<PAGE>
As filed with the Securities and Exchange Commission on May 9, 2000
Registration No. 333-95833
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 4
To
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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iBEAM BROADCASTING CORPORATION
(Exact name of Registrant as specified in its charter)
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Delaware 7389 94-3296895
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
645 Almanor Avenue, Suite 100
Sunnyvale, CA 94086
(408) 523-1600
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
Chris Dier
Chief Financial Officer
iBEAM Broadcasting Corporation
645 Almanor Avenue, Suite 100
Sunnyvale, CA 94086
(408) 523-1600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Barry Taylor, Esq. Bruce Dallas, Esq.
David Dayan, Esq. Davis Polk & Wardwell
Charles Prober, Esq. 1600 El Camino Real
Wilson Sonsini Goodrich Menlo Park, CA 94025
& Rosati (650) 752-2000
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300 ---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission becomes effective. This prospectus is not +
+an offer to sell nor does it seek an offer to buy these securities in any +
+jurisdiction where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued May 9, 2000 Filed Pursuant to Rule 424(a) Registration No.333-95833
11,000,000 Shares
[LOGO OF IBEAM BROADCASTING]
COMMON STOCK
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iBEAM Broadcasting Corporation is offering 11,000,000 shares of its common
stock. This is our initial public offering and no public market currently
exists for our shares. We anticipate that the initial public offering price
will be between $9 and $11 per share.
-----------
We have applied to list the common stock on the Nasdaq National Market under
the symbol "IBEM."
-----------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 7.
-----------
PRICE $ A SHARE
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<TABLE>
<CAPTION>
Price Underwriting
to Discounts and Proceeds
Public Commissions to iBEAM
------ ------------- --------
<S> <C> <C> <C>
Per Share............................. $ $ $
Total................................. $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to an additional
1,650,000 shares of common stock to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares of common stock
to purchasers on , 2000.
-----------
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
J.P. MORGAN & CO.
ROBERTSON STEPHENS
, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 23
Dividend Policy........................................................... 23
Capitalization............................................................ 24
Dilution.................................................................. 25
Selected Financial Data................................................... 27
Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 29
Business.................................................................. 36
Management................................................................ 52
Certain Relationships and Related Transactions............................ 66
Principal Stockholders.................................................... 69
Description of Capital Stock.............................................. 71
Shares Eligible for Future Sale........................................... 74
Underwriters.............................................................. 76
Legal Matters............................................................. 79
Experts................................................................... 79
Where You Can Find More Information....................................... 79
Index to Financial Statements............................................. F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is not an offer to sell nor is
it seeking an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted. The information contained in this prospectus
is correct only as of the date of this prospectus, regardless of the time of
the delivery of this prospectus or any sale of these securities.
Until , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This delivery
requirement is in addition to the dealers' obligation to deliver a prospectus
when acting as underwriter with respect to their unsold allotments or
subscriptions.
Our logo and certain titles and logos of our services are our trademarks.
Each trademark, trade name or service mark of any other company appearing in
this prospectus belongs to its holder. The terms iBEAM Broadcasting, iBEAM and
MaxCaster are our service marks or trademarks that are registered or otherwise
protected under the laws of various jurisdictions.
----------------
We were incorporated in Delaware in March 1998. Our principal executive
offices are located at 645 Almanor Avenue, Suite 100, Sunnyvale, CA 94086 and
our telephone number is (408) 523-1600. Our website is ibeam.com. The
information on the website is not a part of this prospectus.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that
you should consider before investing in our common stock. You should read this
entire prospectus, including the more detailed information and the financial
statements and related notes appearing elsewhere in this prospectus.
iBEAM BROADCASTING
We provide an Internet broadcast network that delivers streaming media to
large audiences of simultaneous users with viewing and listening quality that
can approach that of television and radio. Streaming is a media distribution
process that allows simultaneous broadcasting and playback of video and audio
content. Our network uses a combination of land-line networks and point-to-
multipoint satellite broadcasting, which is the use of satellite technology to
broadcast streaming content simultaneously to large, geographically dispersed
audiences. Our network is designed to broadcast directly to iBEAM servers
located at the edge of Internet, the Internet access point closest to the end
user. This improves the quality of the broadcast stream by avoiding Internet
congestion. Our network broadcasts to iBEAM servers located in the facilities
of Internet service providers, or ISPs, and other companies that host Internet
applications and services.
We provide a wide range of services to our content provider customers to
facilitate their use of streaming media on the Internet, including event
production and broadcasting services. To expand our service offerings to our
customers, we have acquired and developed software and interface tools that
enable us to broadcast high-fidelity video and audio streams integrated with e-
commerce links and functions. Our investment in servers at the edge of the
Internet will also allow for the development of new value-added services in the
future, such as pay-per-view event programming, advertising to targeted end
users and interactive Internet-based training.
The Internet was not designed to support the traffic load created by
broadcasting full-motion video or high-fidelity audio simultaneously to large
audiences. Users, however, are investing in high-speed Internet connections to
their homes and businesses, such as digital subscriber lines, or DSL, and cable
modems, to improve their viewing and listening quality and are increasing the
traffic load on the Internet causing web congestion and degradation of viewing
and listening quality. Despite these limitations, existing websites,
traditional media companies, new media companies and creators of new
applications, such as online education, are aggressively trying to attract and
retain Internet users by using greater amounts of streaming audio-visual
content. The Gartner Group projects that approximately 50% of websites will
include some streaming media by 2001, a five-fold increase from 1998. Our
approach of using a combination of land-line networks and satellite
broadcasting to deliver content directly to the edge of the Internet bypasses
much of the web congestion and improves the delivery of streaming audio-visual
media and the quality of the viewing and listening experience.
In April 2000, we acquired webcasts.com to add business-to-business
communications capabilities, such as online training and interactive trade
shows. Our combined technology allows users to view streaming content,
interactively obtain related data and transact online purchases. Our technology
runs with a variety of streaming media players, which are software applications
designed to run streaming media. Most Internet users can access our streamed
content regardless of their multimedia and browsing software so they do not
need to purchase special equipment. As of March 31, 2000, our network, which we
will continue to develop, is sufficient to support up to 300,000 simultaneous
Internet users accessing streams of data from the Internet at 20 kilobits
(20,000 bits) per second. We plan to expand our network to support 1,000,000
simultaneous Internet users at this rate by the end of 2000.
