
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
iBEAM Broadcasting Corporation, a corporation organized and existing
under and by virtue of the provisions of the General Corporation Law of the
State of Delaware (the "General Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the name of this corporation is iBEAM Broadcasting
Corporation and that this corporation was originally incorporated pursuant to
the General Corporation Law on March 20, 1998 under the name Bowles, Inc.
SECOND: That the Board of Directors duly adopted resolutions
proposing to amend and restate the Certificate of Incorporation of this
corporation, declaring said amendment and restatement to be advisable and in the
best interests of this corporation and its stockholders, and authorizing the
appropriate officers of this corporation to solicit the consent of the
stockholders therefor, which resolution setting forth the proposed amendment and
restatement is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is iBEAM Broadcasting Corporation.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 15 East North Street in the City of Dover, County of Kent. The name
of the corporation's registered agent at such address is Incorporating Services,
Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
A. Classes of Stock. This corporation is authorized to issue two
----------------
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." On January 20,
<PAGE>
2000, a Restated Certificate of Incorporation was filed pursuant to which each
outstanding share of Common Stock was divided into three shares of Common
Stock. The total number of shares that this corporation is authorized to issue
is One Hundred and Forty Million (140,000,000) shares. One Hundred and Twenty
Million (120,000,000) shares shall be Common Stock and Twenty Million
(20,000,000) shares shall be Preferred Stock, each with a par value of $0.0001
per share. The first series of Preferred Stock shall be designated "Series A
Preferred Stock," consisting of One Million Three Hundred and Fifty Thousand
(1,350,000) shares. The second series of Preferred Stock shall be designated
"Series B Preferred Stock," consisting of Three Million Three Hundred and
Eighty Thousand (3,380,000) shares. The third series of Preferred Stock shall
be designated "Series C Preferred Stock," consisting of Three Million Six
Hundred and Fifty Thousand (3,650,000) shares. The fourth series of Preferred
Stock shall be designated "Series D Preferred Stock," consisting of Seven
Million Five Hundred Thousand (7,500,000) shares. The fifth series of
Preferred Stock shall be designated "Series E Preferred Stock", consisting of
Three Million (3,000,000) shares.
B. Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by this Restated Certificate of Incorporation may
be issued from time to time in one or more series. The rights, preferences,
privileges, and restrictions granted to and imposed on the Series A, Series B,
Series C, Series D and Series E Preferred Stock are as set forth below in this
Article IV(B). The Board of Directors is hereby authorized to fix or alter the
rights, preferences, privileges and restrictions granted to or imposed upon
additional series of Preferred Stock, and the number of shares constituting
any such series and the designation thereof, or of any of them. Subject to
compliance with applicable protective voting rights that have been or may be
granted to the Preferred Stock or series thereof in Certificates of
Designation or this corporation's Certificate of Incorporation ("Protective
Provisions"), but notwithstanding any other rights of the Preferred Stock or
any series thereof, the rights, privileges, preferences and restrictions of
any such additional series may be subordinated to, pari passu with (including,
---- -----
without limitation, inclusion in provisions with respect to liquidation and
acquisition preferences, redemption and/or approval of matters by vote or
written consent), or senior to any of those of any present or future class or
series of Preferred or Common Stock. Subject to compliance with applicable
Protective Provisions, the Board of Directors is also authorized to increase
or decrease the number of shares of any series (other than the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock), prior or subsequent to the issue
of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
1. Dividend Provisions.
-------------------
(a) Subject to the rights of any series of Preferred Stock that may
from time to time come into existence, the holders of shares of Series A,
Series B, Series C, Series D and Series E Preferred Stock shall be entitled to
receive dividends, out of any assets legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable other than
in Common Stock or other securities and rights convertible into or entitling
the holder thereof to receive, directly or indirectly, additional shares of
Common Stock of this corporation) on the Common Stock of this corporation, at
the rate of (A) $0.096 per share per annum for each
2
<PAGE>
share of Series A Preferred Stock then held by them (as adjusted for any stock
splits, stock dividends, recapitalizations or the like), (B) $0.132 per share
per annum for each share of Series B Preferred Stock then held by them (as
adjusted for any stock splits, stock dividends, recapitalizations or the
like), (C) $0.274 per share per annum for each share of Series C Preferred
Stock then held by them (as adjusted for any stock splits, stock dividends,
recapitalizations or the like), (D) $0.477 per share per annum for each share
of Series D Preferred Stock then held by them (as adjusted for any stock
splits, stock dividends, recapitalizations or the like), (E) $1.10 per share
per annum for each share of Series E Preferred Stock then held by them or such
greater amount as is paid on the Common Stock, payable when, as, and if
declared by the Board of Directors. Such dividends shall not be cumulative.
The holders of the outstanding Series A, Series B, Series C, Series D or
Series E Preferred Stock can waive any dividend preference that such holders
of each such respective series shall be entitled to receive under this Section
1 upon the affirmative vote or written consent of the holders of at least a
majority of the Series A, Series B, Series C, Series D or Series E Preferred
Stock respectively, then outstanding.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock that may from time to time come into existence, the
holders of Series A, Series B, Series C, Series D and Series E Preferred Stock
shall be entitled to receive, prior and in preference to any distribution of
any of the assets of this corporation to the holders of Common Stock by reason
of their ownership thereof, an amount per share equal to the sum of (A) $1.20
for each outstanding share of Series A Preferred Stock (the "Original Series A
Issue Price"), plus declared but unpaid dividends on such share (subject to
adjustment of such fixed dollar amounts for any stock splits, stock dividends,
combinations, recapitalizations or the like); (B) $1.65 for each outstanding
share of Series B Preferred Stock (the "Original Series B Issue Price"), plus
declared but unpaid dividends on such share (subject to adjustment of such
fixed dollar amounts for any stock splits, stock dividends, combinations,
recapitalizations or the like); (C) $3.42 for each outstanding share of Series
C Preferred Stock (the "Original Series C Issue Price"), plus declared but
unpaid dividends on such share (subject to adjustment of such fixed dollar
amounts for any stock splits, stock dividends, combinations, recapitalizations
or the like); (D) $5.96 for each outstanding share of Series D Preferred Stock
(the "Original Series D Issue Price"), plus declared but unpaid dividends on
such share (subject to adjustment of such fixed dollar amounts for any stock
splits, stock dividends, combinations, recapitalizations or the like) and (E)
$13.75 for each outstanding share of Series E Preferred Stock (the "Original
Series E Issue Price"), plus declared but unpaid dividends on such share
(subject to adjustment of such fixed dollar amounts for any stock splits,
stock dividends, combinations, recapitalizations or the like). If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series A, Series B, Series C, Series D and Series E Preferred
Stock shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then, subject to the rights of series of
Preferred Stock that may from time to time come into existence, the entire
assets and funds of this corporation legally available for distribution shall
be distributed ratably among the holders of the Series A, Series B, Series C,
Series D and Series E Preferred Stock in proportion to the foregoing
respective liquidation preferences of such holder.
3
<PAGE>
(b) Upon the completion of the distribution required by subsection
(a) of this Section 2 and any other distribution that may be required with
respect to series of Preferred Stock that may from time to time come into
existence, the remaining assets of this corporation available for distribution
to stockholders shall be distributed among the holders of Series A, Series B,
Series C, Series D and Series E Preferred Stock and Common Stock pro rata
based on the number of shares of Common Stock held by each (assuming full
conversion of all such Series A, Series B, Series C, Series D and Series E
Preferred Stock) until the value of the assets distributed to or the
consideration received by such holders in the aggregate equals $180,000,000
(including amounts paid pursuant to subsection (a) of this Section 2);
(c) Thereafter, subject to the rights of series of Preferred Stock
that may from time to time come into existence, if assets remain in this
corporation, the holders of the Common Stock of this corporation shall receive
all of the remaining assets of this corporation pro rata based on the number
of shares of Common Stock held by each.
(d) (i) For purposes of this Section 2, a liquidation, dissolution
or winding up of this corporation shall be deemed to be occasioned by, or to
include (unless the holders of at least a majority of the Series A, Series B,
Series C, Series D and Series E Preferred Stock then outstanding voting
together as a single class shall determine otherwise), (A) the acquisition of
this corporation by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization,
merger or consolidation) that results in the transfer of fifty percent (50%)
or more of the outstanding voting power of this corporation to another person
or entity or group of related persons or entities; or (B) a sale of all or
substantially all of the assets of this corporation.
(ii) In any of such events, if the consideration received by
this corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or through
the Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the thirty
(30) day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty (30) day period ending three (3) days prior to
the closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by this
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount
4
<PAGE>
from the market value determined as above in (A) (1), (2) or (3) to reflect
the approximate fair market value thereof, as mutually determined by this
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of such Preferred Stock.
(iii) In the event the requirements of this subsection 2(d) are
not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time
as the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A, Series B, Series C,
Series D and Series E Preferred Stock shall revert to and be the same as such
rights, preferences and privileges existing immediately prior to the date of
the first notice referred to in subsection 2(e)(iv) hereof.
(iv) This corporation shall give each holder of record of
Series A, Series B, Series C, Series D or Series E Preferred Stock written
notice of such impending transaction not later than twenty (20) days prior to
the stockholders' meeting called to approve such transaction, or twenty (20)
days prior to the closing of such transaction, whichever is earlier, and shall
also notify such holders in writing of the final approval of such transaction.
The first of such notices shall describe the material terms and conditions of
the impending transaction and the provisions of this Section 2, and this
corporation shall thereafter give such holders prompt notice of any material
changes. The transaction shall in no event take place sooner than twenty (20)
days after this corporation has given the first notice provided for herein or
sooner than ten (10) days after this corporation has given notice of any
material changes provided for herein; provided, however, that such periods may
be shortened upon the written consent of the holders of Preferred Stock that
are entitled to such notice rights or similar notice rights and that represent
at least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
3. Conversion. The holders of the Series A, Series B, Series C,
----------
Series D and Series E Preferred Stock shall have conversion rights as follows
(the "Conversion Rights"):
(a) Right to Convert. Subject to Section 3(d), each share of Series
----------------
A, Series B, Series C, Series D and Series E Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date
of issuance of such share, at the office of this corporation or any transfer
agent for such stock, into such number of fully paid and nonassessable shares
of Common Stock as is determined by (i) in the case of the Series A Preferred
Stock, dividing the Original Series A Issue Price by the Conversion Price
applicable to such share, determined as hereafter provided, in effect on the
date the certificate is surrendered for conversion; (ii) in the case of the
Series B Preferred Stock, dividing the Original Series B Issue Price by the
Conversion Price applicable to such share, determined as hereafter provided,
in effect on the date the certificate is surrendered for conversion; (iii) in
the case of the Series C Preferred Stock, dividing the Original Series C Issue
Price by the Conversion Price applicable to such share, determined as
hereafter provided, in effect on the date the certificate is surrendered for
conversion; (iv) in the case of the Series D Preferred Stock, dividing the
Original Series D Issue Price by the Conversion Price applicable to such
share, determined as hereafter provided,
5
<PAGE>
in effect on the date the certificate is surrendered for conversion; (v) in
the case of the Series E Preferred Stock, dividing the Original Series E Issue
Price by the Conversion Price applicable to such share, determined as
hereafter provided, in effect on the date the certificate is surrendered for
conversion. The initial Conversion Price per share for shares of Series A,
Series B, Series C, Series D and Series E Preferred Stock shall be the
Original Series A Issue Price, Original Series B Issue Price, Original Series
C Issue Price, Original Series D Issue Price and Original Series E Issue Price
respectively; provided, however, that the Conversion Price for the Series A,
Series B, Series C, Series D and Series E Preferred Stock shall be subject to
adjustment from time to time as set forth in subsection 3(d). On and after
January 20, 2000, the Conversion Price shall be equal to (A) $0.40 for each
outstanding share of Series A Preferred Stock; (B) $0.55 for each outstanding
share of Series B Preferred Stock; (C) $1.14 for each outstanding share of
Series C Preferred Stock; (D) $1.9867 for each outstanding share of Series D
Preferred Stock (subject to further adjustment from time to time as set forth
in subsection 3(d)).
(b) Automatic Conversion. Each share of Series A, Series B, Series
--------------------
C and Series E Preferred Stock shall automatically be converted into shares of
Common Stock at the Conversion Price at the time in effect for such Series A,
Series B, Series C, Series D or Series E Preferred Stock immediately upon the
earlier of (i) this corporation's sale of its Common Stock in a firm
commitment underwritten public offering pursuant to a registration statement
on Form S-1 or Form SB-2 under the Securities Act of 1933, as amended, the
public offering price of which was not less than $3.97 per share (as adjusted
for any stock splits, stock dividends, recapitalizations or the like) and
$20,000,000 in the aggregate or (ii) the date specified by written consent or
agreement of the holders of a majority of the then outstanding shares of
Series A, Series B, Series C, Series D and Series E Preferred Stock, voting
together as a single class.
(c) Mechanics of Conversion. Except as provided in Section 3(b),
--- -----------------------
before any holder of Series A, Series B, Series C, Series D or Series E
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he or she shall surrender the certificate or certificates therefor,
duly endorsed, at the office of this corporation or of any transfer agent for
the Series A, Series B, Series C, Series D or Series E Preferred Stock , and
shall give written notice to this corporation at its principal corporate
office, of the election to convert the same and shall state therein the name
or names in which the certificate or certificates for shares of Common Stock
are to be issued. This corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Series A, Series B, Series
C, Series D or Series E Preferred Stock, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series A, Series B, Series C, Series D
or Series E Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
shares of Common Stock as of such date. If the conversion is in connection
with an underwritten offering of securities registered pursuant to the
Securities Act of 1933, the conversion may, at the option of any holder
tendering Series A, Series B, Series C, Series D or Series E Preferred Stock
for conversion, be conditioned upon the closing with the underwriters of the
sale of securities pursuant to such offering, in which event the persons
entitled to receive the Common Stock upon conversion of the Series A, Series
B, Series C, Series D or Series E Preferred Stock shall not be deemed to have
converted such Series A,
6
<PAGE>
Series B, Series C, Series D or Series E Preferred Stock until immediately
prior to the closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for Certain
-----------------------------------------------------------
Dilutive Issuances, Splits and Combinations. The Conversion Price of the
- -------------------------------------------
Series A, Series B, Series C, Series D and Series E Preferred Stock shall be
subject to adjustment from time to time as follows:
(i) (A) If this corporation shall issue, after the date upon
which any shares of Series A, Series B, Series C, Series D or Series E
Preferred Stock were first issued (the "Purchase Date" with respect to such
series), any Additional Stock (as defined below) without consideration or for
a consideration per share less than the Conversion Price for such series in
effect immediately prior to the issuance of such Additional Stock, the
Conversion Price for such series in effect immediately prior to each such
issuance shall forthwith (except as otherwise provided in this clause (i)) be
adjusted to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (including shares of Common
Stock deemed to be issued pursuant to subsection 3(d)(i)(E)(1) or (2)) plus
the number of shares of Common Stock that the aggregate consideration received
by this corporation for such issuance would purchase at such Conversion Price;
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (including shares of Common
Stock deemed to be issued pursuant to subsection 3(d)(i)(E)(1) or (2)) plus
the number of shares of such Additional Stock.
(B) No adjustment of the Conversion Price for the Series
A, Series B, Series C, Series D or Series E Preferred Stock shall be made in
an amount less than one cent per share, provided that any adjustments that are
not required to be made by reason of this sentence shall be carried forward
and shall be either taken into account in any subsequent adjustment made prior
to three (3) years from the date of the event giving rise to the adjustment
being carried forward, or shall be made at the end of three (3) years from the
date of the event giving rise to the adjustment being carried forward. Except
to the limited extent provided for in subsections (E)(3) and (E)(4), no
adjustment of such Conversion Price pursuant to this subsection 3(d)(i) shall
have the effect of increasing the Conversion Price above the Conversion Price
in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or
after the applicable Purchase Date) of options to purchase or rights to
subscribe for Common Stock,
7
<PAGE>
securities by their terms convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such convertible or
exchangeable securities, the following provisions shall apply for all purposes
of this subsection 3(d)(i) and subsection 3(d)(ii):
(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time
such options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in subsections 3(d)(i)(C) and
(d)(i)(D)), if any, received by this corporation upon the issuance of such
options or rights plus the minimum exercise price provided in such options or
rights (without taking into account potential antidilution adjustments) for
the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of, or in exchange for, any such convertible
or exchangeable securities or upon the exercise of options to purchase or
rights to subscribe for such convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be deemed to have been issued
at the time such securities were issued or such options or rights were issued
and for a consideration equal to the consideration, if any, received by this
corporation for any such securities and related options or rights (excluding
any cash received on account of accrued interest or accrued dividends), plus
the minimum additional consideration, if any, to be received by this
corporation (without taking into account potential antidilution adjustments)
upon the conversion or exchange of such securities or the exercise of any
related options or rights (the consideration in each case to be determined in
the manner provided in subsections 3(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion of or
in exchange for such convertible or exchangeable securities, including, but
not limited to, a change resulting from the antidilution provisions thereof
(unless such options or rights or convertible or exchangeable securities were
merely deemed to be included in the numerator and denominator for purposes of
determining the number of shares of Common Stock outstanding for purposes of
subsection 3(d)(i)(A)), the Conversion Price of the Series A, Series B, Series
C, Series D and the Series E Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of
such securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series A, Series B,
Series C, Series D or Series E Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities or options or
rights related to such securities (unless such options or rights were merely
deemed to be included in the numerator and denominator for purposes of
determining the number of shares of Common Stock outstanding for purposes of
subsection 3(d)(i)(A)), shall be recomputed to reflect the issuance of
8
<PAGE>
only the number of shares of Common Stock (and convertible or exchangeable
securities that remain in effect) actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
3(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
3(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 3(d)(i)(E)) by
this corporation after the Purchase Date for the Series E Preferred other
than:
(A) Common Stock issued pursuant to a transaction
described in subsection 3(d)(iii) hereof;
(B) Common Stock (or options therefor) issuable or issued
to employees, consultants, directors or vendors (if in transactions with
primarily non-financing purposes) of this corporation, with the approval of a
majority of the members of the Board of Directors not holding management
positions with the Company, directly or pursuant to a stock option plan or
restricted stock plan approved by the Board of Directors of this corporation
(and the reissuance of any shares issued or subject to outstanding options
returned to the Company from any unexercised options or restricted stock
repurchased by the Company after such date); or
(C) the issuance of stock, warrants or other securities or
rights, with the approval of a majority of the Board of Directors of the
Company, to persons or entities in connection with a bona fide business
acquisition of or by the Company, whether by merger, consolidation, sale of
assets, sale or exchange of stock or otherwise; or
(D) the issuance of stock warrants or other securities or
rights, with the approval of a majority of the Board of Directors of the
Company, to persons with which the Company is entering or has entered into a
strategic relationship; or
(E) the issuance of stock, warrants or other securities or
rights in connection with bank and other debt financings, commercial lending,
equipment financings, capital lease, or similar transactions approved by a
majority of the Board of Directors of this corporation;
(F) in the event that Intel Corporation and the Company
agree on the terms of a technology development relationship, the issuance of a
warrant to Intel Corporation to purchase up to 146,199 shares of Series C
Preferred Stock for $3.42 per share (subject to adjustment of such fixed
dollar amounts for any stock splits, stock dividends, combinations,
recapitalizations or the like) and the issuance of any Common Stock in
connection with the conversion of such preferred stock;
(G) the issuance of a warrant to Comdisco Inc. to purchase
up to 6,397 shares of Series D Preferred Stock for $4.69 per share (subject to
adjustment of such
9
<PAGE>
fixed dollar amounts for any stock splits, stock dividends, combinations,
recapitalizations or the like) and the issuance of any Common Stock in
connection with the conversion of such preferred stock;
(H) the issuance of a warrant to America Online to
purchase $5 million of Common Stock of the Company at an exercise price equal
to the price to public in the Company's initial public offering of Common
Stock.
(iii) In the event this corporation should at any time or from
time to time after the Purchase Date fix a record date for the effectuation of
a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any
consideration by such holder for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date
(or the date of such dividend distribution, split or subdivision if no record
date is fixed), the Conversion Price of the Series A, Series B, Series C,
Series D or Series E Preferred Stock shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
such series shall be increased in proportion to such increase of the aggregate
of shares of Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents.
(iv) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination,
the Conversion Price for the Series A, Series B, Series C, Series D and Series
E Preferred Stock shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of such series
shall be decreased in proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event this corporation shall declare
-------------------
a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in subsection 3(d)(iii),
then, in each such case for the purpose of this subsection 3(e), the holders
of the Series A, Series B, Series C, Series D and Series E Preferred Stock
shall be entitled to a proportionate share of any such distribution as though
they were the holders of the number of shares of Common Stock of this
corporation into which their shares of Series A, Series B, Series C, Series D
and/or Series E Preferred Stock are convertible as of the record date fixed
for the determination of the holders of Common Stock of this corporation
entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3 or Section 2) provision shall be made so that the holders of
the Series A, Series B, Series C, Series D and Series E Preferred Stock shall
thereafter be entitled to receive upon conversion of the Series A, Series B,
Series C, Series D or Series E Preferred Stock, the number of shares of stock
or other securities or property
10
<PAGE>
of the Corporation or otherwise, to which a holder of Common Stock deliverable
upon conversion would have been entitled on such recapitalization. In any such
case, appropriate adjustment shall be made in the application of the
provisions of this Section 3 with respect to the rights of the holders of the
Series A, Series B, Series C, Series D and Series E Preferred Stock after the
recapitalization to the end that the provisions of this Section 3 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series A, Series B, Series C, Series D and
Series E Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.
(g) No Impairment. This corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in
the carrying out of all the provisions of this Section 3 and in the taking of
all such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A, Series B, Series C, Series D
and Series E Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the conversion of
any share or shares of the Series A, Series B, Series C, Series D or Series E
Preferred Stock and the number of shares of Common Stock to be issued shall be
rounded to the nearest whole share. Whether or not fractional shares are
issuable upon such conversion shall be determined on the basis of the total
number of shares of Series A, Series B, Series C, Series D and/or Series E
Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series A, Series B, Series C, Series D or Series E
Preferred Stock pursuant to this Section 3, this corporation, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Series A, Series B,
Series C, Series D and Series E Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. This corporation shall, upon the
written request at any time of any holder of Series A, Series B, Series C,
Series D or Series E Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price for such series of Preferred Stock at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any,
of other property that at the time would be received upon the conversion of a
share of Series A, Series B, Series C, Series D or Series E Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
----------------------
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, this
corporation shall mail to each holder of
11
<PAGE>
Series A, Series B, Series C, Series D and Series E Preferred Stock, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A, Series B, Series C, Series D and
Series E Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series A, Series B, Series C, Series D and Series E Preferred
Stock; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A, Series B, Series C, Series D and Series E
Preferred Stock, in addition to such other remedies as shall be available to
the holder of such Preferred Stock, this corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes, including, without limitation, engaging
in best efforts to obtain the requisite stockholder approval of any necessary
amendment to this certificate.
(k) Notices. Any notice required by the provisions of this Section
-------
3 to be given to the holders of shares of Series A, Series B, Series C, Series
D and/or Series E Preferred Stock shall be deemed given if deposited in the
United States mail, postage prepaid, and addressed to each holder of record at
his address appearing on the books of this corporation.
4. Voting Rights.
-------------
(a) General Voting Rights. The holder of each share of Series A,
---------------------
Series B, Series C, Series D and Series E Preferred Stock shall have the right
to one vote for each share of Common Stock into which such Series A, Series B,
Series C, Series D or Series E Preferred Stock could then be converted, and
with respect to such vote, such holder shall have full voting rights and
powers equal to the voting rights and powers of the holders of Common Stock,
and shall be entitled, notwithstanding any provision hereof, to notice of any
stockholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote.
Fractional votes shall not, however, be permitted and any fractional voting
rights available on an as-converted basis (after aggregating all shares into
which shares of Series A, Series B, Series C, Series D and/or Series E
Preferred Stock held by each holder could be converted) shall be rounded to
the nearest whole number (with one-half being rounded upward).
(b) Voting for the Election of Directors.
------------------------------------
(i) As long as at least a majority of the shares of Series A
Preferred Stock originally issued remain outstanding, the holders of such
shares of Series A Preferred Stock shall be entitled to elect one (1) director
of this corporation at each annual election of directors.