We commercially introduced our service in October 1999. We currently have
contracts to provide our services to over 100 content providers. We generate
revenue from our broadcasting services based on the volume of content stored or
delivered to end users and from our other services such as encoding and event
production
3
<PAGE>
based on hourly or fixed price billing. We derived 74% of our revenue from our
event-based on-stage services during 1999 and 25% of our revenue from these
services for the three months ended March 31, 2000.
As part of the build-out of our broadcasting network, we have agreements to
locate servers with over 90 ISPs, including America Online, the largest U.S.
Internet access provider, Excite@Home, an Internet cable access provider, and
Covad Communications and Northpoint, high-speed Internet access providers that
have developed networks with national reach. Our ability to provide content
providers with high quality, low-cost distribution of streaming video and audio
content is dependent on deployment of our servers in the facilities of ISPs. To
realize the benefits of these access agreements with ISPs we will need to
invest at least $15.0 million in capital equipment located at ISPs during 2000
and pay some ISPs fees ranging from 15 to 20% of the revenue we derive from
content delivered through their networks. We have agreed to make non-refundable
prepayments to ISPs in the amount of $5.5 million, of which $3.0 million has
been paid as of March 31, 2000. We do not generate any revenue from our
agreements with ISPs. In January 2000, we entered into a letter of intent with
Pacific Century CyberWorks, or PCCW, to establish a joint venture, named iBEAM
Asia, to expand our international presence in the Pacific Rim, Indian
subcontinent and Middle East.
Business Strategy
Our goal is to become the leading provider of high-fidelity Internet
broadcast services by developing the world's largest, premier quality and most
cost efficient distributed streaming network. To this end, we are capitalizing
upon our innovative network architecture, proprietary technology and early
entry into the field of streaming media broadcasting to position ourselves as
the network of choice for reliable, high-fidelity Internet broadcasting. Our
strategy comprises the following initiatives:
. Expand our customer base by increasing our direct sales force and
engaging in business-to-business advertising;
. Offer cost savings to our customers based on the economic benefit of
broadcasting to large audiences;
. Introduce new services such as integrating streaming media with online
chat and purchasing capabilities which we will obtain through our
acquisition of webcasts.com;
. Pursue joint ventures that expand our global presence, such as iBEAM
Asia, and add new capabilities to our network; and
. Offer our streaming distribution technology to other network vendors to
create an industry standard.
Risk Factors
We are in an early stage of development, have a limited operating history
and have generated limited revenue to date. In addition, investors in our
common stock should consider the following:
. We had operating losses of $4.4 million in 1998, $30.2 million in 1999
and $21.7 million for the first quarter of 2000.
. We anticipate incurring substantial operating losses and negative cash
flow in the foreseeable future.
. Management and affiliates will beneficially own 37.5% of our outstanding
common stock after this offering.
. We had an accumulated deficit of $66.3 million as of March 31, 2000.
. We operate in a highly competitive industry.
. We will need to serve an increasing percentage of Internet users from
the edge of our network for our business strategy to succeed.
4
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THE OFFERING
<TABLE>
<C> <S>
Common stock offered................................ 11,000,000 shares
Common stock to be outstanding after this offering.. 106,147,834 shares
Use of proceeds..................................... For general corporate
purposes, including
working capital and
capital expenditures
Proposed Nasdaq National Market symbol.............. IBEM
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on 95,147,834 shares of common stock outstanding or deemed outstanding as
of March 31, 2000. This includes:
. 8,233,173 shares of common stock issuable upon the conversion of shares
of our series F preferred stock which were issued in exchange for
outstanding shares of webcasts.com capital stock in connection with the
closing of the webcasts.com acquisition;
. 1,000,000 shares of common stock issuable upon the conversion of our
series G preferred stock which will be issued to The Walt Disney Company
for $10.0 million at a per share price equal to the price to the public
in this offering; and
. 537,634 shares of common stock issuable upon the conversion of our
series H preferred stock which will be issued to Excite@Home for $5.0
million at a price equal to the price to the per share public in this
offering, less underwriting commissions and discounts.
This number excludes:
. 11,816,815 shares of common stock issuable upon the exercise of options
at a weighted average exercise price of $3.38 per share and 4,069,804
shares available for future grant under our stock option plan as of
March 31, 2000;
. 706,285 shares of common stock issuable upon the exercise of
webcasts.com stock options assumed by us in connection with our
acquisition of webcasts.com at a weighted average exercise price of
$3.54 per share and up to additional 1,243,932 shares of common stock
issuable if our webcasts.com division meets revenue targets in the
twelve months after the closing of the acquisition; and
. 1,949,987 shares of common stock issuable upon exercise and conversion
of outstanding preferred stock warrants as of March 31, 2000 at a
weighted average exercise price of $3.42 per share.
Unless otherwise indicated, all of the information in this prospectus:
. reflects the conversion of all outstanding and deemed outstanding shares
of preferred stock into 76,260,334 shares of common stock upon
completion of this offering;
. reflects a 3-for-1 stock split of our common stock effected in January
2000 and a 1.377-for-1 stock split of our common stock effected in April
2000;
. assumes no exercise of the underwriters' over-allotment option; and
. has been computed assuming an initial public offering price of $10.00
per share.
5
<PAGE>
SUMMARY FINANCIAL DATA
The pro forma column in the statements of operations data below gives effect
to the acquisition of webcasts.com, Inc. as if the transaction had occurred on
January 1, 1999. As a result of this acquisition, our historical statements of
operations are not representative of the financial results to be expected for
future periods. See Unaudited Pro Forma Combined Financial Information included
elsewhere in this prospectus.
Weighted average shares used in computing the pro forma basic and diluted
net loss per share have been calculated assuming the conversion of all
outstanding shares of convertible preferred stock outstanding into common stock
as if the shares had converted immediately upon issuance.
The pro forma column in the balance sheet data below gives effect to (i) the
conversion of all outstanding shares of our redeemable convertible preferred
stock outstanding as of March 31, 2000 into 66,489,527 shares of common stock
upon the closing of this offering; (ii) the acquisition of webcasts.com as if
it had occurred on March 31, 2000 and the conversion of the related issuance of
8,233,173 shares of series F redeemable convertible preferred stock into the
same number of shares of common stock; (iii) the issuance of 1,000,000 shares
of our series G redeemable convertible preferred stock to The Walt Disney
Company prior to the completion of this offering for $10.0 million at a per
share price equal to the price to the public in this offering and the
conversion of those shares into the same number of shares of common stock; and
(iv) the issuance of 537,634 shares of series H redeemable convertible
preferred stock to Excite@Home prior to the completion of this offering for
$5.0 million at a per share price equal to the price to the public in the
offering, less estimated underwriting discounts and commissions, and the
conversion of those shares into the same number of shares of common stock. The
pro forma as adjusted column gives effect to the application of the estimated
net proceeds from the sale of 11,000,000 shares of common stock in this
offering, after deducting estimated underwriting discounts and commissions and
estimated offering expenses.