12
<PAGE>
(ii) As long as at least a majority of the shares of Series B
Preferred Stock originally issued remain outstanding, the holders of such
shares of Series B Preferred Stock shall be entitled to elect one (1) director
of this corporation at each annual election of directors.
(iii) The remaining directors of this corporation shall be
elected as determined in the by-laws by the holders of the Common Stock and
the Series A, Series B, Series C, Series D and Series E Preferred Stock voting
together as a single class on an as if converted into Common Stock basis.
In the case of any vacancy (other than a vacancy caused by removal) in
the office of a director occurring among the directors elected by the holders of
a class or series of stock pursuant to this Section 4(b), the remaining
directors so elected by that class or series may by affirmative vote of a
majority thereof (or the remaining director so elected if there be but one, or
if there are no such directors remaining, by the affirmative vote of the holders
of a majority of the shares of that class or series), elect a successor or
successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of a class or series of stock or by any directors so elected as
provided in the immediately preceding sentence hereof may be removed during the
aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders of the shares of the class or series of stock
entitled to elect such director or directors, given either at a special meeting
of such stockholders duly called for that purpose or pursuant to a written
consent of stockholders, and any vacancy thereby created may be filled by the
holders of that class or series of stock represented at the meeting or pursuant
to unanimous written consent.
5. Protective Provisions. So long as any shares of Series A, Series
---------------------
B, Series C, Series D and/or Series E Preferred Stock are outstanding (as
adjusted for any stock dividends, combinations or splits with respect to such
shares), this corporation shall not:
(a) without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of Series A, Series B, Series C, Series D and Series E
Preferred Stock, voting together as a single class:
(i) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security having a preference over, or being on a parity with,
the Series A, Series B, Series C, Series D or Series E Preferred Stock with
respect to dividends, liquidation or voting;
(ii) redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any share or shares of Preferred
Stock or Common Stock; provided, however, that this restriction shall not
apply to (x) the repurchase of shares of Common Stock from employees,
officers, directors, consultants or other persons performing services for this
corporation or any subsidiary pursuant to agreements under which this
corporation has the option to repurchase such shares at cost or at cost upon
the occurrence of certain events, such as the termination of employment or (y)
repurchases of shares of Common Stock not exceeding $25,000 during any twelve
(12) month period;
13
<PAGE>
(iii) declare or pay dividends on or make any distribution on
the account of the Common Stock;
(iv) sell, convey, or otherwise dispose of all or
substantially all of its property or business or merge into or consolidate
with any other corporation (other than a wholly-owned subsidiary corporation)
or effect any transaction or series of related transactions in which more than
fifty percent (50%) or more of the voting power of this corporation shall have
passed to another person or entity or group of related persons or entities;
(v) dissolve, liquidate or wind up the corporation; or
(vi) sell, contract to sell or allow any subsidiary of this
corporation to sell securities of the subsidiary to a third person.
(b) without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock, voting as a single class:
(i) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series A Preferred Stock;
or
(ii) amend this corporation's Certificate of Incorporation in a
manner that would alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock so as to affect adversely the shares.
(c) without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of Series B Preferred Stock, voting as a single class:
(i) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series B Preferred Stock;
or
(ii) amend this corporation's Certificate of Incorporation in
a manner that would alter or change the rights, preferences or privileges of
the shares of Series B Preferred Stock so as to affect adversely the shares.
(d) without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of Series C Preferred Stock, voting as a single class:
(i) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series C Preferred Stock;
or
(ii) amend this corporation's Certificate of Incorporation in a
manner that would alter or change the rights, preferences or privileges of the
shares of Series C Preferred Stock so as to affect adversely the shares.
14
<PAGE>
(e) without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of Series D Preferred Stock, voting as a single class:
(i) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series D Preferred Stock;
or
(ii) amend this corporation's Certificate of Incorporation in
a manner that would alter or change the rights, preferences or privileges of
the shares of Series D Preferred Stock so as to affect adversely the shares.
(f) without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of Series E Preferred Stock, voting as a single class:
(i) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series E Preferred stock,
or
(ii) amend this corporation's Certificate of Incorporation in a
manner that would alter or change the rights, preferences or privileges of the
shares of Series E Preferred Stock so as to affect adversely the shares.
(g) The authorization or issuance of any equity security, other
than the Series A, Series B, Series C, Series D or Series E Preferred Stock,
including any equity security convertible into or exercisable for any equity
security having a preference over, or on a parity with the Series A, Series B,
Series C, Series D or Series E Preferred Stock with respect to dividends,
liquidation or voting, which has been approved pursuant to Section 5(a)(i)
hereof, shall not require additional approval under any of Sections 5(b),
5(c), 5(d), 5(e) or 5(f).
6. Status of Converted Stock. In the event any shares of Series A,
-------------------------
Series B, Series C, Series D or Series E Preferred Stock shall be converted
pursuant to Section 3 hereof, the shares so converted shall be canceled and
shall not be issuable by this corporation. The Restated Certificate of
Incorporation of this corporation shall be appropriately amended to effect the
corresponding reduction in this corporation's authorized capital stock.
C. Common Stock. The rights, preferences, privileges and
------------
restrictions granted to and imposed on the Common Stock are as set forth below
in this Article IV(C).
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of this corporation
legally available therefor, such dividends as may be declared from time to
time by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of this corporation, the assets of this corporation shall be distributed as
provided in Section 2 of Division (B) of Article IV hereof.
15
<PAGE>
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote for each such share, and shall be entitled to
notice of any stockholders' meeting in accordance with the bylaws of this
corporation, and shall be entitled to vote upon such matters and in such
manner as may be provided by law.
ARTICLE V
Except as otherwise provided in this Certificate of Incorporation, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed from time
to time by a bylaw or amendment thereof duly adopted by the Board of Directors
or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws
of this corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of this corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this corporation.
ARTICLE IX
A director of this corporation shall, to the fullest extent permitted
by the General Corporation Law as it now exists or as it may hereafter be
amended, not be personally liable to this corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to this
corporation or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law, or (iv) for any transaction from
which the director derived any improper personal benefit. If the General
Corporation Law is amended, after approval by the stockholders of this Article,
to authorize corporation action further eliminating or limiting the personal
liability of directors, then the liability of a director of this corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law, as so amended.
Any amendment, repeal or modification of this Article IX, or the
adoption of any provision of this Restated Certificate of Incorporation
inconsistent with this Article IX, by the stockholders of this corporation shall
not apply to or adversely affect any right or protection of a
16
<PAGE>
director of this corporation existing at the time of such amendment, repeal,
modification or adoption.
ARTICLE X
This corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE XI
To the fullest extent permitted by applicable law, this corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of this corporation (and any other persons to which General Corporation Law
permits this corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the General Corporation Law,
subject only to limits created by applicable General Corporation Law (statutory
or non-statutory), with respect to actions for breach of duty to this
corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing provisions of
this Article XI shall not adversely affect any right or protection of a
director, officer, agent, or other person existing at the time of, or increase
the liability of any director of this corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to, such amendment,
repeal or modification.
* * *
THIRD: The foregoing amendment and restatement was approved by the
holders of the requisite number of shares of said corporation in accordance with
Section 228 of the General Corporation Law.
FOURTH: That said amendment and restatement was duly adopted in
accordance with the provisions of Section 242 and 245 of the General Corporation
Law.
17
<PAGE>
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has
been executed by the Vice President - Chief Financial Officer of this
corporation on this 14th day of February, 2000.
/s/ Chris Dier
----------------------------------------------------
Chris Dier, Vice President - Chief Financial Officer
<PAGE>
EXHIBIT 4.2
iBEAM BROADCASTING CORPORATION
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
February 15, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Registration Rights........................................ 1
1.1 Definitions.......................................... 1
1.2 Request for Registration............................. 2
1.3 Company Registration................................. 4
1.4 Form S-3 Registration................................ 5
1.5 Obligations of the Company........................... 6
1.6 Information from Holder.............................. 7
1.7 Expenses of Registration............................. 7
1.8 Delay of Registration................................ 8
1.9 Indemnification...................................... 8
1.10 Reports Under Securities Exchange Act of 1934........ 10
1.11 Assignment of Registration Rights.................... 10
1.12 Limitations on Subsequent Registration Rights........ 11
1.13 "Market Stand-Off" Agreement......................... 11
1.14 Termination of Registration Rights................... 11
2. Covenants of the Company................................... 12
2.1 Delivery of Financial Statements..................... 12
2.2 Inspection........................................... 12
2.3 Termination of Information and Inspection Covenants.. 13
2.4 Right of First Offer................................. 13
2.5 Termination of Right of First Offer.................. 14
2.6 MTV Observer Rights.................................. 15
2.7 Intel Observer Rights................................ 15
2.8 Microsoft Observer Rights............................ 16
2.9 Pacific Century Observer Rights...................... 17
2.10 America Online Observer Rights....................... 18
2.11 Stand-Still.......................................... 19
2.12 Restrictions on Transfer............................. 20
3. Confidentiality............................................ 21
3.1 Confidentiality...................................... 21
3.2 Amendment............................................ 23
4. Miscellaneous.............................................. 23
4.1 Successors and Assigns............................... 23
4.2 Governing Law........................................ 23
4.3 Counterparts......................................... 23
4.4 Titles and Subtitles................................. 23
4.5 Notices.............................................. 23
4.6 Expenses............................................. 23
4.7 Entire Agreement: Amendments and Waivers............. 24
4.8 Severability......................................... 24
4.9 Aggregation of Stock................................. 24
</TABLE>
<PAGE>
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of the
15th day of February, 2000, by and among iBEAM BROADCASTING CORPORATION, a
Delaware corporation (the "Company"), and the investors listed on Schedule A
hereto (each of which is herein referred to as an "Investor").
RECITALS
WHEREAS, certain of the Investors (the "Existing Investors") hold shares of
the Company's Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, or Series D Preferred Stock and/or shares of Common Stock
issued upon conversion thereof (the "Series A Preferred Stock," the "Series B
Preferred Stock," the "Series C Preferred Stock," and the "Series D Preferred
Stock," respectively) and possess registration rights, information rights,
rights of first offer, and other rights pursuant to an Amended and Restated
Investors' Rights Agreement dated as of October 14, 1999, among the Company, and
such Existing Investors (the "Prior Agreement"); and
WHEREAS, the Existing Investors are holders of at least a majority of the
"Registrable Securities" of the Company (as defined in the Prior Agreement), and
desire to amend, restate and supersede the Prior Agreement in its entirety; and
WHEREAS, new Investors are parties to the Series E Preferred Stock Purchase
Agreement of even date herewith among the Company and such new Investors (the
"Series E Agreement"), which provides that as a condition to the closing of the
sale of the Series E Preferred Stock, this Agreement must be executed and
delivered by such new Investors and Existing Investors holding at least a
majority of the "Registrable Securities" of the Company (as defined in the Prior
Agreement) and the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the Existing Investors hereby agree that the Prior Agreement shall
be amended, restated and superseded in its entirety by this Agreement, and the
parties hereto further agree as follows:
1. Registration Rights. The Company covenants and agrees as
-------------------
follows:
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Form S-3" means such form under the Act as
in effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC that permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
<PAGE>
(c) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.11 hereof.
(d) The term "Initial Offering" means the Company's first
firm commitment underwritten public offering of its Common Stock under the Act.
(e) The term "1934 Act" means the Securities Exchange Act
of 1934, as amended.
(f) The term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(g) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Series A Preferred Stock, (ii)
the Common Stock issuable or issued upon conversion of the Series B Preferred
Stock, (iii) the Common Stock issuable or issued upon conversion of the Series C
Preferred Stock, (iv) the Common Stock issuable or issued upon conversion of the
Series D Preferred Stock , (v) the Common Stock issuable or issued upon
conversion of the Series E Preferred Stock, (vi) the Common Stock purchasable or
purchased upon exercise of the warrant issued to America Online, Inc. dated
February ___, 2000 and (vii) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
that is issued as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of, the shares referenced in (i) through (vi)
above, excluding in all cases, however, any Registrable Securities sold by a
person in a transaction in which his rights under this Section 1 are not
assigned.
(h) The number of shares of Registrable Securities
outstanding shall be determined by the number of shares of Common Stock
outstanding that are, and the number of shares of Common Stock issuable pursuant
to then exercisable or convertible securities that are, Registrable Securities.
(i) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Request for Registration.
------------------------
(a) Subject to the conditions of this Section 1.2, if the
Company shall receive at any time after the earlier of (i) February 2, 2003 or
(ii) six (6) months after the effective date of the Initial Offering, a written
request from the Holders of thirty percent (30%) or more of the Registrable
Securities then outstanding (the "Initiating Holders") that the Company file a
registration statement under the Act covering the registration of Registrable
Securities with an anticipated aggregate offering price of at least $10,000,000,
then the Company shall, within twenty (20) days of the receipt thereof, give
written notice of such request to all Holders, and subject to the
-2-
<PAGE>
limitations of this Section 1.2, use all reasonable efforts to effect, as soon
as practicable, the registration under the Act of all Registrable Securities
that the Holders request to be registered in a written request received by the
Company within twenty (20) days of the mailing of the Company's notice pursuant
to this Section 1.2(a).
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 1.2 and the Company shall include such information in the written
notice referred to in Section 1.2(a). In such event the right of any Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company (which underwriter or underwriters shall be
reasonably acceptable to a majority in interest of the Initiating Holders).
Notwithstanding any other provision of this Section 1.2, if the underwriter
advises the Company that marketing factors require a limitation of the number of
securities underwritten (including Registrable Securities), then the Company
shall so advise all Holders of Registrable Securities that would otherwise be
underwritten pursuant hereto, and the number of shares that may be included in
the underwriting shall be allocated to the Holders of such Registrable
Securities on a pro rata basis based on the number of Registrable Securities
held by all such Holders (including the Initiating Holders). Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn from
the registration.
(c) The Company shall not be required to effect a
registration pursuant to this Section 1.2:
(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, unless the Company is already subject to service in
such jurisdiction and except as may be required under the Act; or
(ii) after the Company has effected two (2)
registrations pursuant to this Section 1.2, and such registrations have been
declared or ordered effective and the securities offered pursuant to such
registrations have been sold; or
(iii) during the period starting with the date sixty
(60) days prior to the Company's good faith estimate of the date of the filing
of, and ending on a date one hundred eighty (180) days following the effective
date of, a Company-initiated registration subject to Section 1.3 below, provided
that the Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective; or
(iv) if the Initiating Holders propose to dispose of
Registrable Securities that may be registered on Form S-3 pursuant to Section
1.4 hereof; or
-3-
<PAGE>
(v) if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 1.2, a certificate
signed by the Company's Chief Executive Officer or Chairman of the Board stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its stockholders for such
registration statement to be effected at such time, in which event the Company
shall have the right to defer such filing for a period of not more than one
hundred twenty (120) days after receipt of the request of the Initiating
Holders, provided that such right to delay a request shall be exercised by the
Company not more than once in any twelve (12)-month period.
1.3 Company Registration.
--------------------
(a) If (but without any obligation to do so) the Company
proposes to register (including for this purpose a registration effected by the
Company for stockholders other than the Holders) any of its stock or other
securities under the Act in connection with the public offering of such
securities (other than a registration relating solely to the sale of securities
to participants in a Company stock plan, a registration relating to a corporate
reorganization or other transaction under Rule 145 of the Act, a registration on
any form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities, a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities that are
also being registered, a registration in which the only Common Stock being
registered is Common Stock issuable pursuant to warrants issued in connection
with the issuance of debt securities, or a registration relating solely to
securities not convertible into Common Stock), the Company shall, at such time,
promptly give each Holder written notice of such registration. Upon the written
request of each Holder given within twenty (20) days (or within ten (10) days if
the notice is given after the Company has completed its Initial Offering) after
mailing of such notice by the Company in accordance with Section 4.5, the
Company shall, subject to the provisions of Section 1.3(c), use all reasonable
efforts to cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
(b) Right to Terminate Registration. The Company shall
-------------------------------
have the right to terminate or withdraw any registration initiated by it under
this Section 1.3 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. The expenses
of such withdrawn registration shall be borne by the Company in accordance with
Section 1.7 hereof.
(c) Underwriting Requirements. In connection with any
-------------------------
offering involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under this Section 1.3 to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (or by other persons entitled to select the underwriters) and enter into an
underwriting agreement in customary form with an underwriter or underwriters
selected by the Company, and then only in such quantity as the managing
underwriter determines in its sole discretion will not jeopardize the success of
the offering by the Company. If the total amount of securities, including
-4-
<PAGE>
Registrable Securities, requested by stockholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
that the underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned pro rata
among the selling Holders according to the total amount of securities entitled
to be included therein owned by each selling Holder or in such other proportions
as shall mutually be agreed to by such selling Holders), but in no event shall
(i) the amount of securities of the selling Holders included in the offering be
reduced below twenty percent (20%) of the total amount of securities included in
such offering, unless such offering is the initial public offering of the
Company's securities, in which case the selling Holders may be excluded if the
underwriters make the determination described above and no other stockholder's
securities are included, or (ii) notwithstanding (i) above, any shares being
sold by a stockholder exercising a demand registration right similar to that
granted in Section 1.2 be excluded from such offering. For purposes of the
preceding parenthetical concerning apportionment, for any selling stockholder
that is a Holder of Registrable Securities and that is a partnership or
corporation, the partners, retired partners and stockholders of such Holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "selling Holder," and any pro rata reduction with respect to such
"selling Holder" shall be based upon the aggregate amount of Registrable
Securities owned by all such related entities and individuals.
1.4 Form S-3 Registration. In case the Company shall receive
---------------------
from the Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company shall:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) use all reasonable efforts to effect, as soon as
practicable, such registration and all such qualifications and compliances as
may be so requested and as would permit or facilitate the sale and distribution
of all or such portion of such Holders' Registrable Securities as are specified
in such request, together with all or such portion of the Registrable Securities
of any other Holders joining in such request as are specified in a written
request given within fifteen (15) days after receipt of such written notice from
the Company, provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance, pursuant to this
Section 1.4:
(i) if Form S-3 is not available for such offering by
the Holders;
(ii) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable
-5-
<PAGE>
Securities and such other securities (if any) at an aggregate price to the
public (net of any underwriters' discounts or commissions) of less than
$1,000,000;
(iii) if the Company shall furnish to the Holders a
certificate signed by the Chief Executive Officer or Chairman of the Board of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than one hundred twenty (120)
days after receipt of the request of the Holder or Holders under this Section
1.4; provided, however, that the Company shall not utilize this right more than
once in any twelve month period;
(iv) if the Company has, within the twelve (12) month
period preceding the date of such request, already effected one registration on
Form S-3 for the Holders pursuant to this Section 1.4; or
(v) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as requests for registration effected pursuant
to Sections 1.2.
1.5 Obligations of the Company. Whenever required under this
--------------------------
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use all reasonable efforts to
cause such registration statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective for a period of up to one hundred
twenty (120) days or, if earlier, until the distribution contemplated in the
Registration Statement has been completed;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement;
(c) furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other
-6-
<PAGE>
documents as they may reasonably request in order to facilitate the disposition
of Registrable Securities owned by them;
(d) use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions;
(e) in the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering;
(f) notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act or the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(g) cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed; and
(h) provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
1.6 Information from Holder. It shall be a condition
-----------------------
precedent to the obligations of the Company to take any action pursuant to this
Section 1 with respect to the Registrable Securities of any selling Holder that
such Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities.
1.7 Expenses of Registration. All expenses other than
------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Sections 1.2, 1.3 and 1.4,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the Company
and for one special counsel for the Holders (which shall not exceed $20,000)
shall be borne by the Company. Notwithstanding the foregoing, the Company shall
not be required to pay for any expenses of any registration proceeding begun
pursuant to Section 1.2 if the registration request is subsequently withdrawn at
the request of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such expenses pro
rata based upon the number of Registrable Securities that were to be requested
in the withdrawn registration). Unless
-7-
<PAGE>
otherwise stated, all selling expenses incurred in connection with a
registration relating to securities registered on behalf of the Holders shall be
borne pro rata by the Holder or Holders based on the number of shares so
registered.
1.8 Delay of Registration. No Holder shall have any right to
---------------------
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.9 Indemnification. In the event any Registrable Securities
---------------
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners or officers, directors and
stockholders of each Holder, legal counsel and accountants for each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the 1934
Act, against any losses, claims, damages or liabilities (joint or several) to
which they may become subject under the Act, the 1934 Act or any state
securities laws, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Act, the 1934 Act, any
state securities laws or any rule or regulation promulgated under the Act, the
1934 Act or any state securities laws; and the Company will reimburse each such
Holder, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection l.9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person;
provided further, however, that the foregoing indemnity agreement with respect
to any preliminary prospectus shall not inure to the benefit of any Holder or
underwriter, or any person controlling such Holder or underwriter, from whom the
person asserting any such losses, claims, damages or liabilities purchased
shares in the offering, 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 Holder or 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 loss, claim, damage or liability; provided that the failure of such
Holder to deliver any such prospectus or supplement is not a result of the
Company to meet its obligations under Section 1.5 hereof.
-8-
<PAGE>
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, legal counsel and
accountants for the Company, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Act, the 1934 Act or any state securities laws, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will reimburse any person intended
to be indemnified pursuant to this subsection l.9(b), for any legal or other
expenses reasonably incurred by such person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection l.9(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder (which
consent shall not be unreasonably withheld), provided that in no event shall any
indemnity under this subsection l.9(b) exceed the gross proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties that may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.9, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section 1.9
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in
-9-
<PAGE>
such loss, liability, claim, damage or expense, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.9 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.10 Reports Under Securities Exchange Act of 1934. With a
---------------------------------------------
view to making available to the Holders the benefits of Rule 144 promulgated
under the Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety (90)
days after the effective date of the Initial Offering;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form.
1.11 Assignment of Registration Rights. The rights to cause
---------------------------------
the Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities that (i) is a subsidiary, parent, affiliate (as such
term is defined in Rule 405 promulgated under the Act) partner, limited partner,
retired partner or stockholder (collectively, "Related Person") of a Holder,
(ii) is a Holder's family member or trust for the benefit of an individual
Holder, or (iii) after such assignment or transfer,
-10-
<PAGE>
holds at least 300,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations), provided: (a) the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.13 below;
and (c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act.
1.12 Limitations on Subsequent Registration Rights. From and
---------------------------------------------
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 1.3 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of
such securities will not reduce the amount of the Registrable Securities of the
Holders that are included or (b) to demand registration of their securities.
1.13 "Market Stand-Off" Agreement. Each Holder hereby agrees
---------------------------
that it will not, without the prior written consent of the managing underwriter,
during the period commencing on the date of the final prospectus relating to the
Company's initial public offering and ending on the date specified by the
Company and the managing underwriter (such period not to exceed one hundred
eighty (l80) days) (i) lend, 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, 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 (whether such shares or any
such securities are then owned by the Holder or are thereafter acquired), 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 underwriters in connection with the Company's initial public
offering are intended third party beneficiaries of this Section 1.13 and shall
have the right, power and authority to enforce the provisions hereof as though
they were a party hereto.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period. However, nothing in this
Section 1.13 shall affect, impair or diminish any Holder's right to sell,
transfer or assign any or all of its shares of Registrable Securities to a
Related Person pursuant to the terms set forth in Section 1.11 hereof.
1.14 Termination of Registration Rights. No Holder shall be
----------------------------------
entitled to exercise any right provided for in this Section 1 after five (5)
years following the consummation of
-11-
<PAGE>
the Initial Offering or, as to any Holder, such earlier time beginning after
expiration of the "Market Standoff" set forth in Section 1.13 at which all
Registrable Securities held by such Holder (and any affiliate of the Holder with
whom such Holder must aggregate its sales under Rule 144) can be sold in any
three (3)-month period without registration in compliance with Rule 144 of the
Act.