<TABLE>
<CAPTION>
Period from Year Ended Three Months Ended
March 20, 1998 December 31, 1999 March 31, 2000
(Inception) to --------------------- -------------------
December 31, 1998 Actual Pro Forma Actual Pro Forma
----------------- -------- ----------- -------- ---------
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenue................. $ -- $ 149 $ 5,054 $ 532 $ 2,083
Total operating costs
and expenses........... 4,352 30,317 71,433 22,204 34,653
Loss from operations.... (4,352) (30,168) (66,379) (21,672) (32,570)
Net loss attributable to
common stock........... (4,227) (29,968) (68,066) (32,151) (44,542)
Net loss per share
attributable to common
stock--basic and
diluted................ $ (0.56) $ (3.43) $ (4.01) $ (3.04) $ (2.37)
Weighted average common
shares outstanding..... 7,488 8,726 16,959 10,589 18,822
Pro forma net loss per
share attributable to
common stock--basic and
diluted (unaudited).... $ (0.63) $ (1.22) $ (0.43) $ (0.54)
Pro forma weighted
average common shares
outstanding
(unaudited)............ 47,435 55,668 74,860 83,093
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 2000
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents
and investments........ $ 21,829 $46,124 $146,674
Working capital......... 14,782 32,806 133,356
Total assets............ 80,426 191,135 291,685
Long term obligations,
net of current
portion................ 6,601 7,638 7,638
Redeemable convertible
preferred stock........ 96,114 -- --
Total stockholders'
equity (deficit)....... (36,410) 162,183 262,733
</TABLE>
6
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RISK FACTORS
You should consider carefully the following risks before you decide to buy
our common stock. If any of the following risks actually materializes, our
business, financial condition or results of operations would likely suffer. In
such case, the trading price of our common stock could fall, and you could
lose all or part of the money paid to buy our common stock.
Risks Related to Our Business
Because we are a development stage company that has generated limited
revenues and only recently began offering our services in October 1999, our
business and prospects are unproven and difficult to evaluate.
We were founded in March 1998 and began offering our Internet broadcasting
services for streaming video and audio in October 1999. The revenue and income
potential of our services and business and the size of our market are
unproven. We have limited meaningful historical financial data upon which to
base planned operating expenses and upon which investors may evaluate us and
our prospects. In addition, our operating expenses are largely based on
anticipated revenue trends and a high percentage of our expenses are and will
continue to be fixed for the foreseeable future. Accordingly, we are subject
to all of the risks that are associated with companies in an emerging industry
and in an early stage of development, particularly companies in the rapidly
evolving Internet infrastructure market, including:
. Undercapitalization;
. Cash shortages;
. The unproven nature of our business plan;
. The new and unproven nature of the market for our services;
. The need to make significant expenditures and incur significant expenses
as we develop our business and network;
. The lack of sufficient clients and revenues to sustain our operations
and growth without additional financing;
. Difficulties in managing growth including integration of the
webcasts.com business into our business; and
. Limited experience in providing some of the services that we offer or
plan to offer.
If we are unsuccessful in addressing these risks, our business may be
seriously harmed.
We are entirely dependent on our Internet broadcasting services and our
future revenue depends on their commercial success.
Our future revenue growth depends on the commercial success of our Internet
broadcasting services. We have recently begun to commercially introduce our
services for the delivery of streaming video and audio, and our future revenue
growth will depend upon customer demand for these services. Failure of our
current and planned services to operate as expected or the occurrence of any
service interruptions or technical problems with our network could delay or
prevent customer acceptance of our services. If our target customers do not
adopt and purchase our current and planned services, our revenue will not grow
significantly and we may not become profitable as a result.
7
<PAGE>
Our business strategy is based on our ability to build our broadcast
network to the edge of the Internet, which is dependent on our relationship
with Internet service providers.
Our business strategy is dependent on our ability to build our broadcast
network to the edge of the Internet, which is the access point closest to the
end user. Our ability to provide content providers with high quality, low-cost
distribution of streaming video and audio content is dependent on the
development of an edge network. The development of our edge network requires
that we locate our servers in the facilities of ISPs, which control the
Internet access points closest to the end user. As of March 31, 2000, we had
servers at 65 locations on the edge of the Internet and we estimate that as of
this date we were serving less than 5% of traffic delivered through our
network from the edge of the Internet. By the end of 2000, we expect we will
be able to serve up to 40% of the traffic on our network through our servers
located at the edge of the Internet. In order to achieve this deployment we
estimate that we will need to make at least $15.0 million in capital
expenditures for edge servers in 2000. We may choose to accelerate the
deployment of our network or increase expenditures relating to our network.
To accomplish our business strategy, we will need to deploy our edge
servers in the facilities of Internet service providers. Although we provide
Internet service providers with our servers at no cost, Internet service
providers may nevertheless refuse to allow us to install our equipment in
their facilities. If we are unable to further develop our edge network, our
costs may increase and our services may not eliminate packet loss and jitter,
resulting in poor quality service. If the quality of our services suffers we
may lose or fail to obtain customers, which would harm our revenues.
Therefore, our failure to deploy our edge servers close to the end user will
cause our business and results of operations to suffer greatly. The
development of our edge network will require that we not only enter into
additional agreements with ISPs to locate our servers in their facilities, but
also that we successfully move content from our hosting centers to our edge
servers such that we serve end users from the edge.
Our agreements with larger ISPs are critical to the success of our business
plan because through these agreements we gain access to large numbers of end
users that we can reach through our satellite distribution network rather than
through land-lines. Our agreements with high speed Internet access providers
are important because through these agreements we can reach Internet users
with high-speed or "broadband" connections from the edge of the Internet.
These users tend to access greater volumes of streaming content. Unless we can
reach large numbers of Internet users through our edge network, our services
will not be attractive to content providers. In order to secure agreements
with large ISPs and high speed Internet access providers, in some instances we
have agreed to share between 15% and 20% of the revenue we derive from content
delivered through their networks. We have also agreed to make non-refundable
prepayments to ISPs in the amount of $5.5 million, of which $3.0 million has
been paid as of March 31, 2000.
Our agreement with America Online provides that we will deploy our servers
in America Online's facilities in North America. Considering the reach of
America Online's network and market position as the leading provider of
Internet access in the United States, our agreement with America Online is
critical to our strategy of delivering more content to the edge of the
Internet. The agreement will increase the availability of content delivered
through our network on the edge of the Internet. The agreement with America
Online has an initial two year term, but may be terminated by either party for
material breach by the other upon 30 days notice. In addition, in the first
year of the agreement America Online has the right to terminate the agreement
if we do not deliver a required level of Internet content through their
network. A termination of, or adverse change in, our relationship with America
Online would seriously impair our efforts to establish and maintain an
Internet broadcast network that can reach most U.S. Internet users.
Our agreement with Excite@Home provides that we will deploy our servers in
Excite@Home national data centers upon Excite@Home's completion of their
centers. Considering Excite@Home's position as a provider of high-speed
Internet access though cable access, our agreement is important to the
development of our network on the edge of the Internet. The agreement has a
three year term. Either party may terminate the agreement with 30 days notice
upon a material default by the other. Excite@Home may terminate the agreement
upon 30 days notice upon a change of control of iBEAM. In addition,
Excite@Home may terminate the agreement without cause after two years. A
termination of, or adverse change in, our relationship with Excite@Home would
8
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seriously impair our efforts to establish an Internet broadcast network that
can broadcast to the edge of the Internet.
Our agreement with Covad provides that we will deploy our servers in
Covad's network, which is in North America. Considering the size of Covad's
network and market position as a provider of broadband access using digital
subscriber line, or DSL, technology, our agreement is important to the
deployment of our edge servers. Within the first year of our agreement with
Covad, either party may terminate the agreement upon 60 days notice. During
the second and third years of the agreement, either party may terminate the
agreement upon a material breach by the other. A termination of, or adverse
change in, our relationship with Covad could harm our efforts to deploy our
edge servers and our ability to develop new technologies that complement our
existing service offerings.
Our agreement with Northpoint provides that we will deploy our services in
Northpoint's network, which is in North America. Considering the size of
Northpoint's network and market position as a provider of broadband access,
our agreement is important to the deployment of our edge servers. The
agreement has a three year term and is terminable by either party upon 60 days
notice in the first year of the agreement. In the second and third years of
the agreement, either party may terminate the agreement due to a material
breach by the other. A termination of, or adverse change in, our relationship
with Northpoint could harm our efforts to deploy our edge servers.
Because our Internet broadcasting network is complex and is deployed in
complex environments, it may have errors or defects that could seriously harm
our business.
Our Internet broadcasting network is highly complex and is deployed in
complex environments. Because of the nature of our services, we can only fully
test it when it is fully deployed in very large networks with high traffic
volumes. Given the current early stage of deployment of our network, we cannot
test it for all possible defects. However, as a result of testing conducted to
date, we and our customers have from time to time discovered errors and
defects in our software. Since we commenced offering our services in October
1999, we have experienced two network outages, one of which was due to failure
of our network software. We may continue to experience problems with our
software. Outages that have occurred to date have resulted in between one and
five hours of network downtime during which time we were prevented from
delivering our services to our customers. These downtimes resulted in lost
revenues for usage not billed during down periods.
In the future, there may be additional errors and defects in our software
and servers that may adversely affect our service. If we are unable to
efficiently fix errors or other problems that may be identified, we could
experience:
. Loss of or delay in sales and loss of market share;
. Loss of customers;
. Failure to attract new customers or achieve market acceptance;
. Diversion of development resources;
. Loss of credibility;
. Increased service costs; or
. Legal action by our customers.
Any failure of our network infrastructure or the satellite or land-line
communication services provided to us could lead to significant costs and
disruptions which could harm our reputation and cause us to lose customers,
which would have a negative impact on our revenues.
Our business and reputation are dependent on providing our customers with
high-fidelity and low-cost Internet broadcasting services through our network.
To meet these customer requirements, we must protect our network
infrastructure against damage from:
. Human error;
. Network software errors;
9
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. Physical or electronic security breaches;
. Fire, earthquake, flood and other natural disasters;
. Power loss; and
. Sabotage and vandalism.
Our costs are generally higher and quality of service is generally lower
when we deliver content to end users from our hosting centers rather than our
edge servers. As a result, the occurrence of any of the unanticipated problems
listed above at one or more of our edge servers could result in service
interruptions or significant damage to equipment, increase our costs and cause
a degradation in the quality of our services. Further, if we are unable to
provide our network services to our customers, we could face legal action by
our customers, which would be costly and divert management's attention from
important business activities. Because our servers are located in the
facilities of others, such as Internet service providers and Internet hosting
companies, we must rely on others to protect our equipment.
Our network architecture uses satellite transmission to bypass the
congestion of the Internet backbone by broadcasting directly to our edge
servers. We have entered into a three-year agreement with a satellite service
provider for transmission capacity over a specified satellite. While the
agreement provides for a back-up satellite if difficulties arise with our
designated satellite, if we are required to change the designated satellite we
would be required to readjust our equipment. This adjustment could take
several weeks and would result in a decrease in the quality of our service and
an increase in our cost relating to the more expensive transmission costs of
distributing content from our hosting centers over our land-line network. The
ongoing failure of the satellite service we use could prevent us from
broadcasting content directly to the edge of the Internet. This would
significantly increase our costs and reduce our ability to cost-effectively
broadcast high-fidelity streaming video and audio content.
Since we commenced offering our services in October 1999 we have
experienced two network outages. One was caused by a failure of one of our
servers and the other was caused by a failure in the land-line communication
services provided to us by a third party. Outages that have occurred to date
have resulted in between one and five hours of network downtime during which
time we were prevented from delivering our services to our customers. These
downtimes resulted in lost revenues for usage not billed during down periods.
We may have inaccurately predicted our satellite capacity needs and may
find it difficult to add capacity when needed on reasonable terms.
We may need to add additional satellite capacity as we take on additional
content provider customers that distribute their content over our network.
Increases in the amount of content that is broadcast through our network
decreases our remaining satellite capacity. We are currently using only a
small fraction of our contracted for capacity. Nevertheless, we cannot assure
you that we have contracted for sufficient satellite capacity under our
current three-year satellite capacity contract, that we will be able to renew
this contract or that we would be able to increase satellite capacity through
our current or a potential additional provider. Additional capacity may not be
available to us on reasonable terms or at all. Failure to obtain necessary
capacity would limit revenue growth.
The market for Internet broadcasting services is new and our business will
suffer if it does not develop as we expect.
The market for Internet broadcasting services is new and rapidly evolving.