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements. The Company shall
--------------------------------
deliver to each Investor holding shares of the Company:
(a) as soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, an income statement
for such fiscal year, a balance sheet of the Company and statement of
stockholder's equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles ("GAAP"),
and audited and certified by independent public accountants of nationally
recognized standing selected by the Company;
(b) as soon as practicable after the end of each quarter,
and in any event within forty-five (45) days after each quarterly accounting
period, an unaudited quarterly report including a balance sheet, income
statement and cash flow analysis (prepared in accordance with GAAP other than
for accompanying notes and subject to changes resulting from year-end audit
adjustments);
(c) as soon as practicable, but in any event at least
thirty (30) days prior to the end of each fiscal year, a budget and business
plan for the next fiscal year, prepared on a monthly basis, including balance
sheets, income statements and statements of cash flows for such months and, as
soon as prepared, any other budgets or revised budgets prepared by the Company;
and
(d) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time request,
provided, however, that the Company shall not be obligated under this subsection
(d) or any other subsection of Section 2.1 to provide information that it deems
in good faith to be a trade secret or similar confidential information.
2.2 Inspection. The Company shall permit each Investor that
----------
holds at least 1,800,000 shares of Registrable Securities, at such Investor's
expense, to visit and inspect the Company's properties, to examine its books of
account and records and to discuss the Company's affairs, finances and accounts
with its officers, all at such reasonable times as may be requested by the
Investor; provided, however, that the Company shall not be obligated pursuant to
this Section 2.2 to provide access to any information that it reasonably
considers to be a trade secret or similar confidential information.
-12-
<PAGE>
2.3 Termination of Information and Inspection Covenants. The
---------------------------------------------------
covenants set forth in Sections 2.1 and 2.2 shall terminate as to Investors and
be of no further force or effect when the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
firm commitment underwritten offering of its securities to the general public is
consummated or when the Company first becomes subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall
first occur.
2.4 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this paragraph 2.4 and in paragraph 2.10, the Company hereby grants
to each Major Investor (as hereinafter defined) a right of first offer with
respect to future sales by the Company of its Shares (as hereinafter defined).
For purposes of this Section 2.4, a Major Investor shall mean any Investor or
transferee that holds at least 900,000 shares of Registrable Securities. For
purposes of this Section 2.4, Investor includes any general partners and
affiliates of an Investor. An Investor shall be entitled to apportion the right
of first offer hereby granted it among itself and its partners and affiliates in
such proportions as it deems appropriate.
Except as provided in subparagraph (d), each time the Company proposes
to offer any shares of, or securities convertible into or exchangeable or
exercisable for any shares of, any class of its capital stock ("Shares"), the
Company shall first make an offering of such Shares to each Major Investor in
accordance with the following provisions.
(a) The Company shall deliver a notice in accordance with
Section 4.5 ("Notice") to the Major Investors stating (i) its bona fide
intention to offer such Shares, (ii) the number of such Shares to be offered,
and (iii) the price and terms upon which it proposes to offer such Shares.
(b) By written notification received by the Company, within
twenty (20) calendar days after receipt of the Notice, the Major Investor may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares that equals the proportion that the
number of shares of Registrable Securities then held by such Major Investor
bears to the total number of shares of Common Stock of the Company then
outstanding (assuming full conversion of all convertible securities). The
Company shall promptly, in writing, inform each Major Investor that elects to
purchase all the shares available to it (a "Fully-Exercising Investor") of any
other Major Investor's failure to do likewise. During the ten (10) day period
commencing after such information is given, each Fully-Exercising Investor may
elect to purchase that portion of the Shares for which Major Investors were
entitled to subscribe but which were not subscribed for by the Major Investors
that is equal to the proportion that the number of shares of Registrable
Securities then held by such Fully-Exercising Investor bears to the total number
of shares of Registrable Securities then held by all Fully-Exercising Investors
who wish to purchase some of the unsubscribed shares.
(c) If all Shares that Investors are entitled to obtain
pursuant to subsection 2.4(b) are not elected to be obtained as provided in
subsection 2.4(b) hereof, the Company may, during the ninety (90) day period
following the expiration of the period provided in subsection 2.4(b) hereof,
offer the remaining unsubscribed portion of such Shares to any person or
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persons at a price not less than, and upon terms no more favorable to the
offeree than, those specified in the Notice. If the Company does not enter into
an agreement for the sale of the Shares within such period, or if such agreement
is not consummated within ninety (90) days of the execution thereof, the right
provided hereunder shall be deemed to be revived and such Shares shall not be
offered unless first reoffered to the Major Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.4 shall
not be applicable to (i) the issuance or sale of shares of Common Stock (or
options therefor) granted after the date of this Amended and Restated Investors'
Rights Agreement, with the approval of a majority of the members of the Board of
Directors not holding management positions with the Company (and the reissuance
of any shares issued or subject to outstanding options returned to the Company
from any unexercised options or restricted stock repurchased by the Company
after such date), to employees, directors and consultants for the primary
purpose of soliciting or retaining their services pursuant to stock option plans
approved by the Board of Directors; (ii) the issuance of securities pursuant to
a bona fide, firmly underwritten public offering of shares of Common Stock,
registered under the Act, at an offering price of at least $3.97 per share
(appropriately adjusted for any stock split, dividend, combination or other
recapitalization) and resulting in proceeds to the Company of at least
$20,000,000 in the aggregate, (iii) the issuance of securities pursuant to the
conversion or exercise of convertible or exercisable securities, (iv) the
issuance of securities in connection with a bona fide business acquisition of or
by the Company approved by a majority of the Board of Directors of the Company,
whether by merger, consolidation, sale of assets, sale or exchange of stock or
otherwise, (v) the issuance of stock, warrants or other securities or rights,
with the approval of a majority of the Board of Directors of the Company, to
persons or entities with which the Company is entering or has entered into a
strategic relationship, (vi) the issuance of stock, warrants, or other
securities or rights in connection with and other bank debt financing,
commercial lending, equipment financings, capital lease, or similar
transactions, with the approval of a majority of the Board of Directors of the
Company, (vii) in the event that Intel Corporation and the Company agree on the
terms of a technology development relationship, the issuance of a warrant to
Intel Corporation to purchase up to 146,199 shares of Series C Preferred Stock
at $3.42 per share (subject to adjustment of such fixed dollar amounts for any
stock splits, stock dividends, combinations, recapitalizations or the like) and
the issuance of any Common Stock in connection with the conversion of such
preferred stock; (viii) the issuance of a warrant to Comdisco Inc. to purchase
6,397 shares of Series D Preferred Stock at $4.69 per share (subject to
adjustment of such fixed dollar amounts for any stock splits, stock dividends,
combinations, recapitalizations or the like) and the issuance of any Common
Stock in connection with the conversion of such preferred stock, or (ix) the
issuance of a warrant to Microsoft Corporation to purchase up to 218,120 shares
of Series D Preferred Stock at $5.96 (subject to adjustment of such fixed dollar
amounts for any stock splits, stock dividends, combinations, recapitalizations
or the like) and the issuance of any Common Stock in connection with the
conversion of such preferred stock.
2.5 Termination of Right of First Offer. The covenants set
-----------------------------------
forth in Section 2.4 shall terminate and be of no further force or effect upon
the consummation of, and shall not be applicable to, the sale of securities
pursuant to a bona fide, firmly underwritten public offering of shares of common
stock, registered under the Act, at an offering price of at least $3.97 per
share
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<PAGE>
(appropriately adjusted for any stock split, dividend, combination or other
recapitalization) and resulting in proceeds to the Company of at least
$20,000,000.
2.6 MTV Observer Rights. As long as funds affiliated with
-------------------
Media Technology Ventures, L.P. ("MTV") in the aggregate own not less than fifty
percent (50%) of the shares of the Series B Preferred Stock such funds purchased
pursuant to that certain Series B Preferred Stock Purchase Agreement by and
among the Company and certain stockholders of the Company, dated as of June 8,
1998 (or an equivalent amount of Common Stock issued upon conversion thereof),
the Company shall invite a representative of MTV to attend all meetings of its
Board of Directors in a nonvoting observer capacity and, in this respect, shall
give such representative copies of all notices, minutes, consents, and other
materials that it provides to its directors; provided, however, that such
representative shall agree to hold in confidence and trust and to act in a
fiduciary manner with respect to all information so provided; and, provided
further, that the Company reserves the right to withhold any information and to
exclude such representative from any meeting or portion thereof if access to
such information or attendance at such meeting could adversely affect the
attorney-client privilege between the Company and its counsel or would result in
disclosure of trade secrets to such representative or if such Investor or its
representative is a direct competitor of the Company. The covenants set forth in
this Section 2.6 shall terminate and be of no further force or effect upon the
occurrence of either event specified in Section 2.3 hereof.
2.7 Intel Observer Rights. As long as Intel Corporation
---------------------
("Intel"), together with its subsidiaries (defined as entities which Intel
beneficially owns, either directly or indirectly, at least 50% of the voting
securities) in the aggregate own not less than 50% of the shares of the Series C
Preferred Stock Intel purchased pursuant to the Series C Agreement (or an
equivalent amount of Common Stock issued upon conversion thereof), the Company
shall invite a representative of Intel (the "Intel Observer") to attend all
meetings of its Board of Directors in a nonvoting observer capacity and, in this
respect, shall give such representative copies of all notices, minutes,
consents, and other materials that it provides to its directors; provided,
however, that the Company reserves the right to withhold any information and to
exclude the Intel Observer from any meeting or portion thereof if access to such
information or attendance at such meeting could (a) adversely affect the
attorney-client privilege between the Company and its counsel; or (b) result in
disclosure of confidential or proprietary information of third parties. In
addition, a majority of the Company's nonemployee directors shall have the right
to exclude the Intel Observer from portions or entire meetings of the Board of
Directors or omit to provide the Intel Observer with certain information or
analysis which would pose a conflict of interest for Intel. Any disclosures of
confidential information between the Company and the Intel Observer and Intel
will be governed by the terms of the Corporate Non Disclosure Agreement Number
122651 dated August 19, 1998 and any related Confidential Information
Transmittal records executed between the Company and Intel. The Company
acknowledges that Intel will likely have, from time to time, information that
may be of interest to the Company ("Information") regarding a wide variety of
matters including, by way of example only, (1) Intel's technologies, plans and
services, and plans and strategies relating thereto, (2) current and future
investments Intel has made, may make, may consider or may become aware of with
respect to other companies and other technologies, products and services,
including, without limitation, technologies, products and services that may be
competitive with the Company's, and
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<PAGE>
(3) developments with respect to the technologies, products and services, and
plans and strategies relating thereto, of other companies, including, without
limitation, companies that may be competitive with the Company. The Company
recognizes that a portion of such Information may be of interest to the Company.
Such Information may or may not be known by the Intel Observer. The Company
agrees that Intel and the Intel Observer shall have no duty to disclose any
Information to the Company or permit the Company to participate in any projects
or investments based on any Information, or to otherwise take advantage of any
opportunity that may be of interest to the Company if it were aware of such
Information, and hereby waives, to the extent permitted by law, any claim based
on the corporate opportunity doctrine or otherwise that could limit Intel's
ability to pursue opportunities based on such Information or that would require
Intel or the Intel Observer to disclose any such Information to the Company or
offer any opportunity relating thereto to the Company. The covenants set forth
in this Section 2.7 shall terminate and be of no further force or effect upon
the occurrence of either event specified in Section 2.3 hereof.
2.8 Microsoft Observer Rights. As long as Microsoft, together
-------------------------
with its subsidiaries (defined as entities which the Microsoft Corporation
beneficially owns, either directly or indirectly, at least 50% of the voting
securities) in the aggregate own not less than 50% of the shares of the Series D
Preferred Stock Microsoft Corporation purchased pursuant to the Series D
Agreement (or an equivalent amount of Common Stock issued upon conversion
thereof), the Company shall invite a representative of Microsoft (the "Microsoft
Observer") to attend all meetings of its Board of Directors in a nonvoting
observer capacity and, in this respect, shall give such representative copies of
all notices, minutes, consents, and other materials that it provides to its
directors; provided, however, that the Company reserves the right to withhold
any information and to exclude the Microsoft Observer from any meeting or
portion thereof if access to such information or attendance at such meeting
could (a) adversely affect the attorney-client privilege between the Company and
its counsel; or (b) result in disclosure of confidential or proprietary
information of third parties. In addition, a majority of the Company's
nonemployee directors shall have the right to exclude the Microsoft Observer
from portions or entire meetings of the Board of Directors or omit to provide
the Microsoft Observer with certain information or analysis which would pose a
conflict of interest for Microsoft Corporation. Any disclosures of confidential
information between the Company and the Microsoft Observer and Microsoft
Corporation will be governed by the terms of the Corporate Non Disclosure
Agreement in the form of Schedule B and any related Confidential Information
Transmittal records executed between the Company and Microsoft Corporation. The
Company acknowledges that each Microsoft Corporation will likely have, from time
to time, information that may be of interest to the Company ("Information")
regarding a wide variety of matters including, by way of example only, (1)
Microsoft Corporation's technologies, plans and services, and plans and
strategies relating thereto, (2) current and future investments the Microsoft
Corporation has made, may make, may consider or may become aware of with respect
to other companies and other technologies, products and services, including,
without limitation, technologies, products and services that may be competitive
with the Company's, and (3) developments with respect to the technologies,
products and services, and plans and strategies relating thereto, of other
companies, including, without limitation, companies that may be competitive with
the Company. The Company recognizes that a portion of such Information may be of
interest to the Company. Such Information may or may not be known by the
Microsoft Observer. The Company agrees that
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<PAGE>
Microsoft Corporation and the Microsoft Observer shall have no duty to disclose
any Information to the Company or permit the Company to participate in any
projects or investments based on any Information, or to otherwise take advantage
of any opportunity that may be of interest to the Company if it were aware of
such Information, and hereby waives, to the extent permitted by law, any claim
based on the corporate opportunity doctrine or otherwise that could limit
Microsoft Corporation's ability to pursue opportunities based on such
Information or that would require Microsoft Corporation or the Microsoft
Observer to disclose any such Information to the Company or offer any
opportunity relating thereto to the Company. The covenants set forth in this
Section 2.8 shall terminate and be of no further force or effect upon the
occurrence of either event specified in Section 2.3 hereof.
2.9 Cyber Commerce Limited Observer Rights. As long as Cyber
--------------------------------------
Commerce Limited ("Cyber Commerce"), together with its subsidiaries (defined as
entities which Cyber Commerce beneficially owns, either directly or indirectly,
at least 50% of the voting securities) in the aggregate own not less than 50% of
the shares of the Series E Preferred Stock Cyber Commerce purchased pursuant to
the Series E Agreement (or an equivalent amount of Common Stock issued upon
conversion thereof), the Company shall invite a representative of Cyber Commerce
(the "Cyber Commerce Observer") to attend all meetings of its Board of Directors
in a nonvoting observer capacity and, in this respect, shall give such
representative copies of all notices, minutes, consents, and other materials
that it provides to its directors; provided, however, that the Company reserves
the right to withhold any information and to exclude the Cyber Commerce Observer
from any meeting or portion thereof if access to such information or attendance
at such meeting could (a) adversely affect the attorney-client privilege between
the Company and its counsel; or (b) result in disclosure of confidential or
proprietary information of third parties. In addition, a majority of the
Company's nonemployee directors shall have the right to exclude the Cyber
Commerce Observer from portions or entire meetings of the Board of Directors or
omit to provide the Cyber Commerce Observer with certain information or analysis
which would pose a conflict of interest for Cyber Commerce. Any disclosures of
confidential information between the Company and the Cyber Commerce Observer and
Cyber Commerce will be governed by the terms of the Corporate Non Disclosure
Agreement in the form of Schedule B and any related Confidential Information
Transmittal records executed between the Company and Cyber Commerce. The Company
acknowledges that Cyber Commerce will likely have, from time to time,
information that may be of interest to the Company ("Information") regarding a
wide variety of matters including, by way of example only, (1) Cyber Commerce's
technologies, plans and services, and plans and strategies relating thereto, (2)
current and future investments the Cyber Commerce has made, may make, may
consider or may become aware of with respect to other companies and other
technologies, products and services, including, without limitation,
technologies, products and services that may be competitive with the Company's,
and (3) developments with respect to technologies, products and services, and
plans and strategies relating thereto, or other companies, including without
limitation, companies that may be competitive with the Company. The Company
recognizes that a portion of such Information may be of interest to the Company.
Such information may or may not be known by the Cyber Commerce Observer. The
Company agrees that Cyber Commerce and the Cyber Commerce Observer shall have no
duty to disclose any Information to the Company or permit the Company to
participate in any projects or investments based on any
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<PAGE>
Information, or to otherwise take advantage of any opportunity that may be of
interest to the Company if it were aware of such Information, and hereby waives,
to the extent permitted by law, any claim based on the corporate opportunity
doctrine or otherwise that could limit Cyber Commerce's ability to pursue
opportunities based on such Information or that would require Cyber Commerce or
the Cyber Commerce Observer to disclose any such Information to the Company or
offer any opportunity relating thereto to the Company. The covenants set forth
in this Section 2.9 shall terminate and be of no further force or effect upon
the occurrence of either event specified in Section 2.3 hereof.
2.10 America Online Observer Rights. As long as America
------------------------------
Online, Inc. ("America Online"), together with its subsidiaries (defined as
entities which the America Online beneficially owns, either directly or
indirectly, at least 50% of the voting securities) in the aggregate own not less
than 50% of the shares of the Series E Preferred Stock America Online purchased
pursuant to the Series E Agreement (or an equivalent amount of Common Stock
issued upon conversion thereof), the Company shall invite a representative of
America Online (the "America Online Observer" to attend all meetings of its
Board of Directors in a nonvoting observer capacity and, in this respect, shall
give such representative copies of all notices, minutes, consents, and other
materials that it provides to its directors; provided, however, that the Company
reserves the right to withhold any information and to exclude the America Online
Observer from any meeting or portion thereof if access to such information or
attendance at such meeting could (a) adversely affect the attorney-client
privilege between the Company and its counsel; or (b) result in disclosure of
confidential or proprietary information of third parties. In addition, a
majority of the Company's nonemployee directors shall have the right to exclude
the America Online Observer from portions or entire meetings of the Board of
Directors or omit to provide the America Online Observer with certain
information or analysis which would pose a conflict of interest for America
Online. Any disclosures of confidential information between the Company and the
America Online Observer and America Online will be governed by the terms of the
Corporate Non Disclosure Agreement in the form of Schedule B and any related
Confidential Information Transmittal records executed between the Company and
America Online. The Company acknowledges that America Online will likely have,
from time to time, information that may be of interest to the Company
("Information") regarding a wide variety of matters including, by way of example
only, (1) America Online's technologies, plans and services, and plans and
strategies relating thereto, (2) current and future investments the America
Online has made, may make, may consider or may become aware of with respect to
other companies and other technologies, products and services, including,
without limitation, technologies, products and services that may be competitive
with the Company's, and (3) developments with respect to technologies, products
and services, and plans and strategies relating thereto, or other companies,
including without limitation, companies that may be competitive with the
Company. The Company recognizes that a portion of such Information may be of
interest to the Company. Such information may or may not be known by the America
Online Observer. The Company agrees that America Online and the America Online
Observer shall have no duty to disclose any Information to the Company or permit
the Company to participate in any projects or investments based on any
Information, or to otherwise take advantage of any opportunity that may be of
interest to the Company if it were aware of such Information, and hereby waives,
to the extent permitted by law, any claim based on the corporate opportunity
doctrine or otherwise that
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<PAGE>
could limit America Online's ability to pursue opportunities based on such
Information or that would require America Online or the America Online Observer
to disclose any such Information to the Company or offer any opportunity
relating thereto to the Company. The covenants set forth in this Section 2.10
shall terminate and be of no further force or effect upon the occurrence of
either event specified in Section 2.3 hereof.
2.11 Stand-Still.
-----------
(a) In no event during the period of time beginning on the
date of this Agreement and extending for five years hereafter, shall any of
Microsoft Corporation, Sony Corporation of America, Covad Communications
Investment Corp., Covad Communications Group, Inc., Cyber Commerce Limited or
America Online, Inc. (each a "Strategic Investor") acquire beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Act of 1934, as
amended) of 15% or more of the voting securities (on an as if converted to
Common Stock basis) of the Company then outstanding, without the prior written
consent of the Company.
(b) The covenant set forth in subsection (a) above shall
terminate and be of no further force or effect with respect to a Strategic
Investor upon the occurrence of any of the following after the date of this
Agreement:
(i) The Company shall sell or issue equity securities
of the Company to persons or entities with which the Company is entering or has
entered into a strategic relationship and such persons or entities shall not
enter into a standstill agreement substantially similar to the agreement set
forth in subsection (a) above;
(ii) The breach of the agreement set forth in
subsection (a) by another Strategic Investor, unless such breach is
unintentional and is cured within ten (10) business days from the date that such
breach first becomes known to the Company (provided that the provision of such
opportunity to cure does not prejudice or hinder the right of any other party
hereto);
(iii) Such time as any corporation, partnership,
individual, trust, unincorporated association, or other entity or "person" (as
defined in Section 13(d)(3) of the 1934 Act), other than a party hereto (a
"Third Party"), shall have:
(A) commenced, or publicly announced an intention
to commence, a tender offer or exchange offer for any shares of any class of
capital stock of the Company, the consummation of which would result in
"beneficial ownership" (as defined under the 1934 Act) by such Third Party
(together with all such Third Party's "affiliates" and "associates" (as such
terms are defined in the 1934 Act)) of fifteen percent (15%) or more of the
capital stock of the Company (as measured on a fully diluted basis, assuming the
conversion, exercise or exchange of any of the then outstanding securities
convertible, exercisable or exchangeable for, or any other rights to acquire
shares of, capital stock of the Company) (collectively, for purposes of this
Section 2.11, the "Capital Stock");
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<PAGE>
(B) acquired beneficial ownership of shares of
any class of capital stock of the Company which, when aggregated with any shares
of any class of capital stock of the Company already owned by such Third Party,
its affiliates and associates, would result in the aggregate beneficial
ownership by such Third Party, its affiliates and associates of fifteen percent
(15%) or more of the Capital Stock;
(C) filed a Notification and Report Form under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, reflecting
an intent to acquire all or substantially all of the Company's assets;
(D) acquired all or substantially all of the
assets of the Company;
(E) entered into an agreement with the Company
which contemplates (A) the sale of the Company or (B) the acquisition of (x) all
or substantially all of the assets of the Company by such Third Party or (y)
beneficial ownership of fifteen percent (15%) or more of the Capital Stock by
such Third Party if such Third Party has not also entered into a standstill
agreement with the Company containing terms that are at least as restrictive to
such party as the terms of this Section 2.11;
(F) solicited "proxies" in a "solicitation"
subject to the proxy rules under the 1934 Act, executed any written consent or
become a "participant" in any "solicitation" (as such terms are defined in
Regulation 14A under the 1934 Act), in opposition to any proxy solicitation
being conducted by the Company, in each case with respect to any class of
capital stock of the Company;
(G) publicly announced a proposal or intention to
undertake any of the actions enumerated in the foregoing subsections (A) through
(F).
No Strategic Investor will be required to dispose of any voting
securities of the Company, to the extent that the voting securities beneficially
owned by such Strategic Investor represent more than fifteen percent (15%) of
the voting securities of the Company, and ownership of such voting securities
over fifteen percent (15%) of the voting securities of the Company shall not be
deemed to be a violation of this Agreement, as a result of a recapitalization of
the Company or a repurchase, redemption or exchange of securities of the Company
or any other action taken by the Company.
The limitations set forth in Section 2.11 hereof, shall not prohibit or
apply to investments by or for the account of any partnerships in which a
Strategic Investor has a non-controlling interest.
2.12 Restrictions on Transfer.
------------------------
(a) Each Strategic Investor hereby agrees not to (i) lend,
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, or otherwise transfer or dispose of, directly or indirectly, any
shares of Series D or Series E Preferred Stock, the Common Stock issuable upon
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<PAGE>
conversion of the Series D or Series E Preferred Stock, or any other securities
of the Company 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 Series D or Series E Preferred Stock, the Common Stock issuable upon
conversion of the Series D or Series E Preferred Stock, or any other securities
of the Company, for a period beginning on the date of the closing of such
Strategic Investor's purchase of Series D or Series E Preferred Stock, as
applicable, and ending upon the earlier of (A) 180 days following the Initial
Offering or (B) two years from the date of the closing of the purchase of the
Series D or Series E Preferred Stock by such Strategic Investor, as applicable,
except (i) pursuant to an acquisition of the Company by another entity by means
of any transaction or series of related transactions (including, without
limitation; any reorganization, merger or consolidation) that results in the
transfer of fifty percent (50%) or more of the outstanding voting power of the
Company to another person or entity or group of related persons or entities,
(ii) pursuant to a liquidation, dissolution or winding up of the Company, (iii)
or to any subsidiary (at least 80% owned), any parent (which owns at least 80%
of such Strategic Investor) or any affiliate (as such term is defined under Rule
405 promulgated under the Act) of the Strategic Investor which agrees to be
bound by the terms of this Agreement. Notwithstanding the foregoing, each
Strategic Investor agrees that upon the request of the Company or the
underwriter of the Company's Initial Offering, it shall enter into an Agreement
with such terms as set forth in Section 1.13 hereof or as otherwise requested by
the managing underwriter, in connection with the Company's Initial Offering.