Content providers, such as existing web-based companies and traditional media
and entertainment companies, may not increasingly seek to broadcast streaming
video and audio over the Internet. Therefore, we cannot be certain that a
viable market for our services will emerge or be sustainable. If this market
does not develop, or develops more slowly than we expect, our revenues will
suffer and we may not become profitable.
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The markets in which we operate are highly competitive and we may be unable
to compete successfully against new entrants and established companies with
greater resources.
We compete in a market that is new, intensely competitive, highly
fragmented and rapidly changing. We have experienced and expect to continue to
experience increased competition. Many of our current competitors, as well as
a number of our potential competitors, have longer operating histories,
greater name recognition and substantially greater financial, technical and
marketing resources than we do. Some of our current and potential competitors
have the financial resources to withstand substantial price competition.
Moreover, many of our competitors have more extensive customer bases, broader
customer relationships and broader industry alliances that they could use to
their advantage in competitive situations, including relationships with many
of our current and potential customers. We do not have exclusive contracts
with Internet service providers for the deployment of our servers within their
networks and we expect that many Internet service providers will allow our
competitors to install equipment at their sites. In addition, our competitors
may be able to respond more quickly than we can to new or emerging
technologies and changes in customer requirements.
Some of our current or potential competitors may bundle their services with
other software or hardware to offer a full range of Internet broadcasting
products and services to meet all of the content distribution needs of content
providers. We currently do not offer a full range of products and services.
This may discourage content providers from purchasing services we offer or
Internet service providers from installing our servers in their facilities.
As competition in the Internet broadcasting market continues to intensify,
new solutions will come to market. We are aware of other companies that are
focusing or may in the future focus significant resources on developing and
marketing products and services that will compete with ours. We believe our
competitors primarily come from five market segments:
. Internet content distribution networks which accelerate delivery of web
pages, such as Akamai, Enron Communications and Digital Island;
. Internet webcasting companies that deliver streaming media through land-
line networks, such as InterVu which was acquired by Akamai;
. Internet software vendors that reduce the cost of content distribution
by storing content near the end user, such as Inktomi;
. Internet production and event services companies, such as Broadcast.com
and Network24 Communications which was acquired by Akamai; and
. Satellite companies that deliver streaming video through satellite
networks, such as PanAmSat and Cidera.
Increased competition could result in:
. Price and revenue reductions and lower profit margins;
. Increased cost of service from telecommunications providers and revenue
sharing demands by ISPs;
. Loss of customers; and
. Loss of market share.
Any one of these results would harm our financial results.
We believe that the Internet broadcasting and content delivery industry is
likely to encounter consolidation, such as the recent acquisition of InterVu
by Akamai, both of which compete with us. This consolidation could lead to the
formation of more formidable competitors and could result in increased
pressure on us to decrease our prices. In addition, consolidation among
Internet content providers could reduce the number of potential customers for
our services and may increase the bargaining power of these organizations,
which could force us to lower prices.
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Because our Internet content provider customers may terminate the use of
our services at any time without penalty, revenues from these customers may
decrease significantly without notice.
We do not have exclusive contracts with our Internet content provider
customers. These customers may refrain from using our services or shift to use
the services of our competitors at any time without penalty. There is a risk
that some content providers will determine that it is more cost effective for
them to develop and deploy their own Internet broadcasting or content delivery
systems than it is to outsource these services to companies such as iBEAM.
This competitive threat is particularly acute from content providers that own
content distribution networks. If any of our existing or future content
provider customers make this determination and refrain from using our
services, our revenues will be harmed. A vertically integrated competitor is
more likely to use their internal resources rather than outsourcing these
services to us.
If our commercial relationship with Microsoft terminates, then our business
could be harmed.
We entered into an agreement with Microsoft Corporation in September 1999.
Our agreement with Microsoft provides that Microsoft will recommend us as a
service provider for the delivery of broadband streaming media over the
Internet. Considering the widespread acceptance of Microsoft's Windows
technology, we believe Microsoft's recommendation in this regard will be an
important source of customers for us. This agreement may be terminated by
either Microsoft or us if the other party materially breaches the agreement. A
termination of, or significant adverse change in, our relationship with
Microsoft could harm our ability to obtain customers and develop new
technologies that complement our existing service offerings.
We have agreed to provide an aggregate of $200,000 of free services to
Internet content providers chosen by Microsoft.
We have entered into an agreement with Microsoft to provide content
providers chosen by Microsoft with six months of free service provided that
the value of the services to all these participants does not in the aggregate
exceed $200,000. We cannot currently quantify the number of content providers
to whom we expect to provide free services under this arrangement. Microsoft
has not yet requested that we provide these free services. If they do so, our
revenues would be harmed.
Our business will suffer if our network is not able to serve an increasing
number of users as demand increases.
To date, we have deployed a limited number of our edge servers. As of March
31, 2000, we estimate that our network was sufficient to support up to 300,000
simultaneous end users. We estimate that as of that date less than 5% of
traffic delivered through our network was served by our edge servers. We
expect that we will be able to serve up to 40% of the traffic on our network
from the edge of the Internet by the end of 2000 due to our agreements with
ISPs, particularly America Online. However, we cannot be certain that our
network can connect and manage a substantially larger number of end users at
high transmission speeds while maintaining desired performance. In addition,
for a portion of our network, as usage of high-speed Internet access by end
users increases, we will need to make additional investments in our
infrastructure to maintain adequate transmission speed for delivery of content
to the end user. We cannot assure you that we will be able to make these
investments successfully or at a reasonable cost. Upgrading our infrastructure
may cause delays or failures in our network. As a result, in the future our
network may be unable to achieve or maintain a sufficiently high transmission
capacity. Our failure to achieve or maintain high capacity data transmission
could significantly reduce demand for our service, which would reduce our
revenue and cause our business and financial results to suffer.
If more simultaneous users tried to access content off our network than we
have capacity for on the edge, the users representing excess capacity would be
served by our regional or master hosting centers. Supporting end users from
our regional and master hosting centers results in greater cost of services
than serving from the edge of our network but should not reduce the revenue
that we would otherwise generate.
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Our business will suffer if we do not respond rapidly to technological
changes or if new technological developments make our services non-competitive
or obsolete.
The market for Internet broadcasting services is characterized by rapid
technological change, frequent new product and service introductions and
changes in customer requirements. We may be unable to respond quickly or
effectively to these developments. If competitors introduce products, services
or technologies that are better than ours or that gain greater market
acceptance, or if new industry standards emerge, our services may become non-
competitive or obsolete, which would harm our revenues and cause our business
and financial results to suffer. In addition, technological developments could
eventually make Internet infrastructure much faster and more reliable such
that performance enhancing services like those we provide would be less
relevant to content providers.
In developing our service, we have made, and will continue to make,
assumptions about the standards that our customers and competitors may adopt.
If the standards adopted are different from those which we may now or in the
future promote or support, market acceptance of our service may be
significantly reduced or delayed and our business will be seriously harmed. In
addition, the emergence of new industry standards could render our existing
services non-competitive or obsolete.
We had operating losses of $30.2 million for the year ended December 31,
1999 and $21.7 million for the three months ended March 31, 2000 and our
accumulated deficit was $66.3 million as of March 31, 2000. Considering that
operating expenses are expected to increase in future periods we will need to
increase our revenues significantly to achieve profitability.
We have never been profitable. We have incurred significant losses since
inception, including operating losses of $30.2 million for the year ended
December 31, 1999 and $21.7 million for the three months ended March 31, 2000.
Our operating losses as a percentage of revenue was 20,247% in 1999 and 4,074%
in the first quarter of 2000. As of March 31, 2000, we had an accumulated
deficit of $66.3 million. In fiscal 2000, based on the planned deployment of
our network, we expect to have capital expenditures of at least $40.0 million,
of which approximately $26.0 million was incurred in the first quarter. We
expect to continue to incur increasing operating losses in the future. We will
apply the proceeds from this offering to pay for our capital expenditures and
to fund these losses.
We cannot be certain that our revenue will grow or that we will achieve
sufficient revenue to achieve profitability. Our failure to significantly
increase our revenue would seriously harm our business and operating results.
We have large fixed expenses, and we expect to continue to incur significant
and increasing sales and marketing, product development, administrative and
other expenses, including fees to obtain access to bandwidth transport of data
over our network, while we build out our network to the edge of the Internet.
As a result, we will need to generate significantly higher revenues to achieve
and maintain profitability. If our revenue grows more slowly than we
anticipate or if our operating expenses increase more than we expect or cannot
be reduced in the event of lower revenue, we may not become profitable.
The uncertainty in the sales and installation cycles for our service
resulting from our limited operating history may cause revenue and operating
results to vary significantly and unexpectedly from quarter to quarter, which
could adversely affect our stock price.
Because of our limited operating history and the nature of our business, we
cannot predict our sales and installation cycles. The uncertain sales and
installation cycles may cause our revenue and results of operations to vary
significantly and unexpectedly from quarter to quarter. If this occurs and our
quarterly operating results fall below the expectations of our investors or
securities analysts, if any are covering our common stock, then the market
price of our common stock could decline.
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We expect the rates we can charge for our services to decline over time,
which could reduce our revenue and could cause our business and financial
results to suffer.
We expect the prices we can charge for our Internet broadcasting services
will decline over time as a result of, among other things, the increasing
availability of bandwidth at reduced costs and existing and new competition in
the markets we address. If we fail to accurately predict the decline in costs
of bandwidth or, in any event, if we are unable to sell our service at
acceptable prices relative to our costs, or if we fail to offer additional
services from which we can derive additional revenue, our revenue will
decrease and our business and financial results will suffer.
We are currently pricing our services at levels that exceed our direct
variable costs but are insufficient to cover indirect costs such as our
network operations center and billing system. There is no assurance that our
revenues will increase to cover our increasing indirect costs, or that we have
accurately estimated indirect costs. If we fail to increase revenues, we may
not be able to achieve or maintain profitability.
Our business will suffer if we do not anticipate and meet specific customer
requirements.
Our current and prospective customers may require features and capabilities
that our current service offering does not have. To achieve market acceptance
for our service, we must effectively and timely anticipate and adapt to
customer requirements and offer services that meet these customer demands. The
development of new or enhanced services is a complex and uncertain process
that requires the accurate anticipation of technological and market trends. We
may experience design, manufacturing, marketing and other difficulties that
could delay or prevent the development, introduction or marketing of these new
or enhanced services. In addition, the introduction of new or enhanced
services also requires that we manage the transition from older services to
minimize disruption in customer service and ensure that we can deliver
services to meet anticipated customer demand. Our failure to offer services
that satisfy customer requirements would decrease demand for our products and
seriously harm our revenues and financial results.
Our business will suffer if we do not expand our direct and indirect sales
organizations and our customer service and support operations.
We currently have limited sales and marketing experience and limited
trained sales personnel. Our limited experience may restrict our success in
commercializing our services. Our services require a sophisticated sales
effort targeted at a limited number of key people within our prospective
customers' organizations. This sales effort requires the efforts of trained
sales personnel. We need to expand our marketing and sales organization in
order to increase market awareness of our service and generate increased
revenue. We are in the process of building our direct sales force and plan to
hire additional qualified sales personnel. Competition for these individuals
is intense, and we might not be able to hire the kind and number of sales
personnel we need. In addition, we believe that our future success is
dependent upon our ability to establish successful relationships for indirect
sales with a variety of distribution partners. If we are unable to expand our
direct and indirect sales operations, we may not be able to increase market
awareness or sales of our service, which may prevent us from increasing our
revenue and achieving and maintaining profitability.
Hiring customer service and support personnel is very competitive in our
industry because there is a limited number of people available with the
necessary technical skills and understanding of our market. Once we hire these
personnel, they require extensive training. If we are unable to expand our
customer service and support organization or train these personnel as rapidly
as necessary, we may not be able to maintain satisfied existing customers of
our service, which would harm our revenues and our ability to achieve or
maintain profitability.
We will incur significant costs relating to the planned expansion of our
marketing, sales and customer support organization. We are unable to quantify
the expenses associated with expanding our sales organization and customer
service and support operations because these expenses depend on a number of
factors relating to our operations, including the rate of hiring personnel and
the timing and amount of marketing and advertising
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expenses. We expect that over the next two years these costs will
significantly exceed any revenues that we receive for our services. We expect
to apply the proceeds from this offering to the payment of these expenses. If
our revenues do not grow in the future, these costs may never be recuperated
and we may not become profitable.
We face a number of risks related to our acquisition of webcasts.com, and
we may face similar risks in the future if we acquire other businesses or
technologies.
In April 2000, we acquired webcasts.com. If we are unable to effectively
integrate webcasts.com's products, personnel and systems, our business and
operating results are likely to suffer. This integration will be made more
difficult because webcasts.com operations are located in Oklahoma City,
Oklahoma, where we currently have no operations. We are just beginning to
integrate webcasts.com with our operations. We expect this integration to
place a significant burden on our management team by diverting management's
attention from the day-to-day operations of iBEAM.