(b) Each Strategic Investor hereby agrees not to offer,
sell or otherwise transfer or dispose of, directly or indirectly, any shares of
Series D or Series E Preferred Stock, the Common Stock issuable upon conversion
of the Series D or Series E Preferred Stock or any other securities of the
Company, for a period beginning 180 days following the Initial Offering and
ending upon the earlier of (i) one year following the Initial Offering and (ii)
two years from the date of the closing of the purchase of the Series D or Series
E Preferred Stock by such Strategic Investor, as applicable, except (A) pursuant
to an acquisition of the Company by another entity by means of any transaction
or series of related transactions (including, without limitation, any
reorganization, merger or consolidation) that results in the transfer of fifty
percent (50%) of more of the outstanding voting power of the Company to another
person or entity or group of related persons or entities, (B) pursuant to a
liquidation, dissolution or winding up of the Company or (C) to any subsidiary
(at least 80% owned), any parent (which owns at least 80% of such Strategic
Investor) or any affiliate (as such term is defined under Rule 405 promulgated
under the Act) of the Strategic Investor which agrees to be bound by the terms
of this Agreement, provided that nothing in the foregoing shall restrict any
Strategic Investor from entering into a bona fide hedge transaction during the
period set forth in this subsection, with respect to the Common Stock issuable
upon conversion of the Series D or Series E Preferred Stock.
3. Confidentiality.
---------------
3.1 Confidentiality.
---------------
(a) Disclosure of Terms. The terms and conditions (the
-------------------
"Financing Terms") of this Agreement, the Series D Agreement, the Voting
Agreement of even date
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<PAGE>
herewith (collectively, the "Financing Agreements"), including their existence,
shall be considered confidential information and shall not be disclosed by the
Company or by Intel to any third party except in accordance with the provisions
set forth below or as required by law.
(b) Press Releases, Etc. Following the Closing, the Company
--------------------
may issue a press release disclosing that Intel has invested in the Company;
provided that the final form of the press release is approved in advance in
writing by Intel. Intel's name and the fact that Intel is an investor in the
Company can be included in a reusable press release boilerplate statement, so
long as Intel has given the Company its initial approval of such boilerplate
statement and the boilerplate statement is reproduced in exactly the form in
which it was approved. Such boilerplate statement may be posted on the Company's
Web page. No other announcements regarding Intel's investment in the Company in
a press release, conference, advertisement, announcement, professional or trade
publication, mass marketing materials or otherwise to the general public may be
made without such Investor's prior written consent. In addition, the Company
shall notify each Investor that the Company considers the Financing Terms to be
confidential information and that the Financing Terms should not be disclosed by
the Investors other than in accordance with the terms of this Section 3;
provided, further, the Company shall notify each member of the Board of
Directors that the directors are bound by their fiduciary duties to the Company
to maintain the confidentiality of the Financing Terms.
(c) Permitted Disclosures. Notwithstanding the foregoing,
---------------------
(a) Intel and/or the Company may disclose any of the Financing Terms to its
current or bona fide prospective investors, employees, investment bankers,
lenders, accountants and attorneys, in each case (other than to a current or
bona fide prospective investor) only where such person or entities are under
appropriate nondisclosure obligations, either express or implied, and in the
case of a current or bona fide prospective investor only where such person or
entity has been informed by the Company that such information is confidential;
and (b) Intel and/or the Company may disclose (other than in a press release or
other public announcement described in subsection (ii)) solely the fact that
Intel is an investor in the Company to any third parties without the requirement
for the consent of any other party.
(d) Legally Compelled Disclosure. In the event that either
----------------------------
the Company or Intel is requested or becomes legally compelled (including
without limitation, pursuant to securities laws and regulations) to disclose the
existence of the Financing Agreements or any of the Financing Terms hereof in
contravention of the provisions of this Section 3.1, such party (the "Disclosing
Party") shall provide the other party (the "Non-Disclosing Party") with prompt
written notice of that fact so that the appropriate party may seek (with the
cooperation and reasonable efforts of the other party) a protective order,
confidential treatment or other appropriate remedy. In such event, the
Disclosing Party shall furnish only that portion of the information which is
reasonably required and shall use reasonable efforts to assist in obtaining
confidential treatment for such information to the extent reasonably requested
by the Non-Disclosing Party.
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(e) Other Information. The provisions of this Section 3.1
-----------------
shall be in addition to, and not in substitution for, the provisions of any
separate nondisclosure agreement executed by any of the parties hereto with
respect to the transactions contemplated hereby.
(f) All notices required under this Section shall be made
pursuant to Section 4.5 of this Agreement.
3.2 Amendment. Any provision of this Section 3 may be
---------
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of the Company and Intel.
4. Miscellaneous.
-------------
4.1 Successors and Assigns. Except as otherwise provided
----------------------
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
4.2 Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
4.3 Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.4 Titles and Subtitles. The titles and subtitles used in
--------------------
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
4.5 Notices. Unless otherwise provided, any notice required
-------
or permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
delivery by confirmed facsimile transmission, nationally recognized overnight
courier service, or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
4.6 Expenses. If any action at law or in equity is necessary
--------
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
-23-
<PAGE>
4.7 Entire Agreement: Amendments and Waivers. This Agreement
----------------------------------------
(including the Exhibits hereto, if any) constitutes the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and thereof. Except for Sections 2.6, 2.7, 2.8, 2.9, 2.10, 2.11, 2.12 and 3,
which shall require the consent of the party benefiting from or subject to such
provision, any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of a majority of the Registrable
Securities. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any Registrable Securities, each future
holder of all such Registrable Securities, and the Company.
4.8 Severability. If one or more provisions of this Agreement
------------
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision was so excluded and shall be enforceable in
accordance with its terms.
4.9 Aggregation of Stock. All shares of Registrable
--------------------
Securities held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
-24-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
iBEAM BROADCASTING CORPORATION
----------------------------------------
Peter Desnoes
Chief Executive Officer
Address: 645 Almanor Avenue
Suite 100
Sunnyvale, CA 94086
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS:
CROSSPOINT VENTURE PARTNERS 1997
--------------------------------------
Rich Shapero
General Partner
Address: 2925 Woodside Road
Woodside, CA 94062
ACCEL VI L.P.
By: Accel VI Associates L.L.C.
Its General Partner
--------------------------------------
Carter Sednaoui
Managing Member
Address: 428 University Avenue Accel Partners
Palo Alto, CA 94301 One Palmer Square
Attn: J. Peter Wagner Princeton, NJ 08542
Attn: G. Carter
Sednaoui
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
ACCEL INTERNET FUND II L.P.
By: Accel Internet Fund II Associates L.L.C.
Its General Partner
--------------------------------------------
Carter Sednaoui
Managing Member
Address: 428 University Avenue Accel Partners
Palo Alto, CA 94301 One Palmer Square
Attn: J. Peter Wagner Princeton, NJ 08542
Attn: G. Carter
Sednaoui
ACCEL KEIRETSU VI L.P.
By: Accel Keiretsu VI Associates L.L.C.
Its General Partner
--------------------------------------------
Carter Sednaoui
Managing Member
Address: 428 University Avenue Accel Partners
Palo Alto, CA 94301 One Palmer Square
Attn: J. Peter Wagner Princeton, NJ 08542
Attn: G. Carter
Sednaoui
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
ACCEL INVESTORS `98 L.P.
By:________________________________________
Carter Sednaoui
General Partner
Address: 428 University Avenue Accel Partners
Palo Alto, CA 94301 One Palmer Square
Attn: J. Peter Wagner Princeton, NJ 08542
Attn: G. Carter
Sednaoui
MEDIA TECHNOLOGY VENTURES, L.P.
By:_______________________________________
Title:____________________________________
Address: One First Street
Los Altos, CA 94022
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
MEDIA TECHNOLOGY VENTURES
ENTREPRENEURS FUND, L.P.
By:________________________________________
Title:_____________________________________
Address: One First Street
Los Altos, CA 94022
ANNABEL J. MONTGOMERY, as Trustee of the
ANNABEL MONTGOMERY REVOCABLE TRUST DATED
FEBRUARY 7, 1991 and JAMES W. MONTGOMERY, as
tenants in common, each as to an undivided
one-half interest
___________________________________________
Annabel J. Montgomery, Trustee
MONTGOMERY & ASSOCIATES, L.P.
By:________________________________________
Title:_____________________________________
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
CULBARA, INC.
By:________________________________________
Title:_____________________________________
Address: 100 Wilshire Blvd. Suite 400
Santa Monica, CA 90401
G&H PARTNERS
By:________________________________________
Title:_____________________________________
STANFORD UNIVERSITY
___________________________________________
Carol Filmer
Address: Stanford Management Company
2770 Sand Hill Road
Menlo Park, CA 94025
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
J.P. MORGAN DIRECT VENTURE CAPITAL
INSTITUTIONAL INVESTORS LLC
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
Address: 522 5 TH Avenue.
New York, New York 10036
J.P. MORGAN DIRECT VENTURE
CAPITAL PRIVATE INVESTORS LLC
By:______________________________________________
Name:____________________________________________
Title:____________________________________________
Address: 522 5TH Avenue.
New York, New York 10036
INTEL CORPORATION
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
Address: 2200 Mission College Blvd.
Santa Clara, CA 95052-8119
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
MICROSOFT CORPORATION
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
Address: One Microsoft Way
Redmond, WA 98052-6399
COVAD COMMUNICATIONS INVESTMENT CORP.
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
CRESCENDO WORLD FUND LLC
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
EAGLE VENTURES WF, LLC
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
LUNN-iBEAM, LLC
By: LUNN PARTNERS, LLC
ITS MANAGER
____________________________________________
Robert J. Lunn
Managing Member
PETER B. DESNOES, IRA A/C 774-91015
GUARANTEE & TRUST COMPANY, TTEE
-------------------------------------------------
ROBERT C. HAWK
-------------------------------------------------
Address: 7585 S. Biscay Street
Aurora, CO 80016
LEN GROSSI
Address: 5555 Melrose Avenue
Hollywood, CA 90038
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
FRED SEEGAL
-------------------------------------------------
Address: 31 West 52nd Street
27th Floor
New York, New York 10019
WS INVESTMENT COMPANY 99B
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
Address: 650 Page Mill Road
Palo Alto, CA 94304
CHRIS DIER
-------------------------------------------------
BRUCE D. LAWLER
-------------------------------------------------
TOM GILLIS
-------------------------------------------------
JEREMY ZULLO
-------------------------------------------------
NILS LAHR
-------------------------------------------------
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
DAVID STREHLOW
-------------------------------------------------
BOB DAVIS
-------------------------------------------------
PHILIP ROSEDALE
-------------------------------------------------
CYBER COMMERCE LIMITED
By:______________________________________________
Name:
Title:
AMERICA ONLINE, INC.
By:______________________________________________
Name:
Title:
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
COMDISCO, INC.
By:______________________________________________
Title:___________________________________________
Address: 100 Hamilton Ste. 104A 6111 North River Road
Palo Alto, CA 94301 Rosemont, IL 60018
Attn: Christine Ferra Attn: Venture Group
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Schedule A
----------
Schedule of Investors
---------------------
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.
Montgomery & Associates LP
G&H Partners
Stanford University
Annabel J. Montgomery
As Trustee of the Annabel J.
Montgomery Revocable Trust
dated February 7, 1991 and
James W. Montgomery
Montgomery & Associates LP
J.P. Morgan Direct Venture
Capital Institutional Investors,
LLC
J.P. Morgan Direct Venture
Capital Private Investors
LLC
Intel Corporation
S-1
<PAGE>
Microsoft Corporation
Covad Communications
Investment Corp.
Crescendo World Fund, LLC
Eagle Ventures WF, LLC
Lunn-iBEAM, LLC
Peter B. Desnoes, IRA A/C
774-91015 Guarantee & Trust
Company, TTEE
Peter Desnoes
Liberty IB, Inc.
W. Michael Bowles
Larry Goldstein
A D. Fleener
Jeffrey A. Rodgers and Janna
Lund Rodgers, or their
successors, Trustees of The
Jeffrey and Janna Rodgers
Revocable Trust Dated July 24,
1998
Robert C. Hawk
Len Grossi
Fred Seegal
WS Investment Company 99B
Chris L. Dier
Bruce D. Lawler
S-2
<PAGE>
Tom Gillis
Jeremy Zullo
Nils Lahr
David Strehlow
Bob Davis
Philip Rosedale
Comdisco, Inc.
Sony Corporation of America
Cyber Commerce Limited
America Online, Inc.
S-3
<PAGE>
SCHEDULE B
CORPORATE NON DISCLOSURE AGREEMENT
<PAGE>
Exhibit 4.4
AMENDED AND RESTATED VOTING AGREEMENT
THIS AMENDED AND RESTATED VOTING AGREEMENT (the "Agreement") is made
and entered into as of February 15, 2000, by and among iBEAM BROADCASTING
CORPORATION, a Delaware corporation (the "Company"), certain of the holders of
the Company's Series A Preferred Stock (the "Series A Stock"), Series B
Preferred Stock (the "Series B Stock"), Series C Preferred Stock ("Series C
Stock"), Series D Preferred Stock (the "Series D Stock") and Series E Preferred
Stock (the "Series E Stock" and together with the Series A, B, C and D Stock,
the "Preferred Stock") listed on the Schedule of Investors attached as
Schedule A hereto (the "Investors"), and certain holders of Common Stock of the
- ----------
Company (the "Participating Founders") listed on the Schedule of Participating
Founders attached as Schedule B hereto. The Company, the Participating Founders
----------
and the Investors are individually each referred to herein as a "Party" and are
collectively referred to herein as the "Parties." The Company's Board of
Directors is referred to herein as the "Board."
WITNESSETH:
----------
WHEREAS, certain of the Investors (the "Existing Investors") hold
shares of the Company's Series A Stock, Series B Stock, Series C Stock and
Series D Stock and/or shares of Common Stock issued upon conversion thereof and
are parties to that certain Voting Agreement dated as of October 14, 1999 among
the Company, the Participating Founders and such Existing Investors (the "Prior
Agreement");
WHEREAS, the Existing Investors hold at least a majority of the voting
securities held by the parties to the Prior Agreement, and desire to amend,
restate and supercede the Prior Agreement in its entirety;
WHEREAS, certain of the Investors (the "New Investors") are parties to
the Series E Preferred Stock Purchase Agreement of even date herewith among the
Company and the New Investors (the "Series E Agreement"), which provides that as
a condition to the closing of the sale of the Series E Stock pursuant thereto,
this Agreement must be executed and delivered by such New Investors, Existing
Investors, the Participating Founders and the Company;
WHEREAS, the Participating Founders are the beneficial owners of the
number of shares of Common Stock of the Company set forth opposite his/her name
on Schedule B hereto and the Participating Founders and Existing Investors wish
----------
to provide further inducement to the New Investors to purchase shares of Series
E Stock pursuant to the Series E Agreement; and
WHEREAS, the Company's Restated Certificate of Incorporation provides
that (a) holders of shares of the Company's Series A Stock, voting as a single
class, shall elect one (1) member of the Board (the "Series A Director") and (b)
holders of shares of the Company's Series B Stock, voting together as a single
class, shall elect one (1) member of the Board (the "Series B Director");
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the Company, the Participating Founders and the Investors
hereby agree as follows:
1. Agreement to Vote. Each Investor, as a holder of Preferred Stock,
-----------------
hereby agrees on behalf of itself and any transferee or assignee of any such
shares of the Preferred Stock, to hold all of the shares of Preferred Stock
registered in its name (and any securities of the Company issued with respect
to, upon conversion of, or in exchange or substitution of the Preferred Stock,
and any other voting securities of the Company subsequently acquired by such
Investor) (hereinafter collectively referred to as the "Investor Shares")
subject to, and to vote the Investor Shares at a regular or special meeting of
stockholders (or by written consent) in accordance with, the provisions of this
Agreement. Each Participating Founder, as a holder of Common Stock of the
Company, hereby agrees on behalf of itself and any transferee or assignee of any
such shares of Common Stock, to hold all of such shares of Common Stock and any
other securities of the Company acquired by such Participating Founder in the
future (and any securities of the Company issued with respect to, upon
conversion of, or in exchange or substitution for such securities) (the "Founder
Shares") subject to, and to vote the Founder Shares at a regular or special
meeting of stockholders (or by written consent) in accordance with, the
provisions of this Agreement.
2. Election of Directors.
---------------------
(a) In any election of directors of the Company, the Parties
shall each vote at any regular or special meeting of stockholders (or by written
consent) such number of shares of Common Stock and Preferred Stock then owned by
them (or as to which they then have voting power) as may be necessary to elect
one (1) director who shall be the Company's chief executive officer.
(b) In any election of directors of the Company, the Parties
holding shares of Series A Stock shall each vote at any regular or special
meeting of stockholders (or by written consent) such number of shares of Series
A Stock then owned by them (or as to which they then have voting power) as may
be necessary to elect one (1) director (the "Series A Director"), nominated by
Crosspoint Venture Partners 1997 ("Crosspoint") so long as Crosspoint owns at
least fifty percent (50%) of the Common Stock issued or issuable upon conversion
of the Series A Stock originally purchased by Crosspoint pursuant to that
certain Series A Preferred Stock Purchase Agreement dated April 16, 1998.
(c) In any election of directors of the Company, the Parties
holding shares of Series B Stock shall each vote at any regular or special
meeting of stockholders (or by written consent) such number of shares of Series
B Stock then owned by them (or as to which they then have voting power) as may
be necessary to elect one (1) director (the "Series B Director"), nominated by
Accel Partners and its affiliated funds ("Accel") so long as Accel owns at least
fifty percent (50%) of the Common Stock issued or issuable upon conversion of
the Series B Stock purchased by such Investor pursuant to the Series B Stock
Purchase Agreement dated June 8, 1998.
(d) In any election of directors of the Company, the Parties
shall each vote at any regular or special meeting of stockholders (or by written
consent) such number of
2
<PAGE>
voting securities of the Company then owned by them (or as to which they then
have voting power) as may be necessary to elect any additional directors that
are approved by a majority of the Board (the "Industry Directors").
3. Removal. Any director of the Company may be removed from the
-------
board in the manner allowed by law and the Company's Certificate of
Incorporation and Bylaws, but with respect to a director designated pursuant to
subsections 2(a) through 2(d) above, only upon the vote or written consent of
the majority of the stockholders entitled to designate such director.
4. Vacancy. Any vacancy occurring to a director designated pursuant
-------
to subsections 2(a) through 2(d) above shall only be filled according to the
vote or written consent of the stockholders entitled to designate such director.
5. Voting on Certain Transactions.
------------------------------
(a) Each of Microsoft Corporation, Sony Corporation of America,
Covad Communications Investment Corp., Covad Communications Group, Inc., Pacific
Century Cyberworks and America Online, Inc. (the "Strategic Investors") shall
take such action as may be required so that all securities of the Company
entitled to vote in connection with a Corporate Transaction (as defined below)
beneficially owned by such Investor and/or any of their controlled affiliates
("Voting Securities") are voted on all Corporate Transactions in the same manner
as voted by a majority of the Board. For purposes of this Agreement, Corporate
Transaction shall mean (i) the acquisition of the Company by another entity by
means of any transaction or series of related transactions that results in the
transfer of fifty percent (50%) or more of the outstanding voting power of the
Company or (ii) the sale of all or substantially all of the assets of the
Company, provided that no transferee of such voting power or assets is (A) a
director, officer or affiliate of the Company or (B) an associate of such a
director, officer or affiliate (with affiliate and associate having the meaning
set forth in Rule 12b-2 under the Securities Exchange Act of 1934, as amended
("Rule 12b-2"). For purposes of this Agreement, an entity will be deemed a
controlled affiliate of a Strategic Investor if the Strategic Investor controls
such entity within the meaning of Rule 12b-2.
(b) Each Strategic Investor and its controlled affiliates as
holders of shares of Voting Securities, shall be present, in person or by proxy,
at all meeting of stockholders of the Company so that all shares of Voting
Securities beneficially owned by such Strategic Investor and/or its controlled
affiliates may be counted for the purpose of determining the presence of a
quorum at such meetings.
(c) Each Investor and its controlled affiliates, as holders of
shares of Voting Securities, shall not exercise any dissenters rights under
applicable law at any time for such Corporate Transactions, if applicable;
provided, however, that if any agreement governing the terms of a Corporate
Transaction requires an Investor to provide an indemnity in connection with the
Investor's transfer or exchange of capital stock in the Company, the terms of
such agreement shall provide that such indemnity shall be provided ratably by
all stockholders of the Company, in proportion to their percentage interest in
the outstanding capital stock of the Company, assuming conversion of all
outstanding Preferred Stock into Common Stock; provided further that the maximum
aggregate dollar amount of the indemnity payable by any Investor
3
<PAGE>
shall not exceed the amount of consideration received by such Investor pursuant
to the terms of the Corporate Transaction.
(d) Each Investor and it controlled affiliates, as holders of
shares of Voting Securities, shall refrain from transferring any securities of
the Company, the acquiror, or any other applicable company during any period
prohibited by then applicable pooling of interests accounting treatment rules,
whether before or after the sale of the Company.
(e) No Strategic Investor nor any of its controlled affiliates
shall deposit any Voting Securities in a voting trust or subject any Voting
Securities to any arrangement or agreement with respect to the voting of such
Voting Securities except for this Agreement.
6. Legend on Share Certificates. Each certificate representing any
----------------------------
Shares shall be endorsed by the Company with a legend reading substantially as
follows:
"The Shares evidenced hereby are subject to a Voting Agreement (a copy
of which may be obtained upon written request from the issuer), and by
accepting any interest in such shares the person accepting such
interest shall be deemed to agree to and shall become bound by all the
provisions of said Voting Agreement."
7. Covenants of the Company. The Company agrees to use its best
------------------------
efforts to ensure that the rights granted hereunder are effective and that the
Parties hereto enjoy the benefits thereof. Such actions include, without
limitation, the use of the Company's best efforts to cause the nomination and
election of the directors as provided above. The Company will not, by any
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all of the provisions of this Agreement
and in the taking of all such actions as may be necessary, appropriate or
reasonably requested by the holders of a majority of the outstanding voting
securities held by the Parties hereto assuming conversion of all outstanding
securities in order to protect the rights of the Parties hereunder against
impairment.
8. No Liability for Election of Recommended Directors. Neither the
--------------------------------------------------
Company, the Participating Founders, the Investors, nor any officer, director,
stockholder, partner, employee or agent of such Party, makes any representation
or warranty as to the fitness or competence of the nominee of any Party
hereunder to serve on the Company's Board by virtue of such Party's execution of
this Agreement or by the act of such Party in voting for such nominee pursuant
to this Agreement.
9. Grant of Proxy. Should the provisions of this Agreement be
--------------
construed to constitute the granting of proxies, such proxies shall be deemed
coupled with an interest and are irrevocable for the term of this Agreement.
10. Specific Enforcement. It is agreed and understood that monetary
--------------------
damages would not adequately compensate an injured Party for the breach of this
Agreement by any Party, that this Agreement shall be specifically enforceable,
and that any breach or threatened breach of this Agreement shall be the proper
subject of a temporary or permanent injunction or
4
<PAGE>
restraining order. Further, each Party hereto waives any claim or defense that
there is an adequate remedy at law for such breach or threatened breach.
11. Execution by the Company. The Company, by its execution in the
------------------------
space provided below, agrees that it will cause the certificates evidencing the
shares of Common Stock and Preferred Stock to bear the legend required by
Section 6 herein, and it shall supply, free of charge, a copy of this Agreement
to any holder of a certificate evidencing shares of capital stock of the Company
upon written request from such holder to the Company at its principal office.
The parties hereto do hereby agree that the failure to cause the certificates
evidencing the shares of Common Stock and Preferred Stock to bear the legend
required by Section 6 herein and/or failure of the Company to supply, free of
charge, a copy of this Agreement as provided under this Section 6 shall not
affect the validity or enforcement of this Agreement.
12. Captions. The captions, headings and arrangements used in this
--------
Agreement are for convenience only and do not in any way limit or amplify the
terms and provisions hereof.
13. Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be sent prepaid registered or certified mail,
return receipt requested, addressed to the other Party at the address shown
below or at such other address for which such Party gives notice hereunder. Such
notice shall be deemed to have been given three (3) days after deposit in the
mail.
14. Term.
----
(a) Except for the provisions of Section 5 hereof, this Agreement
shall terminate and be of no further force or effect upon the earliest to occur
of (i) the consummation of the Company's sale of its Common Stock or other
securities pursuant to a registration statement under the Securities Act of
1933, as amended, (other than a registration statement relating either to sale
of securities to employees of the Company pursuant to its stock option, stock
purchase or similar plan or a SEC Rule 145 transaction), (ii) the consummation
of the acquisition of the Company by another entity by means of any transaction
or series of related transactions (including, without limitation, any
reorganization, merger or consolidation) that results in the transfer of fifty
percent (50%) or more of the outstanding voting power of the Company or a sale
of all or substantially all of the assets of the Company, (iii) the written
consent of the holders of a majority of the shares held by the Parties hereto,
or (iv) October 12, 2009.
(b) The provisions of Section 5 of this Agreement with respect to
each Strategic Investor or Investor shall terminate and be of no further force
or effect upon the later to occur of: (i) the consummation of the sale of
securities pursuant to a bona fide, firmly underwritten public offering of
shares of common stock of the Company registered under the Securities Act of
1933, as amended, or (ii) such Strategic Investor or Investor and its controlled
affiliates in the aggregate own Voting Securities representing less than 5% of
the then outstanding voting power of the Company.
5
<PAGE>
15. Manner of Voting. The voting of shares pursuant to this Agreement
----------------
may be effected in person, by proxy, by written consent, or in any other manner
permitted by applicable law.
16. Amendments and Waivers. Any term hereof may be amended and the
----------------------
observance of any term hereof may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the holders of a majority of the then outstanding voting securities
held by the Party or Parties for whose benefit such term has been included in
this Agreement. Any amendment or waiver so effected shall be binding upon the
Parties hereto.
17. Stock Splits, Stock Dividends, etc. In the event of any issuance
----------------------------------
of shares of the Company's voting securities hereafter to any of the Parties
hereto (including, without limitation, in connection with any stock split, stock
dividend, recapitalization, reorganization, or the like), such shares shall
become subject to this Agreement and shall be endorsed with the legend set forth
in Section 5.
18. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
19. Binding Effect. In addition to any restriction on transfer that
--------------
may be imposed by any other agreement by which any Party hereto may be bound,
this Agreement shall be binding upon the Parties, their respective heirs,
successors and assigns and to such additional individuals or entities that may
become stockholders of the Company and that desire to become Parties hereto;
provided that for any such transfer to be deemed effective, the transferee shall
have executed and delivered an Adoption Agreement substantially in the form
attached hereto as Exhibit A. Upon the execution and delivery of an Adoption
Agreement by any transferee reasonably acceptable to the Company, such
transferee shall be deemed to be a Party hereto as if such transferee's
signature appeared on the signature pages hereto. By their execution hereof or
any Adoption Agreement, each of the Parties hereto appoints the Company as its
attorney-in-fact for the purpose of executing any Adoption Agreement which may
be required to be delivered hereunder.
20. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware, without regard to
conflicts of law principles thereof.
21. Entire Agreement. This Agreement is intended to be the sole
----------------
agreement of the Parties as it relates to this subject matter and does hereby
supersede all other agreements of the Parties relating to the subject matter
hereof.
22. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6
<PAGE>
23. Arbitration. Any controversy between the Parties hereto involving
-----------
any claim arising out of or relating to the termination of this Agreement, will
be submitted to and be settled by final and binding arbitration in Santa Clara,
California, in accordance with the then current Commercial Arbitration Rules of
the American Arbitration Association (the "AAA"), and judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof. Such arbitration shall be conducted by three (3) arbitrators chosen by
the Company, the Investors, and the Participating Founders, or failing such
agreement, an arbitrator experienced in the sale of similarly-sized companies
appointed by the AAA. There shall be limited discovery prior to the arbitration
hearing as follows: (a) exchange of witness lists and copies of documentary
evidence and documents relating to or arising out of the issues to be
arbitrated, (b) depositions of all party witnesses, and (c) such other
depositions as may be allowed by the arbitrators upon a showing of good cause.
Depositions shall be conducted in accordance with the California Code of Civil
Procedure, the arbitrator(s) shall be required to provide in writing to the
Parties the basis for the award or order of such arbitrator(s), and a court
reporter shall record all hearings, with such record constituting the official
transcript of such proceedings.
7
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
iBEAM BROADCASTING CORPORATION
____________________________________________
Peter Desnoes
President and Chief Executive Officer
Address: 645 Almanor Avenue
Suite 100
Sunnyvale, CA 94086
SIGNATURE PAGE FOR AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
INVESTORS:
CROSSPOINT VENTURE PARTNERS 1997
_____________________________________________
Richard Shapero
General Partner
Address: 2925 Woodside Road
Woodside, CA 94062
ACCEL VI L.P.
By: Accel VI Associates L.L.C
Its General Partner
_____________________________________________
Managing Member
Address: 428 University Avenue Accel Partners
Palo Alto, CA 94301 One Palmer Square
Attn: J. Peter Wagner Princeton, NJ 08542
Attn: G. Carter
Sednaoui
SIGNATURE PAGE FOR AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
ACCEL INTERNET FUND II L.P.
By: Accel Internet Fund II Associates L.L.C.
Its General Partner
_____________________________________________
Managing Member
Address: 428 University Avenue Accel Partners
Palo Alto, CA 94301 One Palmer Square
Attn: J. Peter Wagner Princeton, NJ 08542
Attn: G. Carter
Sednaoui
ACCEL KEIRETSU VI L.P.
By: Accel Keiretsu VI Associates L.L.C.
Its General Partner
______________________________________________
Managing Member
Address: 428 University Avenue Accel Partners
Palo Alto, CA 94301 One Palmer Square
Attn: J. Peter Wagner Princeton, NJ 08542
Attn: G. Carter
Sednaoui
SIGNATURE PAGE FOR AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
ACCEL INVESTORS `98 L.P.
By: Accel Investors `98 Associates L.L.C.
Its General Partner
_____________________________________________
Managing Member
Address: 428 University Avenue Accel Partners
Palo Alto, CA 94301 One Palmer Square
Attn: J. Peter Wagner Princeton, NJ 08542
Attn: G. Carter
Sednaoui
MEDIA TECHNOLOGY VENTURES, L.P.
By:__________________________________________
Title:_______________________________________
Address: 1 First Street
Los Altos, CA 94022
MEDIA TECHNOLOGY VENTURES
ENTREPRENEURS FUND, L.P.
By:__________________________________________
Title:_______________________________________
Address: 1 First Street
Los Altos, CA 94022
SIGNATURE PAGE FOR AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
ANNABEL J. MONTGOMERY, as Trustee of the ANNABEL
MONTGOMERY REVOCABLE TRUST DATED FEBRUARY 7, 1991,
and JAMES W. MONTGOMERY, as tenants in common,
each as to an undivided one-half interest.
_____________________________________________
Annabel J. Montgomery, Trustee
_____________________________________________
James W. Montgomery
Address: 100 Wilshire Blvd., Suite 400
Santa Monica, CA 90401
MONTGOMERY & ASSOCIATES , L.P.
By:__________________________________________
Title:_______________________________________
Address: 100 Wilshire Blvd., Suite 400
Santa Monica, CA 90401
CULBARA, INC.
By:__________________________________________
Title:_______________________________________
Address: 100 Wilshire Blvd., Suite 400
Santa Monica, CA 90401
SIGNATURE PAGE FOR AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
J.P. MORGAN DIRECT VENTURE CAPITAL
INSTITUTIONAL INVESTORS LLC
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Address: 522 5TH Avenue.
New York, New York 10036
J.P. MORGAN DIRECT VENTURE
CAPITAL PRIVATE INVESTORS LLC
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Address: 522 5TH Avenue.
New York, New York 10036
INTEL CORPORATION
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Address: 2200 Mission College Blvd.
Santa Clara, CA 95052-8119
SIGNATURE PAGE FOR AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
MICROSOFT CORPORATION
By:__________________________________________
Name:________________________________________
Title:_______________________________________
Address: One Microsoft Way
Redmond, WA 98052-6399
COVAD COMMUNICATIONS
INVESTMENT CORP.
By:__________________________________________
Name:________________________________________
Title:_______________________________________
CRESCENDO WORLD FUND LLC
By:__________________________________________
Name:________________________________________
Title:_______________________________________
EAGLE VENTURES WF, LLC
By:__________________________________________
Name:________________________________________
Title:_______________________________________
LUNN-iBEAM, LLC
By:__________________________________________
LUNN PARTNERS, LLC
Managing Member
SIGNATURE PAGE FOR AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
PETER B. DESNOES, IRA A/C
774-91015 GUARANTEE & TRUST
COMPANY, TTEE
______________________________________
ROBERT C. HAWK
______________________________________
Address: 7585 S. Biscay Street
Aurora, CO 80016
LEN GROSSI
______________________________________
Address: 5555 Melrose Avenue
Hollywood, CA 90038
FRED SEEGAL
______________________________________
Address: 31 West 52nd Street
27th Floor
New York, New York 10019
SIGNATURE PAGE FOR AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
WS INVESTMENT COMPANY 99B
By:___________________________________
Name:_________________________________
Title:________________________________
Address: 650 Page Mill Road
Palo Alto, CA 94304
CHRIS DIER
______________________________________
BRUCE D. LAWLER
______________________________________
TOM GILLIS
______________________________________
JEREMY ZULLO
______________________________________
NILS LAHR
______________________________________
DAVID STREHLOW
______________________________________
BOB DAVIS
______________________________________
PHILIP ROSEDALE
______________________________________
SIGNATURE PAGE FOR AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
CYBER COMMERCE LIMITED
By:___________________________________
Name:_________________________________
Title:________________________________
AMERICA ONLINE, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
SIGNATURE PAGE FOR AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
COMDISCO, INC.
By:____________________________________
Title:_________________________________
Address: 100 Hamilton Ste. 104A 6111 North River Road
Palo Alto, CA 94301 Rosemont, IL 60018
Attn: Christine Ferra Attn: Venture Group
SIGNATURE PAGE FOR AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
SONY CORPORATION OF AMERICA
By:____________________________________
Name:__________________________________
Title:_________________________________
SIGNATURE PAGE FOR AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
PARTICIPATING FOUNDERS:
WILMOT LIVING TRUST U/D/T dated April 18,
1995
_____________________________________________
Robert Wilmot, Trustee
_____________________________________________
Mary J. Wilmot, Trustee
Address: 13,333 La Cresta Drive
Los Altos, CA 94022
_____________________________________________
Navin Chaddha
Address: 14600 NE 42nd Place, #N-402
Bellevue, WA 98007
SIGNATURE PAGE FOR AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
SCHEDULE A
LIST OF INVESTORS
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.
Annabel J. Montgomery
As Trustee of the Annabel J. Montgomery Revocable Trust
Dated February 7, 1991 and James W. Montgomery
Culbara, Inc.
Montgomery & Associates, L.P.
J.P. Morgan Direct Venture Capital Institutional Investors,
LLC
J.P. Morgan Direct Venture Capital Private Investors LLC
Microsoft Corporation
Covad Communications Investment Corp.
Crescendo World Fund, LLC
Eagle Ventures WF, LLC
Intel Corporation
Lunn-iBEAM, LLC
Peter Desnoes, IRA A/C 774-91015 GUARANTEE & TRUST
COMPANY, TTEE
Robert C. Hawk
Len Grossi
SIGNATURE PAGE FOR AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
Fred Seegal
WS Investment Company 99B
Chris L. Dier
Bruce D. Lawler
Tom Gillis
Jeremy Zullo
Nils Lahr
David Strehlow
Philip Rosendale
Comdisco, Inc.
Sony Corporation of America
Cyber Commerce Limited
America Online, Inc.
SIGNATURE PAGE FOR AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
SCHEDULE B
LIST OF PARTICIPATING FOUNDERS:
WILMOT LIVING TRUST U/D/T dated April 18, 1995
Navin Chaddha
SIGNATURE PAGE FOR AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
EXHIBIT A
ADOPTION AGREEMENT
------------------
This Adoption Agreement ("Adoption Agreement") is executed by the
undersigned (the "Transferee") pursuant to the terms of that certain Voting
Agreement dated as of October 13, 1999 (the "Agreement") by and among the
Company and certain of its Stockholders. Capitalized terms used but not defined
herein shall have the respective meanings ascribed to such terms in the
Agreement. By the execution of this Adoption Agreement, the Transferee agrees
as follows:
(a) Acknowledgment. Transferee acknowledges that Transferee is
--------------
acquiring certain shares of the capital stock of the Company (the "Stock"),
subject to the terms and conditions of the Agreement.
(b) Agreement. Transferee (i) agrees that the Stock acquired by
---------
Transferee shall be bound by and subject to the terms of the Agreement, and (ii)
hereby adopts the Agreement with the same force and effect as if Transferee were
originally a Party thereto.
(c) Notice. Any notice required or permitted by the Agreement shall
------
be given to Transferee at the address listed beside Transferee's signature
below.
EXECUTED AND DATED this ______ day of _________________, ____.
TRANSFEREE:
By:_______________________________________
Name and Title
Address:__________________________________
Fax:______________________________________
Accepted and Agreed:
iBEAM BROADCASTING CORPORATION
By:___________________________
Title:_________________________
<PAGE>
Exhibit 4.6
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT OR LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
iBEAM BROADCASTING CORPORATION
STOCK SUBSCRIPTION WARRANT
February 25, 2000
1. General.
-------
(a) THIS CERTIFIES that, for value received, AMERICA ONLINE, INC.
("AOL") is entitled to subscribe for and purchase from iBEAM BROADCASTING
CORPORATION, a Delaware corporation (the "Corporation"), at any time or from
time to time during the period (the "Exercise Period") commencing on the date of
a Stipulated Event and ending on the fourth anniversary of the date hereof, on
the terms and subject to the provisions hereinafter set forth, a number of
shares (subject to adjustment as provided herein) (the "Warrant Shares") of
fully paid and non-assessable shares of Common Stock, $.0001 par value, of the
Corporation determined by dividing $5,000,000 by the Exercise Price.
This Warrant is being issued pursuant to a System Services Agreement dated as of
January 27, 2000 (the "Agreement"), between the Corporation and AOL. All terms
used but not defined herein shall have the meanings set forth in the Agreement.
(b) This Warrant shall become exercisable as to all of the Warrant
Shares immediately upon the occurrence of a Stipulated Event. As used herein,
the term "Stipulated Event" shall mean the earlier of (a) a Corporate
Transaction (as hereinafter defined) or (b) three years from the date hereof or
(c) a termination of the Agreement, except for a termination by the Corporation
for material breach by AOL. "Corporate Transaction" means (A) any consolidation
or merger of the Corporation with or into any other corporation or other entity,
other than any merger or consolidation resulting in the holders of the capital
stock of the Corporation entitled to vote for the election of directors
immediately prior to the transaction holding a majority of the capital stock of
the surviving or resulting corporation or other entity entitled to vote for the
election of directors, (B) any person or entity (including any affiliates
thereof) becoming the holder of a majority of the capital stock of the
Corporation entitled to vote for the election of directors, (C) any sale or
other disposition by the Corporation of all or substantially all of its assets
or capital stock or (D) a public offering (the "IPO") for the account of the
Corporation of shares of capital stock of the Corporation pursuant to a
registration statement filed under the Securities Act of 1933, as amended (the
"Securities Act") with gross proceeds of at least $20,000,000.
<PAGE>
(c) The Exercise Price shall be (x) the price per share of the
Corporation's Common Stock to the public in the IPO ( less per share underwriter
commissions and discounts), or (y) if a Corporate Transaction other than an IPO
occurs, or a Corporate Transaction does not occur by February 25, 2003, shall be
$13.75 per share subject to adjustment as provided in Section 4.
2. Exercise of Warrant. The rights represented by this Warrant may be
-------------------
exercised by the holder hereof, as to those Warrant Shares for which this
Warrant is then exercisable as determined in accordance with Section 1, in whole
or in part, at any time or from time to time during the Exercise Period, by the
surrender of this Warrant (properly endorsed) at the office of the Corporation
at 645 Almanor Avenue, Suite 100 Sunnyvale, CA 94086, or at such other agency or
office of the Corporation in the United States of America (the "Designated
Office") as it may designate by notice in writing to the holder hereof at the
address of such holder appearing on the books of the Corporation, and by payment
(either in cash, by check, by cancellation of indebtedness and/or in shares of
capital stock of the Corporation valued at Fair Market Value (as hereinafter
defined) on the date of such exercise) to the Corporation of the Warrant Price
for each Warrant Share being purchased. In the event of the exercise of the
rights represented by this Warrant, a certificate or certificates for the
Warrant Shares so purchased, registered in the name of the holder, and if this
Warrant shall not have been exercised for all of the Warrant Shares, a new
Warrant, registered in the name of the holder hereof, of like tenor to this
Warrant, shall be delivered to the holder hereof within a reasonable time, not
exceeding ten days, after the rights represented by this Warrant shall have been
so exercised. The person in whose name any certificate for Warrant Shares is
issued upon exercise of this Warrant shall for all purposes be deemed to have
become the holder of record of such shares on the date on which the Warrant was
surrendered and payment of the Warrant Price and any applicable taxes was made,
irrespective of the date of delivery of such certificate, except that, if the
date of such surrender and payment is a date when the stock transfer books of
the Corporation are closed, such person shall be deemed to have become the
holder of such shares at the close of business on the next succeeding date on
which the stock transfer books are open.
3. Exchange of Warrant.
-------------------
(a) In addition to, and independent of, the rights of the holder of
this Warrant set forth in Section 2 hereof, the holder hereof may at any time or
from time to time after a Stipulated Event elect to receive, without the payment
by the holder of any additional consideration, that number of Warrant Shares
determined as hereinafter provided in this Section 3 by the surrender of this
Warrant or any portion hereof to the Corporation, accompanied by an executed
Notice of Exchange in substantially the form thereof attached hereto (the "Net
Issue Election"). Thereupon, the Corporation shall issue to the holder hereof
such number of fully paid and nonassessable Warrant Shares as is computed using
the following formula:
X = Y (A-B)
-------
A
where X = the number of Warrant Shares to be issued to the holder pursuant to
this Section 3.
2
<PAGE>
Y = the number of Warrant Shares covered by this Warrant in respect of
which the Net Issue Election is made pursuant to this Section 3.
A = the Fair Market Value (as hereinafter defined) of one Warrant Share
determined at the time the Net Issue Election is made pursuant to this
Section 3 (the "Determination Date").
B = the Warrant Price in effect under this Warrant at the time the Net
Issue Election is made pursuant to this Section 3.
For purposes of the above calculation, "Fair Market Value" of one Warrant Share
as of the Determination Date shall mean:
(i) (A) if the Common Stock of the Corporation is not then
traded on a national securities exchange, the average of the closing prices
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation National Market System, if applicable, or the average of the last
bid and asked prices of the Common Stock quoted in the over-the-counter-
market or (B) if the Common Stock is then traded on a national securities
exchange, the average of the high and low prices of the Common Stock listed
on the principal national securities exchange on which the Common Stock is
so traded, in each case for the twenty (20) trading days immediately
preceding the Determination Date or, if such date is not a business day on
which shares are traded, the next immediately preceding trading day;
(ii) in the event of a Warrant Exchange in connection with a
Corporate Transaction, the value per share of Common Stock received or
receivable by each holder thereof (assuming for purposes of this
determination, in the case of a sale of assets, the Corporation is
liquidated immediately following such sale and the consideration paid to
the Corporation is immediately distributed to its stockholders); and
(iii) in all other circumstances, the fair market value per
share of Common Stock as determined by a nationally recognized independent
investment banking firm jointly selected by the Corporation and the holder of
this Warrant or, if such selection cannot be made within five business days
after delivery of the Notice of Exchange referred to above, by a nationally
recognized independent investment banking firm selected by the American
Arbitration Association then obtaining.
The closing of any Warrant Exchange shall take place at the offices of the
Corporation on the date specified in the Notice of Exchange (the "Exchange
Date"), which shall be not less than five and not more than 30 days after the
delivery of such Notice. At such closing, the Corporation shall issue and
deliver to the holder or its designee a certificate or certificates for the
Warrant Shares to be issued upon such Warrant Exchange, registered in the name
of the holder or such designee, and if such Warrant Exchange shall not have been
for all Warrant Shares, a new Warrant, registered in the name of the holder, of
like tenor to this Warrant for the number of shares still subject to this
Warrant following such Warrant Exchange.
3
<PAGE>
4. Adjustment of Warrant Price.
---------------------------
(a) The Warrant Price shall be subject to adjustment from time to
time as follows:
(i) If, at any time during the Exercise Period, the number of
shares of Common Stock outstanding is increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then, following the record date fixed for the determination
of holders of Common Stock entitled to receive such stock dividend,
subdivision or split-up, the Warrant Price shall be appropriately decreased
and the number of shares of Common Stock issuable upon exercise of this
Warrant shall be appropriately increased, in each case in proportion to
such increase in outstanding shares.
(ii) If, at any time during the Exercise Period, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date for
such combination, the Warrant Price shall be appropriately increased and
the number of shares of Common Stock issuable upon exercise of this Warrant
shall be appropriately decreased, in each case, in proportion to such
decrease in outstanding shares.
(iii) Whenever the Warrant Price shall be adjusted as provided
in this Section 4 the Corporation shall forthwith file, at the office of the
Corporation or any transfer agent designated by the Corporation for the Common
Stock, a statement, signed by its chief financial officer, showing in detail the
facts requiring such adjustment and the adjusted Warrant Price. The Corporation
shall also cause a copy of such statement to be sent by first-class certified
mail, return receipt requested, postage prepaid, to each holder of a Warrant at
his or its address appearing on the Corporation's records. Where appropriate,
such copy may be given in advance and may be included as part of a notice
required to be mailed under the provisions set forth immediately below.
(b) In the event the Corporation shall take any action of the types
described in Section 4 or Section 12, the Corporation shall give notice to each
holder of a Warrant in the manner set forth herein, which notice shall specify
the record date, if any, with respect to any such action and the date on which
such action is to take place. Such notice shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Warrant Price then in effect and the number, kind or class of shares or
other securities or property which shall be delivered or purchasable upon the
occurrence of such action or deliverable upon exercise of this Warrant. In the
case of any action which would require the fixing of a record date, the
Corporation shall use reasonable efforts to provide such notice at least 20 days
prior to the date so fixed, and in case of all other action, the Corporation
shall use reasonable efforts to provide such notice at least 30 days prior to
the taking of such proposed action. Failure to give such notice, or any defect
therein, shall not affect the legality or validity of any such action.
5. Adjustment of Warrant Shares. Upon each adjustment of the Warrant Price
----------------------------
as provided in Section 4, the holder hereof shall thereafter be entitled to
subscribe for and purchase,
4
<PAGE>
at the Warrant Price resulting from such adjustment, the number of Warrant
Shares equal to the product of (i) the number of Warrant Shares existing prior
to such adjustment and (ii) the quotient obtained by dividing (A) the Warrant
Price existing prior to such adjustment by (B) the new Warrant Price resulting
from such adjustment. No fractional shares of Common Stock shall be issued as a
result of any such adjustment, and any fractional shares resulting from the
computations pursuant to this paragraph shall be eliminated without
consideration.
6. Covenants as to Common Stock. The Corporation covenants and agrees
----------------------------
that all shares of Common Stock that may be issued upon the exercise of the
rights represented by this Warrant, will, upon issuance, be validly issued,
fully paid and non-assessable and free from all taxes, liens and charges with
respect to the issuance thereof. The Corporation further covenants and agrees
that the Corporation will from time to time take all such action as may be
requisite to assure that the stated or par value per share of Common Stock is at
all times equal to or less than the then effective Warrant Price per share of
Common Stock issuable upon exercise of this Warrant. The Corporation further
covenants and agrees that the Corporation will at all times have authorized and
reserved, free from preemptive rights, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant. If
and so long as the Common Stock issuable upon the exercise of the rights
represented by this Warrant is listed on any national securities exchange, the
Corporation will, if permitted by the rules of such exchange, list and keep
listed on such exchange, upon official notice of issuance, all shares of such
capital stock.