As part of our business strategy, we frequently review acquisition and
strategic investment prospects that would complement our current service
offerings, augment our market coverage or enhance our technical capabilities,
or that may otherwise offer growth opportunities. If we make any future
acquisitions, we could:
. Issue equity securities, which would dilute current stockholders'
percentage ownership;
. Incur substantial debt, the holders of which would have claims to our
assets in preference to the holders of our common stock; or
. Assume contingent liabilities, which could materialize and involve
significant cost.
These actions could materially and adversely affect our operating results
and/or the price of our common stock. Acquisitions and investments may require
us to incur significant amortization and depreciation charges and acquisition
related costs that adversely affect our financial results. Acquisitions and
investment activities also entail numerous risks, including:
. Difficulties in the assimilation of acquired operations, technologies or
services;
. Unanticipated costs associated with the acquisition or investment
transaction;
. Adverse effects on existing business relationships with suppliers and
customers;
. Risks associated with entering markets in which we have no or limited
prior experience; and
. Potential loss of key employees of acquired organizations.
We may not be able to successfully integrate webcasts.com or any business,
products, technologies or personnel that we might acquire in the future, and
our failure to do so could harm our business.
We continue to look for acquisitions and investments. Although we do not
have any other commitments or agreements regarding any material acquisitions
or investments, we may use a portion of the net proceeds of this offering for
future acquisitions or investments.
As a result of the webcasts.com acquisition, we will record $92.8 million
of goodwill and acquired intangibles, the amortization of which will increase
our net loss.
As a result of the webcasts.com acquisition we will record $92.8 million of
goodwill and acquired intangibles which will be amortized over a three year
period. This will increase our net loss by approximately $20.6 million in
2000, $30.9 million in 2001 and 2002 and $10.4 million in 2003. To the extent
we do not generate sufficient cash flow to recover the amount of the
investment recorded, the investment could be considered impaired and could be
subject to earlier write-off. In such event, our net loss in any given period
could be greater than anticipated and the market price of our stock could
decline.
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We will require additional capital in the future and may not be able to
secure adequate funds on terms acceptable to us.
The expansion and development of our business will require significant
capital, which we may be unable to obtain, to fund our capital expenditures
and operating expenses, including working capital needs. In fiscal 2000 we
expect to make $40.0 million in capital expenditures, of which $26.0 million
was incurred in the first quarter, including investments in edge servers,
hosting centers and our network operations center, and we expect to incur
significant and increasing losses.
During the next 12 months, we expect to meet our cash requirements with
existing cash, cash equivalents and short-term investments, the net proceeds
from this offering and cash flow from sales of our services. The proceeds of
this offering are necessary in order to build out our network as planned. In
the absence of a public offering, to continue to execute on our current
business plan, we would attempt to raise capital in the private equity market.
To the extent such capital is not available, or until available, we would
exercise control of our discretionary expenses such as by reducing network
costs, capital expenditures and other discretionary expenses.
We may fail to generate sufficient cash flow from the sales of our services
to meet our cash requirements. Further, our capital requirements may vary
materially from those currently planned if, for example, our revenues do not
reach expected levels or we have to incur unforseen capital expenditures and
make investments to maintain our competitive position. If this is the case, we
may require additional financing sooner than anticipated or we may have to
delay or abandon some or all of our development and expansion plans or
otherwise forego market opportunities. If we seek to raise additional capital
through the issuance of equity or equity-related securities, the percentage
ownership of existing stockholders will be diluted.
After mid-2001 and possibly sooner we will need to raise additional
capital. We may not be able to obtain future equity or debt financing on
favorable terms, if at all. Future borrowing instruments such as credit
facilities and lease agreements are likely to contain restrictive covenants
and may require us to pledge assets as security for borrowings thereunder. Our
inability to obtain additional capital on satisfactory terms may delay or
prevent the expansion of our business.
We may decide to raise additional equity capital in the next 12 months
through a follow-on public offering. The decision to do a follow-on public
offering will depend on market conditions, including whether our stock price
has increased and whether there is additional demand for our stock, and our
need for additional funds at the time.
Our business will suffer if we fail to manage the expansion of our
operations properly.
We have grown rapidly by hiring new employees and by expanding our offering
of services. Our total number of employees grew from 40 on March 4, 1999 to
266 on March 31, 2000 and several members of our senior management team have
only recently joined us. The acquisition of webcasts.com will add
approximately 95 employees. This growth has placed, and our growth in future
operations, if any, will continue to place, a significant strain on our
management systems and resources. Our ability to offer our services and
implement our business plan in a rapidly evolving market requires an effective
planning and management process. If we fail to:
. Improve our financial and managerial controls, reporting systems and
procedures,
. Hire, train, manage and retain additional qualified personnel, including
additional senior management level personnel to fulfill our current or
future needs,
. Integrate the operations of webcasts.com, and
. Effectively manage and multiply relationships with our customers,
suppliers, and other third parties,
we may be unable to execute our business plan, which would curtail our growth
and harm our results of operations.
In addition, we have recently hired and plan to hire in the near future a
number of key employees and officers. To become integrated into our company,
these individuals must spend a significant amount of time learning our
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business model and management system, in addition to performing their regular
duties. Accordingly, the integration of new personnel has resulted and will
continue to result in some disruption to our ongoing operations. If we fail to
integrate new employees in an efficient manner, our business and financial
results will suffer.
The unpredictability of our quarterly results may adversely affect the
trading price of our common stock.
Our revenue and operating results will vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control
and any of which may cause our stock price to fluctuate. The primary factors
that may affect our quarterly results include the following:
. Fluctuations in the demand for our Internet broadcasting services;
. The timing and size of sales of our services;
. The timing of recognizing revenue and deferred revenue;
. New product and service introductions and enhancements by our
competitors and ourselves;
. Changes in our pricing policies or the pricing policies of our
competitors;
. Increases in the prices of, and availability of, the products, services
or components we purchase, including bandwidth;
. Our ability to attain and maintain quality levels for our services;
. Expenses related to testing our services;
. Costs related to acquisitions of technology or businesses; and
. General economic conditions as well as those specific to the Internet
and related industries.
We plan to increase significantly our operating expenses to fund the build-
out of our broadcast network, accelerate engineering and development, expand
our sales and marketing operations, broaden our customer support capabilities
and continue to develop new distribution channels. We also plan to expand our
general and administrative functions to address the increased reporting and
other administrative demands which will result from this offering and the
increasing size of our business. Our operating expenses are largely based on
anticipated revenue trends and a high percentage of our expenses are, and will
continue to be, fixed in the short term. As a result, a delay in generating or
recognizing revenue for the reasons set forth above, or for any other reason,
could cause significant variations in our operating results from quarter to
quarter and could result in substantially operating losses.