7. No Shareholder Rights. This Warrant shall not entitle the holder
---------------------
hereof to any voting rights or other rights as a shareholder of the Corporation.
8. Restrictions on Transfer of the Warrant Shares.
----------------------------------------------
(a) The holder of this Warrant acknowledges that neither this Warrant
nor the Warrant Shares have been registered under the Securities Act and the
holder of this Warrant agrees that no sale, transfer, assignment, hypothecation
or other disposition of the Warrant Shares shall be made (except for transfers
to any entity controlled by or under common control with AOL, as evidenced by
ownership of 50% or more of the outstanding voting stock of such entity) in the
absence of (i) current registration statement under the Securities Act as to the
Warrant Shares and the registration or qualification of the Warrant Shares under
any applicable state securities laws is then in effect or (ii) an opinion of
counsel reasonably satisfactory to the Corporation to the effect that such
registration or qualification is not required. The Warrant Shares shall also be
subject to the restrictions on transfer set forth in the Amended and Restated
Investors' Rights Agreement dated as of February __, 2000 (the "Rights
Agreement") by and among the Corporation and the investors listed on Schedule A
thereto, as such agreement may be heretofore amended.
(b) It is understood that the certificates evidencing the Warrant
Shares may bear one or all of the following legends:
(i) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in
effect with respect to the securities under such
5
<PAGE>
Act or an opinion of counsel satisfactory to the Company that such
registration is not required or unless sold pursuant to Rule 144 of such
Act."
(ii) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations
and Sections 417 and 418 of the California Corporations Code.
(iii) "These securities are subject to a market-standoff of 180
days in connection with the Company's initial public offering."
9. Restrictions on Transfer of the Warrant.
---------------------------------------
(a) Except as expressly permitted in the following sentence, this
Warrant and the rights hereunder are not transferable by the holder hereof.
Notwithstanding the foregoing, this Warrant may be assigned to any entity
controlled by or under common control with (as evidenced by ownership of 50% or
more of the outstanding voting stock of such entity) AOL. Subject to compliance
with the restrictions on transfer set forth in this Section 9, each transfer of
this Warrant and all rights hereunder, in whole or in part, shall be registered
on the books of the Corporation to be maintained for such purpose, upon
surrender of this Warrant at the Designated Office, together with a written
assignment of this Warrant in the form attached hereto duly executed by the
holder or its agent or attorney. Upon such surrender and delivery, the
Corporation shall execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees and in the denominations specified in such instrument
of assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, if any. All Warrants issued upon any
assignment of Warrants shall be the valid obligations of the Corporation,
evidencing the same rights, and entitled to the same benefits as the Warrants
surrendered upon such registration of transfer or exchange.
(b) It is understood that each Warrant shall be stamped or otherwise
imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED. THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER SAID ACT OR LAWS OR AN OPINION OF COUNSEL SATISFACTORY
TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
10. Market Stand-Off Agreement. The holder hereof hereby agrees that it
will not, without the prior written consent of the managing underwriter, during
the period commencing on the date of the final prospectus relating to the
Corporation's initial public offering and ending on the date specified by the
Corporation and the managing underwriter (such period not to exceed one hundred
eighty (l80) days) (i) lend, 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, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock
6
<PAGE>
or any securities convertible into or exercisable or exchangeable for Common
Stock (whether such shares or any such securities are then owned by the holder
hereof or are thereafter acquired), 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 underwriters in
connection with the Corporation's initial public offering are intended third
party beneficiaries of this Section 10 and shall have the right, power and
authority to enforce the provisions hereof as though they were a party hereto.
In order to enforce the foregoing covenant, the Corporation may impose stop-
transfer instructions with respect to the Warrant Shares until the end of such
period
11. Registration Rights. The holder shall have the registration rights
-------------------
set forth in the Rights Agreement with respect to the Warrant Shares.
12. Reorganizations, Etc. In case, at any time during the Exercise
--------------------
Period, of any capital reorganization, of any reclassification of the stock of
the Corporation (other than a change in par value or from par value to no par
value or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or the consolidation or merger
of the Corporation with or into another corporation (other than a consolidation
or merger in which the Corporation is the continuing operation and which does
not result in any change in the Common Stock) or of the sale of all or
substantially all the properties and assets of the Corporation as an entirety to
any other corporation, this Warrant shall, after such reorganization,
reclassification, consolidation, merger or sale, be exercisable for the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and assets shall have been sold to which such holder
would have been entitled if he had held the Common Stock issuable upon the
exercise hereof immediately prior to such reorganization, reclassification,
consolidation, merger or sale. In any such reorganization or other action or
transaction described above, appropriate provision shall be made with respect to
the rights and interests of the holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Warrant Price and of the number of shares purchasable and receivable upon
the exercise of this Warrant) shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof. The Corporation will not effect any such
consolidation, merger or sale unless, prior to the consummation thereof, the
successor corporation or entity (if other than the Corporation) resulting from
such transaction or the corporation or entity purchasing such assets shall
assume by written instrument, executed and mailed or delivered to the registered
holder hereof at the last address of such holder appearing on the books of the
Corporation, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase.
13. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is
--------------------------------------------
lost, stolen, mutilated or destroyed, the Corporation may, on such terms as to
indemnity or otherwise as it may in its discretion impose (which shall, in the
case of a mutilated Warrant, include the surrender thereof), issue a new Warrant
of like denomination and tenor as the Warrant so lost, stolen, mutilated or
destroyed. Any such new Warrant shall constitute an original contractual
7
<PAGE>
obligation of the Corporation, whether or not the allegedly lost, stolen,
mutilated or destroyed Warrant shall be at any time enforceable by anyone.
14. Modification and Waiver. This Warrant and any provision hereof may be
-----------------------
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
15. Notices. All notices, advices and communications to be given or
-------
otherwise made to any party to this Agreement shall be deemed to be sufficient
if contained in a written instrument delivered in person or by telecopier or
duly sent by first class registered or certified mail, return receipt requested,
postage prepaid, or by overnight courier, or by electronic mail, with a copy
thereof to be sent by mail (as aforesaid) within 24 hours of such electronic
mail, addressed to such party at the address set forth below or at such other
address as may hereafter be designated in writing by the addressee to the
addresser listing all parties:
If to the Corporation, to:
iBEAM Broadcasting Corporation
645 Almanor Avenue, Suite 100
Sunnyvale, California 94086
Attention: General Counsel
Telecopier: (408) 524-0567
and
If to AOL as follows:
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
Attention: General Counsel
Telecopier: (703) 265-2208
Or to such other address as the party to whom notice is to be given may have
furnished to the other parties hereto in writing in accordance herewith. Any
such notice or communication shall be deemed to have been delivered and received
(i) in the case of personal delivery or delivery by telecopier, on the date of
such deliver, (ii) in the case of nationally-recognized overnight courier, on
the next business day after the date when sent and (ii) in the case of mailing,
on the third business day following that on which the piece of mail containing
such communication is posted. As used in this Section 15, "business day" shall
mean any day other than a day on which banking institutions in the State of New
York are legally closed for business.
16. Binding Effect on Successors; Survival. This Warrant shall be binding
--------------------------------------
upon any corporation succeeding the Corporation by merger, consolidation or
acquisition of all or substantially all of the Corporation's assets. All of the
obligations of the Corporation relating to the Common Stock issuable upon the
exercise of this Warrant shall survive the exercise and termination of this
Warrant. All of the covenants and agreements of the Corporation shall inure to
the benefit of the successors of AOL.
8
<PAGE>
17. Descriptive Headings and Governing Law. The description headings of
--------------------------------------
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of Delaware.
18. Fractional Shares. No fractional shares shall be issued upon exercise
-----------------
of this Warrant. The Corporation shall, in lieu of issuing any fractional share,
pay the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then Fair Market Value of one Warrant Share.
* * *
9
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Warrant and Warrant
Agreement to be executed by their duly authorized officers on the date first
above written.
iBEAM BROADCASTING CORPORATION
By:__________________________________________
Name:
Title:
ATTEST: ____________________
Secretary
AMERICA ONLINE, INC.
By:__________________________________________
Name:
Title:
10
<PAGE>
FORM OF SUBSCRIPTION
The undersigned, the holder of the Warrant, hereby irrevocably elects to
exercise the purchase rights represented by such Warrant for, and to purchase
thereunder, __________________ shares of common stock, $.0001 par value of iBEAM
Broadcasting Corporation and herewith makes payment of $__________________
therefor, and requests that the certificates for such shares be issued in the
name of and delivered to,
__________________________________________________________________, whose
address is .
Dated:__________________________
_______________________________
(Signature)
_______________________________
(Address)
11
<PAGE>
NOTICE OF EXCHANGE
(To be executed by the Holder in
order to exchange the Warrant.)
The undersigned hereby irrevocably elects to exchange this Warrant into
____________________ shares (the foregoing number constituting the number of
Warrant Shares to be issued pursuant to Section 3 of this Warrant) of common
stock, $.0001 par value of iBEAM Broadcasting Corporation, minus any shares to
be deducted from the foregoing number in accordance with the terms of this
Warrant, according to the conditions thereof. The undersigned desires to
consummate such exchange on .
Dated:____________________
__________________________________________
Name of Holder:
By:_______________________________________
12
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the under-signed under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of
- ---------------------------- Common Stock
------------
and does hereby irrevocably constitute and appoint ________ _____________
attorney-in-fact to register such transfer onto the books of iBEAM Broadcasting
Corporation maintained for the purpose, with full power of substitution in the
premises.
Dated:____________________ Print Name:___________________________
Signature:____________________________
Witness:______________________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of this Warrant in every particular, without
alteration or enlargement or any change whatsoever.
13
<PAGE>
EXHIBIT 10.11
January 27, 2000
----------------
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.
SYSTEM SERVICES AGREEMENT
This System Services Agreement ("Agreement") is made as of January 27,
2000 (the "Effective Date") between America Online, Inc., a Delaware corporation
with its principal office at 22000 AOL Way, Dulles, VA 20166 ("AOL"), and iBEAM
Broadcasting, Inc., a Delaware corporation with its principal office at 645
Almanor Avenue, Suite 100, Sunnyvale, CA 94086 ("iBEAM"). Each of AOL and iBEAM
may be individually referred to herein as a "Party" and collectively, as the
"Parties."
RECITALS
A. AOL desires to engage iBEAM to provide iBEAM's content distribution
services (the "Services") to AOL for installation within the areas of the AOL
Network infrastructure as set forth herein and for the purpose of improving
content distribution both within the AOL Network and between the AOL Network and
the Internet (collectively, the "Installation and Distribution Right").
B. iBEAM desires to provide the Services to AOL for the purpose of
obtaining access to AOL's Internet bandwidth for use by iBEAM on behalf of its
customers in accordance with the terms of this Agreement, and to provide support
to AOL Users accessing content from iBEAM servers.
C. The Parties intend to set forth in this Agreement the terms and
conditions governing iBEAM's provision of the Services and the compensation to
AOL for providing iBEAM with the Installation and Distribution Right.
THEREFORE, the Parties hereby agree as follows:
1. iBEAM Services. iBEAM will provide the Services using iBEAM servers,
--------------
which shall be physically located within the AOL host complex (collectively, the
"iBEAM Servers"). iBEAM initially will install the iBEAM Servers within the AOL
host complex using no more than [*] standard equipment racks (each an "Equipment
Rack", and the [*] standard Equipment Racks collectively referred to herein as
the "Obligatory Equipment Rack Space") in each operational AOL data center
(currently in Reston, Virginia, Manassas, Virginia and Dulles, Virginia). AOL
shall make space in such racks available to iBEAM no later than fifteen (15)
days after the Effective Date (the "Rack Space Availability Date"). The date on
which iBEAM completes the initial installation such that AOL's members have
access to the Media Content (as defined below) shall be known as the
"Installation Date." iBEAM will retain all right, title and interest in and to
the iBEAM Servers and all iBEAM software and other IBEAM equipment installed on
or used in connection with the iBEAM Servers (other than the Equipment Racks).
The number of iBEAM Servers to be used by iBEAM in providing the Services will
be agreed upon by the Parties as part of the implementation of this Agreement.
If, following the Effective Date, IBEAM requests additional space in the AOL
host complex for further
1
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with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE>
Equipment Racks (i.e., in addition to the Obligatory Equipment Rack Space), AOL
and iBEAM will discuss terms on which AOL may provide such space to iBEAM. iBEAM
will provide to AOL rolling quarterly forecasts of anticipated space needs
within the AOL host complex, and AOL, in its sole discretion, shall decide
whether to accommodate any such iBEAM request for additional Equipment Rack
space. The Services will facilitate the distribution of (and iBEAM shall be
permitted to use the iBEAM Servers and utilize AOL's Internet bandwidth to send,
receive and deliver) text, software, communications, images, video, sound and
other media or information (collectively, "Media Content"), as follows:
(a) Media Content will be delivered to members of the AOL Service and
the CompuServe Service (collectively, "AOL Users") through iBEAM Servers (the
"Internal Distribution");
(b) Media Content will be delivered from the Internet to iBEAM Servers
using AOL's Internet bandwidth ("Inbound Distribution"); and
(c) Media Content will be delivered from iBEAM Servers to Internet
recipients who are not AOL Users as expressly permitted by the terms of this
Agreement, using AOL's Internet bandwidth ("Outbound Distribution").
2. Payments. iBEAM will make the following payments to AOL:
--------
(a) Guaranteed Payments. iBEAM shall pay AOL a non-refundable (except
-------------------
as provided expressly to the contrary in this Section 2 (a) and Section 11 of
this Agreement ) guaranteed payment of [*] Dollars (US$[*]), as follows: (i) [*]
Dollars (US$[*]) upon execution of this Agreement and (ii) [*] Dollars (US$[*])
upon the earlier of (A) the Installation Date or (B) sixty (60) days after the
Effective Date. The parties acknowledge that if iBEAM terminates this Agreement
due to AOL's failure to provide iBeam with the Obligatory Equipment Rack Space
as required under Section 1, the above payments will be refundable.
(b) Revenue Sharing Arrangement.
---------------------------
(i) If at the end of any calendar quarter during the Term, the
amounts owed to AOL under subparagraphs (iii) and (iv) below exceed
the corresponding quarterly minimum dollar amounts set forth below
(the "Revenue Sharing Threshold"), then iBEAM will pay to AOL the
amounts owed to AOL under subparagraphs (iii) and (iv) below, less the
corresponding Revenue Sharing Threshold for the applicable calendar
quarter. The Revenue Sharing Threshold is as follows:
Quarter Revenue Sharing Threshold
------- -------------------------
1st $[*]
2
[*] 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.
<PAGE>
2nd $[*]
3rd $[*]
4th $[*]
5th $[*]
6th $[*]
7th $[*]
8th $[*]
(ii) There shall be no carryover of the Revenue Sharing Threshold from
any previous calendar quarter. The Revenue Sharing Threshold shall apply only to
amounts owed to AOL as a result of Gross Revenues generated in accordance with
subparagraphs (iii) and (iv) below.
(iii) Traffic Between AOL Network and the Internet. Within [*] ([*])
--------------------------------------------
days following the end of each month of the Term, AOL shall calculate iBEAM's
Monthly Bandwidth Usage, in accordance with Section 9.1 of this Agreement, and
shall notify iBEAM of such usage. Within [*] ([*]) days following the end of
each month of the Term, iBEAM shall pay to AOL [*] percent ([*]%) of all Gross
Revenues generated from the traffic between the AOL Network and the Internet
during such month on the iBEAM Servers for all traffic up to and equal to the
Maximum Projected Inbound Distribution Bandwidth and Maximum Projected Outbound
Distribution Bandwidth (each as defined in Section 9.3 hereto) (collectively,
the "Minimum Internet Bandwidth Payment"); provided, however, that for each
-------- -------
month in which iBEAM's Monthly Bandwidth Usage equals or exceeds either the
Maximum Projected Inbound Distribution Bandwidth or the Maximum Projected
Outbound Distribution Bandwidth, for such month, iBEAM shall pay to AOL, within
[*] ([*]) days following the end of such month (A) the Minimum Internet
Bandwidth Payment plus (B) the greater of (1) [*] Dollars (US$[*]) per T-3-
----
equivalent bandwidth for the amount by which the Inbound Distribution traffic
during such month exceeded the Maximum Projected Inbound Distribution Bandwidth
or (2) [*] Dollars (US$[*]) per T-3 equivalent bandwidth for the amount by which
the Outbound Distribution traffic for such month exceeded the Maximum Projected
Outbound Distribution Bandwidth for such month. . By way of example, if the
Inbound Distribution usage exceeds the Maximum Projected Inbound Distribution
Bandwidth by [*] ([*]) Mbps and the Outbound Distribution exceeds the Maximum
Projected Outbound Distribution Bandwidth by [*] ([*]) Mbps in a particular
month, iBEAM would pay AOL [*] Dollars (US$[*]) per T3-equivalent multiplied by
[*] ([*]) Mbps (rather than $[*] per T3-equivalent multiplied by [*] ([*])
Mbps), in addition to the payment referred to in the preceding clause (A). For
purposes of this Agreement, (x) "T-3-equivalent" bandwidth shall mean at least
[*] ([*]) Mbps and (y) "Gross Revenues" for a particular month shall mean the
payments billed by iBEAM to its customers during such month for Media Content
3
[*] 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.
<PAGE>
delivery services and excluding any sales, excise, export, use and similar
taxes.
(iv) Traffic Within the AOL Network. iBEAM shall pay AOL [*] percent
------------------------------
([*]%) of all Gross Revenues generated from traffic on the iBEAM Servers located
within or directly attached to the AOL Network (including, without limitation,
the AOL Service and the CompuServe Service) and delivered to AOL Users.
(v) Other Stipulations. iBEAM agrees that it will not structure its
------------------
customer relationships so as to circumvent (or implement any billing mechanism
that would have the effect of circumventing) the revenue sharing provisions of
this Agreement.
3. Purchase of Services by AOL. AOL may elect during the Term to purchase
---------------------------
Services from iBEAM for use in connection with the delivery of Media Content
from AOL's Internet websites (including but not limited to aol.com,
netcenter.com, spinner.com, netscape.com and moviefone.com), pursuant to iBEAM's
standard Service Terms and Conditions, which are attached hereto as Schedule A
to this Agreement. AOL may elect, at its sole discretion, to offset against or
waive iBEAM's payment obligations as set forth in this paragraph in exchange for
AOL purchasing Services in accordance with this Section 3. AOL's purchase of
iBEAM's Services under this Section will be measured based on Mbps routed over
iBEAM's network, calculated at the "[*]" method, and priced in accordance with
the pricing schedule set forth in the Services Terms and Conditions attached as
Schedule A to this Agreement.
4. Warrants. Upon execution of this Agreement and subject to approval by
--------
iBEAM's board of directors, iBEAM will issue to AOL warrants (in form and
substance satisfactory to AOL) to purchase [*] of iBEAM common stock at ______
dollars per share (price to be determined after execution of the agreement
concurrent with execution of a warrant agreement between AOL and iBEAM.
(collectively, the "Warrants"). The warrants shall fully vest upon the earlier
of (i) three (3) years, (ii) the occurrence of any Initial Public Offering, or
(iii)the expiration of this Agreement. For purposes of this Agreement, "Initial
Public Offering" shall mean an offering of iBEAM common stock to the public per
registration with the SEC for an aggregate value of greater the [*]. The Parties
will agree on additional terms and conditions with respect to the Warrants.
5. Media Content Restrictions.
--------------------------
(a) Compliance with AOL Terms of Service. If AOL notifies iBEAM that
------------------------------------
any Media Content delivered to AOL Users violates AOL's Terms of Service
(which are the terms of service generally applied to AOL Users), iBEAM will
promptly prevent such Media Content from being routed through the iBEAM
Servers to the extent technically feasible; provided, however, that if
-------- -------
iBEAM is unable to prevent such Media Content from being routed through the
iBEAM Servers, then AOL may suspend the delivery of such Media Content to
AOL Users, without penalty, immediately upon notice to iBEAM. AOL may
modify its Terms of Service from time to time at its discretion; provided,
--------
however, that if AOL makes any material changes or revisions to its Terms
-------
of Service, notifications of such material changes or revisions shall be
posted on the America
4
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with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE>
Online service at least thirty (30) days prior to the effectiveness of such
revisions. The current Terms of Service are available on the AOL Service at
Keyword: TOS.
(b) User Information. iBEAM shall ensure that iBEAM's collection,
----------------
use and disclosure of information obtained from AOL Users under this Agreement
("User Information") complies with (i) all applicable laws and regulations and
(ii) AOL's standard privacy policies, available on the AOL Service at the
keyword term "Privacy" (e.g., no member profiling or data mining). iBEAM will
not disclose User Information collected hereunder to any third party in a manner
that identifies AOL Users as end users of an AOL product or service or use User
Information collected under this Agreement to market another Interactive
Service. For purposes of this Agreement, "Interactive Service" shall mean any
entity offering one or more of the following: (i) [*] (e.g., [*]); (ii) [*]
(e.g., [*] and/or [*] (e.g., [*]); and (iii) [*].
6. IBEAM's Responsibilities. In providing the Services, iBEAM will
------------------------
distribute the Media Content to AOL Users exclusively from the iBEAM Servers
located within the AOL complex (subject to capacity restraints), and if AOL at
its sole discretion so requests, iBEAM will promptly provide AOL with
appropriate records to confirm compliance with this obligation. Notwithstanding
the foregoing, AOL may request that iBEAM distribute Media Content to AOL Users
from other iBEAM servers located outside of the AOL complex (i.e., other than
the iBEAM Servers) in order to address emergency conditions, scheduled
maintenance or capacity constraints based on the number of iBEAM Servers located
within the AOL complex, in which case IBEAM shall do so, to the extent
commercially reasonable (collectively, the "Extraordinary Distribution
Arrangement"); provided, however, that the Media Content served pursuant to any
-------- -------
such Extraordinary Distribution Arrangement shall not be subject to the revenue
share provisions described in paragraph 2 of this Agreement; provided, further,
-------- -------
that any resulting increase in Inbound Bandwidth usage is not counted when
measuring Inbound Distribution traffic as described in paragraph 2(b)(iii)(B).
iBEAM acknowledges and agrees that, except as expressly contemplated herein, it
does not require any access to AOL usage data, including but not limited to web
usage logs, to perform its obligations under this Agreement. iBEAM will ensure
that its iBEAM Servers and Services support and interoperate with the leading
technology in the Internet industry (including, without limitation, [*] caching
servers, [*] and [*] browsers, [*] and [*] streaming software and any other
technology designated from time to time by AOL), and will be responsible for
providing the Services in a professional manner in conformance with industry
standards and the provisions of this Agreement; provided, however, that iBEAM
-------- -------
does not represent or warrant that the Services will be uninterrupted or error
free, and iBEAM's liability in the event of interruptions, errors or failures in
its Services is limited as set forth in Section 10 below. THE SERVICES ARE
PROVIDED "AS IS" AND IBEAM DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
7. AOL's Responsibilities. AOL shall be responsible for providing iBEAM
----------------------
with the Obligatory Equipment Rack Space to accommodate the iBEAM Servers and
for providing iBEAM with reasonable access to the iBEAM Servers as described in
Section
5
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.
[*] 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.
<PAGE>
1 above in order for iBEAM to perform its obligations hereunder. AOL shall also
be responsible for supplying iBEAM with information about AOL's Internet
Protocol addressing scheme to the extent necessary for iBEAM to fulfill its
obligations under this Agreement. Notwithstanding the foregoing, AOL does not
represent or warrant that such services will be uninterrupted or error free, and
AOL's liability in the event of interruptions, errors or failures in the
services to be provided by AOL hereunder is limited as set forth in Section 10
below. In addition, the Parties hereby acknowledge and agree that this Agreement
is conditioned upon AOL's ability to permit iBEAM to utilize AOL's bandwidth in
the manner contemplated herein pursuant to AOL's existing arrangements with
third party peering partners. In the event that an AOL peering partner objects
to the use of its bandwidth (as provided to AOL) in accordance with the terms of
this Agreement, AOL shall have the right (without penalty to AOL) to suspend the
delivery of the Media Content through such peering partner's network, provided
that AOL meets its overall commitment to provide bandwidth as specified in this
Agreement. OTHER THAN AS SET FORTH HEREIN, THE SERVICES PROVIDED BY AOL ARE
PROVIDED `AS IS' AND AOL DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
8. Technical/Vendor Cooperation. iBEAM will cooperate with AOL to the
----------------------------
extent commercially reasonable in adjusting the capacity of its Services under
this Agreement to adapt to AOL's changing needs, particularly in providing a
favorable browsing environment to AOL Users. In addition, AOL and iBEAM agree to
cooperate with each other to the extent commercially reasonable with a view to
discussing the provision of other value-added services to America Online content
providers and other IBEAM customers, and IBEAM agrees to make commercially
reasonable efforts to integrate the anticipated needs of AOL and its content
partners into IBEAM's future product plans.
9. Connectivity Relationships; Bandwidth Usage Calculation.
-------------------------------------------------------
9.1. Reliance on Third-Party Internet Service Providers. iBEAM
--------------------------------------------------
acknowledges that AOL's ability to allow iBEAM to use AOL's bandwidth in the
manner set forth herein may, in part, require the approval of one or more third-
party Internet service providers or content partners that have a direct
connection with AOL for such bandwidth. AOL agrees to use commercially
reasonable efforts to obtain such approval; provided, however, that if any such
-------- -------
third party refuses to grant such approval, then AOL may suspend the delivery of
Media Content through such provider's network in AOL's sole discretion, without
penalty, upon reasonable notice to iBEAM provided that AOL meets its overall
commitment to provide bandwidth as specified in this Agreement. The Parties
agree to act in good faith regarding the placement and connectivity of the iBEAM
Servers in the AOL host complex.
9.2 Measurement of Monthly Bandwidth Usage. AOL shall separately
--------------------------------------
measure the amount of Inbound Distribution bandwidth and Outbound Distribution
bandwidth used by iBEAM through the AOL Network infrastructure during each month
of the Term (collectively, the "Monthly Bandwidth Usage"). AOL shall measure
Monthly
6
[*] 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.
<PAGE>
Bandwidth Usage according to the "[*]" method, calculated as follows: (i) actual
Monthly Bandwidth Usage in megabit-per-second ("Mbps") will be sampled and
collected every [*] (each, an "Individual Data Point," and collectively, the
"Individual Data Points"), and such Individual Data Points shall be stored for
the remainder of the relevant month; (ii) at the end of each such month, all
Individual Data Points shall be ranked in descending order; (iii) the top [*]
percent ([*]%) of the ranked Individual Data Points shall then be discarded; and
(iv) the highest of the remaining, non-discarded Individual Data Points shall
constitute iBEAM's Monthly Bandwidth Usage.
9.3 AOL Maximum Projected Monthly Total Bandwidth. Within two (2)
---------------------------------------------
days following the Effective Date, AOL shall supply iBEAM with the maximum
surplus Inbound Distribution bandwidth projected to be available to iBEAM on a
monthly basis during the Term (the "Maximum Projected Inbound Distribution
Bandwidth") and Outbound Distribution bandwidth projected to be available to
iBEAM on a monthly basis during the Term (the "Maximum Projected Outbound
Distribution Bandwidth"), each in Mbps, and as determined by AOL in its sole
discretion (the Maximum Projected Inbound Distribution Bandwidth and the Maximum
Projected Outbound Distribution Bandwidth collectively referred to herein as the
"Maximum Projected Bandwidth", and each individually referred to herein as a
"Component"). AOL will have the right to change the Maximum Projected Bandwidth
(or any Component thereof) from time to time during the Term (as it applies to
subsequent months) upon thirty (30) days' prior notice to iBEAM. Notwithstanding
the foregoing, in no event shall (i) the Maximum Projected Inbound Distribution
Bandwidth be less than [*] ([*]) Mbps or (ii) the Maximum Projected Outbound
Distribution Bandwidth be less than [*] ([*]) Mbps. iBEAM may request from time
to time in writing during the Term an increase in the Maximum Projected
Bandwidth (or any Component thereof), and AOL agrees to respond to iBEAM within
fourteen (14) days following receipt by AOL of any such written request as to
whether or not such request is acceptable to AOL; provided, however, that AOL
-------- -------
shall not be obligated to provide or make available bandwidth beyond the Maximum
Projected Inbound Distribution Bandwidth (in the case of Inbound Distribution)
or the Maximum Projected Outbound Distribution Bandwidth (in the case of
Outbound Distribution). The Parties hereby acknowledge and agree that any
bandwidth provided to AOL by iBEAM during the Term shall not constitute part of
either the Maximum Projected Bandwidth in any month of the Term.
10. Limitation of Liability.
-----------------------
(a) Liability. NEITHER PARTY (NOR ITS CUSTOMERS OR MEMBERS) SHALL
---------
BE LIABLE TO THE OTHER PARTY (NOR ITS CUSTOMERS OR MEMBERS) FOR PUNITIVE,
SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES, INCLUDING WITHOUT
LIMITATION LOST PROFITS OR LOSS OR DAMAGE TO DATA ARISING OUT OF THIS AGREEMENT,
EVEN IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES
(COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED THAT EACH PARTY WILL REMAIN
--------
LIABLE TO THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A
THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT TO SECTION 10(c). EXCEPT
AS PROVIDED IN
7
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with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE>
SECTION 10(c), (I) LIABILITY ARISING UNDER THIS AGREEMENT WILL BE LIMITED TO
DIRECT, OBJECTIVELY MEASURABLE DAMAGES, AND (II) THE MAXIMUM LIABILITY OF ONE
PARTY TO THE OTHER PARTY FOR ANY CLAIMS ARISING IN CONNECTION WITH THIS
AGREEMENT WILL NOT EXCEED THE AGGREGATE AMOUNT OF FIXED GUARANTEED PAYMENT
OBLIGATIONS OWED BY EITHER PARTY TO THE OTHER PARTY HEREUNDER IN THE YEAR IN
WHICH THE EVENT GIVING RISE TO LIABILITY OCCURS; PROVIDED THAT EACH PARTY WILL
--------
REMAIN LIABLE FOR THE AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE
OTHER PARTY PURSUANT TO THE AGREEMENT.
(b) No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS
------------------------
AGREEMENT, NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS
ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE SERVICES,
AOL NETWORK, THE AOL SERVICE, AOL.COM, THE COMPUSERVE SERVICE, THE EQUIPMENT
RACKS, THE MEDIA CONTENT OR THE iBEAM SERVERS, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES
ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, AOL SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING
THE PROFITABILITY OF THE iBEAM SERVERS OR THE MEDIA CONTENT.
(c) Indemnity. Either Party will defend, indemnify, save and hold
---------
harmless the other Party and the officers, directors, agents, affiliates,
distributors, franchisees and employees of the other Party from any and all
third party claims, demands, liabilities, costs or expenses, including
reasonable attorneys' fees ("Liabilities"), resulting from the indemnifying
Party's material breach of any duty, representation, or warranty of this
Agreement.
(d) Claims. If a Party entitled to indemnification hereunder (the
------
"Indemnified Party") becomes aware of any matter it believes is indemnifiable
hereunder involving any claim, action, suit, investigation, arbitration or other
proceeding against the Indemnified Party by any third party (each an "Action"),
the Indemnified Party will give the other Party (the "Indemnifying Party")
prompt written notice of such Action. Such notice will (i) provide the basis on
which indemnification is being asserted and (ii) be accompanied by copies of all
relevant pleadings, demands, and other papers related to the Action and in the
possession of the Indemnified Party. The Indemnifying Party will have a period
of ten (10) days after delivery of such notice to respond. If the Indemnifying
Party elects to defend the Action or does not respond within the requisite ten
(10) day period, the Indemnifying Party will be obligated to defend the Action,
at its own expense, and by counsel reasonably satisfactory to the Indemnified
Party. The Indemnified Party will cooperate, at the expense of the Indemnifying
Party, with the Indemnifying Party and its counsel in the defense and the
Indemnified Party will have the right to participate fully, at its own expense,
in the defense of such Action. If the Indemnifying Party responds within the
required ten (10) day period and elects not to defend such Action, the
Indemnified Party will be free, without prejudice to any of the Indemnified
Party's rights hereunder, to compromise or defend (and control the defense
8
<PAGE>
of) such Action. In such case, the Indemnifying Party will cooperate, at its own
expense, with the Indemnified Party and its counsel in the defense against such
Action and the Indemnifying Party will have the right to participate fully, at
its own expense, in the defense of such Action. Any compromise or settlement of
an Action will require the prior written consent of both Parties hereunder, such
consent not to be unreasonably withheld or delayed.
11. Terms and Termination. The initial term of this Agreement (the
---------------------
"Initial Term") shall be two (2) years from the Installation Date (as defined in
Section 1 of this Agreement). The Parties may mutually agree to renew this
Agreement for up to two (2) additional one-year terms (each such additional
term, a "Renewal Term," and together with the Initial Term, collectively
referred to herein as the "Term"). Either Party may terminate this Agreement if
the other fails to cure a material breach of this Agreement within thirty (30)
days of receiving written notice of the breach from the terminating party.
Notwithstanding the foregoing, AOL may terminate the Agreement without penalty
in the event that iBEAM fails to reach [*] Dollars (US$[*]) in Gross Revenues
owed to AOL (pursuant to Section 2(b) of this Agreement) by the first
anniversary of the Effective Date ("Insufficient Gross Revenues Termination");
provided, however, that upon any such Insufficient Gross Revenues Termination,
- -------- -------
AOL shall refund to iBEAM [*] Dollars (US$[*]).
12. Public Relations and Confidentiality. Neither Party shall make or
------------------------------------
cause to be made any news release or other public announcement pertaining to
this Agreement or the relationship created hereby or disclose such information
to any third party without the express prior written consent and approval of the
other Party, which will not be unreasonably withheld, except to the extent
required by applicable law, in which case, the disclosing Party shall provide
the other Party with reasonable advance notice of its obligation to make such a
disclosure. The failure by one Party to obtain the prior written approval of the
other Party prior to issuing a Press Release (except as required by law) shall
be deemed a material breach of this Agreement.
13. Audit Rights. In making the payments required pursuant to this
------------
Agreement, the Party responsible for the same will accompany such payments with
a statement setting forth, in reasonable detail, the basis upon which the
payment has been calculated and the manner of such calculation. Each Party will
keep accurate and complete records supporting such calculation for a period of
at least three (3) years following the date the payment relating to such records
has been made. Each Party agrees to permit such records to be examined, upon
reasonable prior notice but no more than once per year during the Term, by an
independent certified public accountant designated by the Party seeking to audit
the same at such Party's cost in order to determine the accuracy of the reports
and payments made hereunder. Prompt adjustment shall be made to correct any
errors or omissions in any reports or payments disclosed by any such audit
examination. In the event that an audit uncovers inaccuracies in payments made
by either Party to the other Party in excess of five percent (5%), the audited
Party agrees to pay for the cost of the audit. Similarly, AOL will keep
appropriate records supporting its calculation of iBEAM's bandwidth usage
9
[*] 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.
<PAGE>
under this Agreement and AOL's purchase of Services and will permit examination
of such records by an independent certified public accountant (on behalf of
iBEAM and at iBEAM's sole cost and expense), and an adjustment shall promptly be
made to correct any errors or omissions disclosed by any such examination.
14. Confidentiality. The Parties agree that all disclosures of
---------------
confidential and/or proprietary information before and during the Term shall
constitute confidential information (collectively, "Confidential Information")
of the disclosing Party. Such Confidential Information shall include, but not
be limited to: AOL User and member information, product designs and plans,
architecture and configuration of the AOL Service, source code, the existence of
this Agreement and the relationship created hereby. Each Party shall use
commercially reasonable efforts to ensure the confidentiality of such
information supplied by the disclosing party, or which may be acquired by either
party in connection with or as a result of the provision of the services under
this Agreement. Each Party agrees that it shall not disclose, use, modify,
copy, reproduce or otherwise divulge such confidential information other than to
fulfill its obligations under this Agreement, except to the extent required by
applicable law, in which case, the disclosing party shall provide the other
Party with reasonable advance notice of its obligation to make such a
disclosure. Each Party further agrees to hold harmless and indemnify the other
Party in the event of any disclosure by such Party. "Confidential Information"
shall not include information (a) already lawfully known to or independently
developed by the receiving Party, (b) disclosed in published materials, (c)
generally known to the public, or (d) lawfully obtained from any third party.
15. Change of Control. "Change of Control" is defined as (a) the
-----------------
consummation of a reorganization, merger or consolidation or sale or other
disposition of substantially all of the assets of a party or (b) the acquisition
by any individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1933, as amended) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under such Act) of more
than 50% of the outstanding voting securities of the Company or of securities
representing the right to elect a majority of the Company's board of directors.
iBEAM shall not assign this Agreement or any right, interest or benefit under
this Agreement without the prior written consent of AOL, which will not
unreasonably be withheld. Assumption of this Agreement by any successor to iBEAM
(including, without limitation, by way of merger or consolidation) shall be
subject to AOL's prior written approval, which will not unreasonably be
withheld. In the event of any Change of Control of iBEAM or any assignment or
assumption of this Agreement, without AOL's prior written consent, AOL shall
have the right to terminate this Agreement upon written notice to iBEAM. Subject
to the foregoing, this Agreement shall be fully binding upon, inure to the
benefit of and be enforceable by the Parties hereto and their respective
successors and assigns.
16. Force Majeure. During the term of this Agreement, neither Party shall
-------------
be in default of its obligations to the extent that its performance is delayed
or prevented by causes beyond its reasonable control, including but not limited
to acts of God, natural disasters, bankruptcy of a vendor, strikes and other
labor disturbances, acts of war or civil disturbance, or other equivalent or
comparable events.
10
<PAGE>
17. Notices. All notices or reports permitted or required under this
-------
Agreement shall be in writing and shall be delivered by personal delivery,
nationally recognized overnight courier, telegram, or facsimile transmission or
by registered mail, return receipt requested. Notices shall be sent to the
signatories of this Agreement at the address set forth above or such other
address as either party may specify in writing. Notices shall be effective upon
receipt. In the case of AOL, such notice will be provided to both the President,
Business Affairs (fax no. 703-[*]) and the Deputy General Counsel (fax no. 703-
[*]), each at the address of AOL set forth in the first paragraph of this
Agreement. In the case of iBEAM, except as otherwise specified herein, the
notice address will be the address for iBEAM set forth in the first paragraph of
this Agreement, with the other relevant notice information, including the
recipient for notice and, as applicable, such recipient's fax number or e-mail
address, to be as reasonably identified by iBEAM.
18. Injunctive Relief. It is understood and agreed that, notwithstanding
-----------------
any other provisions of this Agreement, breach of the provisions of this
Agreement by a Party will cause the other Party irreparable damage for which
recovery of money damages would be inadequate and that the non-breaching Party
may therefore seek timely injunctive relief to protect its rights under this
Agreement in addition to any and all remedies at law.
19. No Agency. Nothing contained herein shall be construed as creating any
---------
agency, partnership, or other form of joint enterprise between the Parties.
20. Full Power. Each Party warrants that it has full power to enter into
----------
and perform this Agreement and the person signing this Agreement on such Party's
behalf has been duly authorized and empowered to enter into this Agreement. Each
Party further acknowledges that it has read this Agreement, understands it, and
agrees to be bound by it.
21. Survival. Sections 10 ("Limitation of Liability"), 12 ("Public
--------
Relations & Confidentiality"), 13 ("Audit Rights"), 14 ("Confidentiality"), 18
("Injunctive Relief"), 19 ("No Agency"), 21 ("Survival"), and 22 ("Legal
Matters") of this Agreement shall survive cancellation, termination or
expiration of this Agreement.
22. Legal Matters. This Agreement represents the entire agreement between
-------------
the Parties regarding the subject matter hereof. If any part of this Agreement
is held invalid or unenforceable, that portion shall be construed in a manner
consistent with applicable law to reflect, as nearly as possible, the original
intentions of the Parties, and the remaining portions shall remain in full force
and effect. The laws of the State of Delaware, excluding its conflicts-of-law
rules, shall govern this Agreement. The terms and conditions of this Agreement
supercede all previous agreements, proposals or representations related to the
subject matter hereof.
11
[*] 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.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
AMERICA ONLINE, INC.
By: _____________________________
Title:____________________________
iBEAM BROADCASTING, INC.
By: _____________________________
Title: ____________________________
12
<PAGE>
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.
EXHIBIT 10.12
iBEAM Network Membership
Agreement No. 093099 NPoint
This membership agreement (the "Agreement"), effective as of September 30, 1999
---------
(the "Effective Date"), is entered into by NorthPoint Communications, Inc.,
-------------- -------------------------------
("Member") and iBEAM BROADCASTING CORPORATION, a Delaware corporation with
-------------------------------
primary business offices at 645 Almanor Avenue, Suite 100, Sunnyvale, CA 94086
("iBEAM"). (iBEAM and Member individually a "Party" or together the "Parties")
WHEREAS, iBEAM intends to provide a paid service which provides Internet service
providers ("ISPs") with MaxCasters providing replication, live broadcast and on-
demand data streaming and,
WHEREAS, Member provides access to a high-speed network for the subscribers of
its ISP customers and,
WHEREAS, iBEAM offers and Member accepts the iBEAM service subject to the terms
and conditions set forth below.
NOW THEREFORE, for good and valuable consideration exchanged between the
Parties, Member and iBEAM agree as follows:
1. DEFINITIONS
- ----------------
When used in this Agreement, the following terms shall have the following
meanings unless the subject or the context otherwise requires:
A. Content: data or data streams used in the Service.
-------
B. Webcast Distribution Service (the "Service"): The service provided by
--------------------------------------------
iBEAM, where iBEAM copies and distributes Content from a series of content
providers to iBEAM MaxCasters using communications equipment and
telecommunications services (including, but not limited to, satellite,
broadcast and other networking services).
C. Confidential Information. Confidential and trade secret information as
------------------------
set forth more specifically in Article 15 of this Agreement.
D. Disclosing Party. A Party that discloses Confidential Information to a
----------------
Receiving Party.
E. Receiving Party. A Party receiving Confidential Information from a
---------------
Disclosing Party.
F. MaxCaster/TM/: A system of satellite downlink equipment, one or more
-------------
computer servers, other communications equipment and appropriate software
colocated with Member Network.
G Member Network: The network operated by Member without the installation of
---------------
the iBEAM MaxCaster(s).
H. Content Provider: a person or entity who provides Content for dissemination
----------------
on Webcast Distribution.
I. Referral: Shall mean placing iBEAM in contact with a potential iBEAM
--------
customer where contract negotiations with such potential customer begin
within ninety (90) days of the referral and such negotiations result in an
order and provision of services from iBEAM, unless such referred customer
was, as of the date of Member's referral: (a) already a customer under
contract with iBEAM; (b) already formally referred by another customer of
iBEAM; or (c) already in negotiations with iBEAM for services. Subject to
the foregoing, iBEAM will pay NorthPoint for Referrals as set forth in
Article 4.1.
2. SERVICE
- ------------
iBEAM will provide the Service to Member and Member accepts the Service
pursuant to the terms and conditions of this Agreement and its Exhibits by
incorporation.
3. OWNERSHIP AND USE AND DAMAGE
- ---------------------------------
3.1 Ownership: Title to and ownership of the MaxCaster, all copies of
documentation or instructions thereof and all data resident upon each
MaxCaster, including but not limited to any trademarks, servicemarks,
tradedress, copyrights (whether in literal or non-literal form) and/or patents
shall be and at all times remain with iBEAM, iBEAM's licensors or its agents or
assigns. Member will not reproduce or modify the MaxCaster or any portion
thereof. Member shall not rent, sell, lease, create or have created security
interests in the MaxCaster, have liens placed on the MaxCaster or otherwise
transfer the MaxCaster or any part thereof or use, or allow its use for the
benefit of any third party that is not a customer or subscriber of Member
3.2 Use: Member may transmit the Content resident on the MaxCaster to its end
users provided that the Content is unmodified or abridged in any manner. Member
shall not reverse assemble, reverse compile or reverse engineer the MaxCaster,
or otherwise attempt to discover any MaxCaster source code or underlying
Confidential Information (as that term is defined below). Further Member agrees
that it will not modify, copy, display, distribute, use, market, promote,
perform, cache or transmit any of the Content residing within the MaxCaster
except as required to display or distribute the Content to viewers of the
Internet or intercept any transmission intended to place Content on the
MaxCaster for the heretofore mentioned reasons without the
<PAGE>
express permission of iBEAM. iBEAM may use certain iBEAM defined shared elements
of the MaxCaster for other services or customers.
3.3 In the event that Member breaches any provision of Articles 3.1 or 3.2
iBEAM shall have the right to bring immediate injunctive action to halt said
breach.
3.4 Damage to MaxCaster: Any damage caused to any portion of the MaxCaster while
resident at Member location by use outside the scope intended under this
Agreement will require Member to pay iBEAM to repair or replace the MaxCaster.
4. METHOD OF PAYMENT
- ----------------------
iBEAM owns all right, title and interest in and to any and all revenues
associated with all services transferred through the MaxCaster to Member
Network. iBEAM shall pay Member (*). In the event that Member provides iBEAM
with a Referral of a content provider or other customer for the Service,
Member will receive an additional (*).
4.2 iBEAM will tender to Member a summary of all shared revenues set forth in
Article 4.1 on a calendar quarterly basis. Member will then invoice iBEAM for an
amount equal to the aforementioned summary, which shall be payable net 30 days
from iBEAM receipt of said valid invoice.
4.3 Member is responsible for any taxes associated with Member's portion of any
revenues shared hereunder.
5. LIMITATION OF LIABILITY AND DISCLAIMER OF WARRANTIES
- ---------------------------------------------------------
5.1 NEITHER PARTY SHALL BE RESPONSIBLE OR LIABLE WITH RESPECT TO ANY SUBJECT
MATTER OF THIS AGREEMENT OR TERMS AND CONDITIONS RELATED THERETO, TO THE OTHER
OR ANY OTHER THIRD PARTY, UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR
OTHER THEORY(A) FOR ANY MONIES IN EXCESS OF $1,000,000.00, (B) FOR LOSS OR
INACCURACY OF DATA , COST OF PROCUREMENT OF SUBSTITUTE GOODS, SERVICES OR
TECHNOLOGY, OR (C) FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES
INCLUDING, BUT NOT LIMITED TO LOSS OF REVENUES AND LOSS OF PROFITS.. NEITHER
PARTY SHALL BE RESPONSIBLE FOR ANY FORCE MAJEURE EVENT.
UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY
THIRD PARTY FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY
DAMAGES, ARISING FROM ANY ACT OR OMISSION, INCLUDING NEGLIGENT ACTS OR
OMISSIONS, OF THAT PARTY, EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES, ARISING FROM ANY PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT
LIMITED TO LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS.
5.2 EXCEPT AS SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY, AND EACH
PARTY HEREBY SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES, EXPRESS
OR IMPLIED, REGARDING THE PRODUCTS AND SERVICES CONTEMPLATED BY THIS AGREEMENT,
INCLUDING ANY IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF
PERFORMANCE OTHER THAN ANY REPRESENTATIONS OR WARRANTIES THAT CANNOT BE EXCLUDED
BY LAW.
5.3 IBEAM FURTHER DISCLAIMS THAT IT HAS WARRANTED THAT THE CONTENT PROVIDED
HEREUNDER IS UNDER IBEAM'S EDITORIAL CONTROL IN ANY MANNER WHATSOEVER OR THAT IT
IS NOT OBSCENE, INDECENT, OFFENSIVE OR HARMFUL TO MINORS.
6.0 TERM AND TERMINATION
- -------------------------
6.1 This Agreement shall commence on the Effective Date and shall continue for
thirty-six (36) months. Either Party may, at its option, terminate this
Agreement upon sixty (60) days notice prior to the one (1) year anniversary of
the Effective Date. Thereafter, termination may only be effectuated through a
material breach by the other party which is not cured within ten (10) days of
notice by the non-breaching party. Notwithstanding the above, should iBEAM
accept an investment from any of Covad Communications, Rhythms NetConnections or
an Incumbent Local Exchange Carrier, iBEAM will inform Member of such investment
and Member may, at its sole option, within ten (10) days after notice of such
investment by iBEAM, terminate this Agreement immediately without penalty or
liability except with regards to obligations imposed by Article 6.3.
[*] 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.
<PAGE>
6.2 If this Agreement is terminated for any reason, each Party shall
expeditiously stop using, remove and/or return the other Party's proprietary
information including but not limited to Confidential Information, trademarks,
tradenames, and servicenames. Additionally, Member will disconnect all iBEAM
equipment from the Member Network, and provide iBEAM access to the equipment for
iBEAM retrieval of said equipment.
6.3 In the event that this Agreement terminates for any reason, the following
Articles shall survive the termination: Articles 5 and 15.
7. INTERPRETATION
- -------------------
7.1 Changes: All changes to this Agreement must be in writing, signed by each
Party and reference this Agreement and the Effective Date.
7.2 Order of Precedence: The terms and conditions of this Agreement shall take
precedence over those set forth within each Exhibit, Addendum or other written
document, signed by both parties and specified as an addition or change to this
Agreement.
8. WAIVER, REMEDIES CUMULATIVE
- --------------------------------
8.1 The wavier by either Party of a breach or default by the other Party of any
of the provisions of this Agreement shall not be construed as a waiver of any
succeeding breach or default of the same or any other provisions of this
Agreement and shall not impair the exercise of any rights accruing to it under
this Agreement thereafter; nor shall any delay or omission on the part of either
Party to exercise or avail itself of any rights accruing to it under this
Agreement operate as a waiver of any breach or default by the other Party of any
of the said provisions.
8.2 All rights and remedies provided in this Agreement are cumulative and are
not exclusive of any rights or remedies provided by law.
9. NOTICES
- ------------
All communications in connection with this Agreement shall be in writing and may
be given by telecopy or mail to the recipient at the address set out in this
Agreement and sent to the attention of General Counsel or Chief Financial
Officer.
10. COSTS
- ----------
Each Party shall bear its own legal, accounting and other costs, charges and
expenses of and incidental to this Agreement.
11. DENIAL OF PARTNERSHIP
- --------------------------
Nothing herein contained shall be construed as creating the relationship of
partnership, joint venture, fiduciary relationship or principal and agent
between the parties. Neither Party may pledge or purport to pledge the credit
of the other Party or make or purport to make any representations, warranties or
undertakings for the other Party.
12. FORCE MAJEURE
- ------------------
12.1 Where a Party is unable, wholly or in part, by reason of force majeure, to
carry out any obligations under this Agreement that obligation is suspended so
far as it is affected by force majeure during the continuance thereof.
In this Agreement, "force majeure" means an act of God, strike, lockout or other
interference with work, war declared or undeclared, blockade, disturbance,
lightning, fire, earthquake, storm, flood, explosion, network failures, error in
the coding of electronic files, software limitations, or inability to obtain
telecommunications services, governmental or quasi-governmental restraint
expropriation prohibition intervention direction or embargo, unavailability or
delay in availability of equipment or transport, inability or delay in obtaining
governmental or quasi-governmental approvals consents permits licenses
authorities or allocations, and any other cause whether of the kind specified
above or otherwise which is not reasonably within the control of the Party
affected.
13. ASSIGNMENT
- ---------------
Except for (i) assignment to a successor who acquires substantially all of the
assets and business of iBEAM or Member, (ii) assignment to a subsidiary company,
parent company, or subsidiary of a parent company, or (iii) assignment, pledge,
or transfer by iBEAM of any interest in any payments to be received by iBEAM
hereunder, neither party hereto may assign this Agreement or any portion thereof
without the prior written consent of the other. Any assignment permitted
hereunder or otherwise agreed to by the other Party hereto will not relieve the
assigning party of any obligations with respect to any covenant, condition, or
obligation required to be performed by the assigning Party under this Agreement.
<PAGE>
14. PROMOTION AND PUBLIC ANNOUNCEMENT
- --------------------------------------
14.1 Each Party shall have the right to make public announcements and/or press
releases using the other Party's name provided they have obtained prior written
approval.
14.2 iBEAM may offer Member certain tradenames and/or logos for use on Member's
Internet web site. Member may use these tradenames and/or logos only if Member
agrees to and abides by all usage requirements set forth within the download
area containing these tradenames and/or logos. Notwithstanding anything to the
contrary Member agrees to remove these tradenames and/or logos, from any Member
owned, operated or run in the name of, equipment or storage device within twenty
four (24) hours of receiving a request by iBEAM to remove said tradenames and/or
logos.
14.3 iBEAM agrees to submit to Member, on a monthly basis, a list of all
signed Content provider customers, in order that Member and iBEAM mutually plan
their marketing efforts.
14.4 The Parties will use commercially reasonable efforts to work to create a
portal page as specified in Exhibit D. Each six (6) month period as measured
from the Effective Date, the Parties will evaluate the progress and commercial
viability of the portal page.
15. CONFIDENTIALITY
- --------------------
15.1 Each Party acknowledges that during the contractual relationship created
under the Agreement, situations may arise which require that they be given
access to Confidential Information (as defined more specifically in Article
15.2) owned by the other Party, its suppliers or customers.
15.2 The Receiving Party of the Confidential Information recognizes that the
Disclosing Party has a proprietary interest in maintaining the confidentiality
of such Confidential Information. The Receiving Party shall not, during the
term of this Agreement and for three (3) years after the termination of this
Agreement disclose any Confidential Information of the Disclosing Party to any
third party or use any Confidential Information for its benefit or for the
benefit of any third party except as permitted herein or to further the purposes
of this Agreement. The Receiving Party shall take reasonable precautions to
maintain the confidentiality of all Confidential Information, and in no case
lesser precautions that Receiving Party takes with its own similar Confidential
Information. Upon termination of this Agreement for any reason, each Party shall
immediately return or destroy all Confidential Information of the other Party in
its possession or control.
15.3 Confidential Information shall mean all information, whether in tangible
form or communicated orally, which is learned by the Receiving Party in the
course and performance of its obligations under this Agreement which concerns
the Disclosing Party's products, or contents thereof or services (existing or
potential), business affairs, pricing, suppliers, customers, and distributors,
including without limitation, customer usage data, computer hardware and
software (in existence or under development), pending patent applications,
technical, sales and business reports, technical or research notebooks, and
information and data, whether owned by the Disclosing Party or a third party,
relating to the Disclosing Party's commercial activities. Neither party shall be
required to designate written or oral information as Confidential Information,
provided that any such undesignated information shall only be considered
confidential if a reasonable person under the circumstances would understand it
to be confidential. Excluded from the foregoing definition is information which:
i) at the time of disclosure, is, or, after disclosure, becomes generally known
or available to the public other than as a consequence of the Receiving Party
breach of this Agreement; ii ) was properly known or otherwise available to the
Receiving Party prior to the disclosure by the Disclosing Party; iii) was
disclosed by a third party to the Receiving Party after the disclosure by the
Disclosing Party if such third party's disclosure neither violates any
obligation of the third party to the Disclosing Party nor is a consequence of
the Receiving Party's breach of this Agreement; iv)the Disclosing Party
authorizes a release.
15.4 The rights and obligations of the parties with respect to confidentiality
shall survive
termination of this Agreement.
16. ACTS BY LAW
- ----------------
Neither party shall be under any obligation to perform any service or deliver
any work should such service or delivery constitute a violation of any
applicable law.
17. GOVERNING LAW
- ------------------
This Agreement shall be governed by, and construed and enforced in accordance
with the laws of the State of California, without regards to its choice of law
provisions. The exclusive jurisdiction for any legal proceeding regarding this
Agreement shall be in the courts of the State of California and the Parties
hereto expressly submit to the jurisdiction of said courts.
<PAGE>
18. SEVERABILITY
- -----------------
If any provision or provisions of this Agreement shall be held to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining portions shall not in any way be affected or impaired thereby.
19. INTEGRATION
- ----------------
This Agreement supersedes and replaces any and all prior agreements,
understandings or arrangements, whether oral or written, heretofore made between
the Parties and relating to the subject matter hereof and constitutes the entire
understanding of the Parties with respect to the subject matter of this
Agreement. This Agreement may not be altered or amended except by an express
written agreement signed by both Parties hereto.
iBEAM Broadcasting Corporation NorthPoint Communications, Inc.
By: By:
------------------------------------ ---------------------------------
Printed: Printed:
------------------------------- ----------------------------
Title: Title:
--------------------------------- ------------------------------
<PAGE>
Exhibit A to Agreement No. 093099NPoint
Statement of Work
Party Responsibilities
1. iBEAM will be responsible for the following actions:
. A satellite pre-installation site survey of the facility by phone or at
iBEAM's and NorthPoint's option at customer site.
. The installation of the satellite dish utilizing a non-penetrating roof
mount on the roof of the facility or a designated area of the building,
depending on the availability of such space.
. The running of coaxial cable to the data or rack room where the iBEAM
MaxCaster indoor components will be racked.
. The racking and cabling of the server and switch components of the
MaxCaster.
. Registration and pointing of the satellite system.
. The activation of the system with the iBEAM Network operations monitoring
facility. This includes adding IP Addresses, Host ID names to the iBEAM
server and to Tier 1 NOC.
. Orientation of the customer technical staff to the equipment and to the
remote monitoring process.
. Alert NorthPoint during power outage or any iBEAM Network outage, whether
planned or otherwise, by telephoning NorthPoint at NorthPoint-specified
numbers.
2. The Member will be responsible for the following actions:
. Completion of the customer data network site survey. This information is
critical to the iBEAM Tier 1 NOC in the monitoring of the MaxCaster and
to the integration of the MaxCaster in the data network. The customer
will be required to provide IP addresses, host ID names, subnet masks,
and gateway default as specified by iBEAM.
. Designate a single point of contact for satellite and network
installation issues.
. Allow iBEAM NOC to monitor traffic to the switch, server or other
equipment for the following protocols, SNMP, FTP, Telnet, Ping,
Traceroutes.
. Subject to prior approval and scheduling by NorthPoint, access to the
data room for installation of the MaxCaster indoor components and the
roof structure for installation of the MaxCaster satellite antenna.
Installation must be supported by on-time access to the install areas.
. One "ACTIVE" twisted pair "analog" telephone line for termination to the
iBEAM MaxCaster internal modem card. This is to allow for "out of band"
monitoring and control of the iBEAM system.
. Member is responsible to pull data cables between router and MaxCaster.
. Connection to the Member Lan/Wan Network. If a layer 4 switch solution is
utilized a connection to the bit path must be provided.
. Access to 120 Volt AC from the Rack Power distribution harness for the
server and the switch. In cases where NorthPoint has only DC power, iBEAM
will be responsible for conversion from DC to AC.
. Adequate rack space for server, switch or other equipment. In addition,
iBEAM will need to know the type and model of racks used in the data room
for determining complementary shelves or rack guides for the server.
. Technical support and actual physical connection of the Layer 4 switch
into the bit stream and associated patching if required. The Member is
responsible for inserting the Layer 4 switch into the bit stream if
required.
. Access to MaxCaster user logs for tracking purposes such as number of
users on the network.
. UPS support for 14-Volt Amp power requirement for a period of 60 minutes
to allow an orderly shutdown of the equipment.
. Keep area in which the MaxCaster is located at 80 or less degrees
Fahrenheit and 75% or less, non-condensing relative humidity.
. Alert iBEAM during power outage or any Member Network outage, whether
planned or otherwise, by telephoning iBEAM at iBEAM specified numbers.
. Inform iBEAM whether the Member network is Multicast enabled at any time
during the contractual relationship.
. Provide iBEAM optimal connectivity into Member Network as mutually agreed
by the Parties
<PAGE>
Exhibit B to Agreement No. 093099NPoint
Milestone Schedule
The Parties hereto will mutually agree upon a reasonable installation plan that
will detail the order and time for installation into each site. Notwithstanding
the above the Parties hereby agree to install the following numbers of sites in
the following schedule:
Milestones:
1) Within 30 days of the date of this Agreement, the Parties hereby agree
to have Initiated Installation of one (1) of Member site.
2) Within 75 days of the date of this Agreement the Parties hereby agree to
have Initiated Installation of an additional four (4) Member sites.
3) Within 95 days of the date of this Agreement the Parties hereby agree to
have Initiated Installation of an additional six (6) Member sites.
4) After the first eleven (11) sites have achieved Initiated Installation,
Member and iBEAM will use reasonable efforts to achieve Complete
Installation in the remaining operational Member sites within(180) days
from completion of installation of such 11 sites. As new Member sites
become operational Member and iBEAM will use reasonable efforts to achieve
Initiated Installation at each site within sixty (60) days of such site
achieving Complete Installation.
5) Upon Initiated Installation, each site will achieve Complete Installation
within an additional thirty (30) days, with the exception of any
unexpected delays outside the control of NorthPoint in securing roof
rights and the proper building access.
Initiated Installation shall mean that iBEAM has been supplied with a completed
installation check list as specified in Exhibit A, an analog phone connection as
specified in Exhibit A, and all iBEAM indoor equipment is installed and
operational within Member Network.
Complete Installation shall mean that Member has obtained rights sufficient to
install all iBEAM outdoor equipment, including but not limited to a satellite
receiver and that iBEAM has installed such outdoor equipment.
<PAGE>
Exhibit C to Agreement No.093099 NPoint
Revenue-Sharing Schedule
The following schedule will govern the percentage of revenue shared with Member
pursuant to Section 4.1:
1) Referral for (*) and (*) customers: (*)% of all revenues from such
customers
2) Referrals for (*) and (*) customers: (*)% of all revenues from such
customers
3) Referrals in excess of (*) (*) customers: (*)% of all revenues form such
customers
Once Member has referred at least (*) customers, then Member's revenue-sharing
percentage for all customers referred during the term of this Agreement shall be
(*)%, provided that the total percentage of revenues shared with Member shall
not exceed (*)%. The revenue sharing for each Referral shall have a duration of
(*)months from the date iBEAM begins receiving revenue from such customer.
[*] 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.
<PAGE>
Exhibit D to Agreement No. 093099NPoint
Portal Description
Hosting: iBEAM will host the co-branded portal page at no cost to Member.
The portal will display links to live and on demand streams that are
available on the iBEAM Network. iBEAM undertakes to use commercially
reasonable efforts to acquire the license to use Content Provider name and
Content on the portal page. The portal will be accessible to all Internet
users.
Portal Branding and Creation: iBEAM and Member will equally divide the
cost of developing and maintaining the co-branded portal. iBEAM will
provide any project management and operational support necessary to roll-
out and sustain the portal project. iBEAM and Member will jointly agree on
the design, content and operation of the portal. iBEAM will develop a
proof-of-concept portal at no cost to Member. iBEAM and Member will
jointly generate and fund the advertising associated with the portal. The
objective of this advertising is to drive demand for Member DSL service and
iBEAM-delivered streaming media.
DSL Promotion: The sub-portal will contain static links to the streaming
content of iBEAM content providers who have chosen to utilize the portal.
When a Member user clicks on a link, they will see an interstitial message
that informs them they are viewing an iBEAM enabled stream that is
available to them because they are a Broadband user. If a non-Member user
clicks on a link, they will receive an interstitial message encouraging
them to sign up for NorthPoint DSL service to get the high-fidelity version
of the stream.
Portal Promotion: iBEAM will promote the Member sub-portal with all iBEAM
content partners, as well as with iBEAM technology partners and joint
iBEAM/Member ISP customers. Also, iBEAM will include the Member sub-portal
whenever reasonable in iBEAM end user marketing and promotion efforts.
<PAGE>
EXHIBIT 10.13
iBEAM Broadcasting Corporation
2903 Bunker Hill Lane, Suite 201
Santa Clara, CA 95054
November 18, 1998
Chris L. Dier
2793 Gardendale Drive
San Jose, CA 95125
Dear Chris,
iBEAM Broadcasting Corporation (the "Company") is pleased to offer and confirm
your employment on the following terms and conditions:
Position. You will serve in a full-time capacity as Chief Financial Officer. You
- --------
will initially report directly to Michael Bowles, CEO / President.
Compensation. You will be paid an annual salary of $180,000.00 payable in
- ------------
accordance with the Company's standard payroll practices for salaried employees.
You will also have the opportunity to earn up to an additional $20,000.00 bonus
annually based upon the successful attainment of mutually agreed upon
performance goals. Payable at target at the rate of $1,666.00 for calendar Q4
1998, then at the rate of $5,000.00 per every calendar quarter thereafter.
Salary will be subject to adjustment pursuant to the Company's employee
compensation policies in effect from time to time.
Stock Options. Subject to Board approval at the next scheduled meeting, you will
- -------------
receive an option to purchase 130,000 shares to be adjusted to equal 1.5% of the
fully diluted common shares, assuming preferred shares are converted to common
and including granted employee options and the ungranted pool for employee
options, after the next financing of not less than $6 million. Not more than $8
million will be included for purposes by calculating such adjustment of the
Company's Common Stock at an exercise price at the fair market value of the
Company's Common Stock at the time such options are approved by the Board. Such
option shall vest over four years with a fourth of the options vesting at the
end of the first 5 years and then monthly thereafter. Your option grants will
include a provision providing for accelerated vesting of 50% of your remaining
unvested option balance upon a change of control where you are not designated as
the Chief Financial Officer reporting to the Chief Executive Officer of the
combined company. In addition to ongoing salary payments, you will receive a
termination payment equal to six (6) months full compensation payable to you the
earlier of six (6) months after change of control or termination of your
employment by the acquiring company.
Health Benefits. The Company provides a competitive health plan to all its
- ---------------
employees and their dependents with prior existing conditions covered as per the
requirements of California Law.
Proprietary Information and Inventions Agreement. As with all Company employees,
- ------------------------------------------------
you will be required, as a condition to your employment with the Company, to
sign the Company's standard Proprietary Information and Inventions Agreement,
attached as Exhibit A.
Period of Employment. Your employment with the Company will be "at will,"
- --------------------
meaning that either you or the Company wilt be entitled to terminate your
employment at any time for any reason, with or
<PAGE>
without cause. Any contrary, representations which may have been made to you are
superseded by this offer.
Outside Activities. During the period that you render services to the Company,
- ------------------
you will not engage in any employment, business or activity that is in any way
competitive with the business or proposed business of the Company, or any other
gainful employment, business or activity except that you may remain a member of
the Board of Director of Pavilion Technologies, Inc., through June 31, 1999
without the written consent of the Company. You also will not assist any other
person or organization in competing with the Company or in preparing to engage
in competition with the business or proposed business of the Company.
Vacation. In addition to the company's standard vacation policy, it is agreed
- --------
that you may take five (5) days of unpaid vacation days previously scheduled by
you prior to December 31, 1998. Those days are December 3rd, 4th, 7th, 28th and
29th. The 28th and 29th shall be changed if necessary to conclude financing for
the company.
Entire Agreement. This letter and all of the exhibits attached hereto contain
- ----------------
all of the terms of your employment with the Company and supersede any other
understandings or agreements, oral or written, between you and the Company.
We're very excited about the possibility of having you work at iBEAM. If you
accept the offer, please sign it and Exhibit A and return both documents to me
within 3 days from the receipt of this offer.
AGREED AND ACCEPTED Very Truly yours,
11/18/98
- -------------------------
Date /s/ Michael Bowles
11/19/98 iBEAM Broadcasting Corporation
- --------------------------
Start Date Michael Bowles
President & CEO
/s/ Chris L. Dier
- --------------------------
Chris L. Dier
<PAGE>
EXHIBIT 10.14
[iBEAM logo]
July 9, 1999
Mr. Jeremy Zullo
iBEAM Broadcasting
Re: Offer of Employment
-------------------
Dear Jeremy:
I am writing to confirm our offer of the following terms of your
employment commencing July 1, 1999 and continuing thereafter as provided herein:
If you accept this offer, your title will be Executive Director
Development, reporting to Vice President Engineering. Your monthly base salary
will be $12,916.67 ($155,000 annually) less all applicable deductions. In
addition, you will be eligible to earn an annual bonus of up to $20,000 per
year, less all applicable deductions, based on your achievement of performance
goals set for you at the beginning of each quarter. I will set your goals within
the first 30 days of each quarter and communicate those goals to you in writing.
If you meet these goals, you will earn the aforementioned bonus.
The Company will also award you an additional option to purchase
15,000 shares of Company common stock at the fair market value on the date of
grant. This option will become exercisable over the next four years with one-
quarter of the shares exercisable after one year and the remaining shares
becoming exercisable in equal installments over the next 36 months. This option
grant will be contingent upon you executing the Company's standard stock option
agreement, and will be subject to all terms of that agreement and the Company's
stock option plan. This grant is also contingent upon approval by the Company's
Board of Directors, which we expect to occur during the next meeting following
your acceptance of this offer.
In exchange for this additional stock and compensation, you agree to
remain employed by the Company through June 30, 2000. Although the Company may
terminate your employment at any time for any reason, with or without cause,
during this time period by giving you written notice of such termination, you
agree that you will remain employed with the Company through that date. If your
employment with the Company continues beyond June 30, 2000, then you will resume
being an at-will employee, that is, either you or the Company can terminate your
employment at any time for any reason, with or without cause. You also agree
that the terms of the Proprietary Information and Inventions Agreement, executed
by you on June 4, 1998, will continue to be in effect except that paragraph 7
will be modified as set forth in this paragraph.
<PAGE>
If you accept this offer, it will supersede your prior agreement with
the Company. This will be the entire agreement between you and the Company
regarding the terms of your employment and it can only be modified in a
subsequent writing by you and the Company President.
Please indicate your acceptance of this offer by signing below.
Sincerely,
/s/ Peter Desnoes
-------------------------------------
Peter Desnoes
Company Chief Executive Officer
I accept this offer.
/s/ Jeremy Zullo
- --------------------------
Jeremy Zullo
<PAGE>
Exhibit 10.15
[iBEAM logo]
July 9, 1999
Mr. Nils Lahr
iBEAM Broadcasting
Re: Offer of Employment
-------------------
Dear Nils:
I am writing to confirm our offer of the following terms of your
employment commencing July 1, 1999 and continuing thereafter as provided herein:
If you accept this offer, your title will be Chief Architect,
reporting to Vice President, Engineering. Your monthly base salary will be
$12,500.00, ($150,000 annually), less all applicable deductions. In addition,
you will be eligible to earn an annual bonus of up to $30,000 per year, less all
applicable deductions, based on your achievement of performance goals set for
you at the beginning of each quarter. I will set your goals within the first 30
days of each quarter and communicate those goals to you in writing. If you meet
these goals, you will earn the aforementioned bonus.
The Company will also award you an additional option to purchase
20,000 shares of Company common stock at the fair market value on the date of
grant. This option will become exercisable over the next four years with one-
quarter of the shares exercisable after one year and the remaining shares
becoming exercisable in equal installments over the next 36 months. This option
grant will be contingent upon you executing the Company's standard stock option
agreement, and will be subject to all terms of that agreement and the Company's
stock option plan. This grant is also contingent upon approval by the Company's
Board of Directors, which we expect to occur during the next meeting following
your acceptance of this offer.
In exchange for this additional stock and compensation, you agree to
remain employed by the Company through June 30, 2000. Although the Company may
terminate your employment at any time for any reason, with or without cause,
during this time period by giving you written notice of such termination, you
agree that you will remain employed with the Company through that date. If your
employment with the Company continues beyond June 30, 2000, then you will resume
being an at-will employee, that is, either you or the Company can terminate your
employment at any time for any reason, with or without cause. You also agree
that the terms of the Proprietary Information and Inventions Agreement, executed
by you on April 8, 1998, will continue to be in effect except that paragraph 7
will be modified as set forth in this paragraph.
<PAGE>
If you accept this offer, it will supersede your prior agreement with
the Company. This will be the entire agreement between you and the Company
regarding the terms of your employment and it can only be modified in a
subsequent writing by you and the Company Chief Executive Officer.
Please indicate your acceptance of this offer by signing below.
Sincerely,
/s/ Peter Desnoes
-----------------
Peter Desnoes
Company Chief Executive Officer
I accept this offer.
/s/ Nils Lahr
- -------------
Nils Lahr
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated January 28, 2000, except as to the second paragraph of Note 2
and Note 10, which is as of March 20, 2000, relating to the financial
statements of iBEAM Broadcasting Corporation (a development stage company),
which appear in such Registration Statement. We also consent to the reference
to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 20, 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
March 20, 2000