Due to the above factors, we believe that quarter-to-quarter comparisons of
our operating results are not a good indication of our future performance. It
is likely that in some future quarters our operating results may be below the
expectations of investors and security analysts, if any follow our stock. In
this event, the price of our common stock will probably fall.
Our On-Stage service currently represents a substantial portion of our
revenues and if we are unsuccessful in commercially selling our On-Air and On-
Demand services, our revenues will not grow significantly.
We currently offer three primary services: iBEAM On-Stage, iBEAM On-Air and
iBEAM On-Demand. Sales of our On-Stage service accounted for 74% of our
revenue in 1999. Sales of our On-Air services accounted for 6% of our revenue
in 1999. Sales of our On-Demand services accounted for 3% of our revenue in
1999. We expect that sales of our On-Stage services will decline as a
percentage of total revenue in the future. However, we substantially depend on
this service for our near-term revenue. Any decline in the price of, or demand
for, our On-Stage service, or its failure to achieve broad market acceptance,
would seriously harm our business. In addition, we believe that our future
growth and a significant portion of our future revenue will depend on the
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commercial success of our On-Air and On-Demand services. If our customers do
not widely adopt, purchase and successfully deploy our services, our revenues
will not grow significantly and our business will be seriously harmed.
We rely on a limited number of customers, and any decrease in revenues
from, or loss of, these customers, without a corresponding increase in
revenues from other customers, would harm our operating results.
Our customer base is limited and highly concentrated. We began recognizing
revenues from sales of our products in the quarter ended December 31, 1999.
Three customers accounted for an aggregate of 68% of our revenue in the
quarter ended December 31, 1999: ProWebCast accounted for 40%, MusicNow, Inc.
accounted for 15% and Pixelworld accounted for 13% of our revenue. In the
three months ended March 31, 2000 NetRadio.com accounted for 12% of revenues.
We expect that the majority of our revenues will continue to depend on sales
of our products to a small number of customers. If current customers do not
continue to place significant orders, we may not be able to replace these
orders. In addition, any downturn in the business of existing customers could
result in significantly decreased sales to these customers, which could
seriously harm our revenues and results of operations. Sales to any single
customer may vary significantly from quarter to quarter.
America Online accounted for an aggregate of 20% of webcasts.com's revenue
in 1999. The loss of this customer or a significant reduction in the level of
webcasts.com's services used by this customer, could seriously harm our
results of operations.
We expect to amortize stock-based compensation expense of $12.2 million in
the remainder of 2000, $9.3 million in 2001, $4.8 million in 2002, and $2.1
million in 2003, which will decrease our net earnings during these periods.
In connection with the grant of stock options to employees and consultants
for the period from March 20, 1998 (inception) to March 31, 2000, we recorded
unearned stock-based compensation of $37.9 million, of which $5.4 million was
amortized during 1999 and $4.1 million was amortized in the first quarter of
2000. If our stock price increases, the amount of stock-based compensation
related to stock option grants to consultants would increase as the fair value
of these grants is re-measured at each reporting date using a Black-Scholes
option pricing model. These expenses will increase our losses during each of
these periods and delay our ability to achieve profitability.
We depend on our executive officers to manage our business effectively in a
rapidly changing market and, if we are unable to retain our executive
officers, our ability to compete could be harmed.
Our future success depends upon the continued services of our executive
officers who have critical industry experience and relationships that we rely
on in implementing our business plan. We do not have "key person" life
insurance covering any of our executive officers. The loss of services of any
of our executive officers could delay the development and introduction of and
negatively impact our ability to sell our services.
We face risks associated with international operations that could harm our
business.
To be successful, we believe we must expand our international operations.
Therefore, we expect to commit significant resources to expand our
international sales and marketing activities. We are currently targeting the
United Kingdom, Germany, France, Hong Kong, Singapore, Indonesia, Malaysia and
India for expansion. The expenses we will incur in expanding our international
operations will depend on the arrangements into which we will enter to provide
our services in such markets. These factors have yet to be determined. We
recently entered into a letter of intent with Pacific Century CyberWorks to
establish a joint venture to introduce our services to the Pacific Rim, the
Indian subcontinent and the Middle East. In order to bring our services to
these regions, the joint venture will need to deploy a network of servers
which will involve large capital expenditures and operating expenses. While
the details of the joint venture have yet to be determined, we expect to incur
approximately
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49% or less, depending on our percentage ownership, of the operating losses of
the joint venture. We expect the joint venture to begin delivering content to
end users by the end of 2000. In connection with the formation of the joint
venture, we expect to contribute $5.0 million to iBEAM Asia. We expect that
iBEAM Asia will be funded thereafter from independent third party sources. We
may decide to provide additional financing to iBEAM Asia in the future if
iBEAM Asia is unable to raise additional funding from third parties on
favorable terms. In addition, in connection with our expansion into Asia,
Europe, Latin America, Africa and the Middle East pursuant to our agreement
with InterPacket, we will incur capital expenditures in connection with our
deployment of servers in InterPacket's network. InterPacket's network serves
developing countries and there can be no assurance that these markets will
develop sufficiently to justify our investments. We are establishing a test
center for our systems in Hong Kong. We currently plan to begin placing
servers in up to 20 locations in InterPacket's network in the second half of
2000. We expect that our capital expenditures in 2000 in connection with
deployment in InterPacket's network will be less than $1.0 million.
We may be unable to maintain or increase market demand for our service
internationally, which may harm our business. As we expand internationally, we
will be increasingly subject to a number of risks associated with
international business activities that could increase our costs, lengthen our
sales cycle and require significant management attention. These risks include:
. Potential difficulty in enforcing intellectual property rights in
foreign countries;
. Compliance with and unexpected changes in regulatory requirements
resulting in unanticipated costs and delays;
. Lack of availability of trained personnel in international locations;
. Tariffs, export controls and other trade barriers;
. Longer accounts receivable payment cycles than in the United States;
. Potential difficulty in obtaining access to additional satellite and
telecommunication transmission capacity;
. Potential difficulty of enforcing agreements and collecting receivables
in some foreign legal systems;
. Potentially adverse tax consequences, including restrictions on the
repatriation and earnings;
. General economic conditions in international markets; and
. Currency exchange rate fluctuations.
Risks Related to Legal Uncertainty
Any inability to adequately protect our intellectual property could harm
our competitive position.
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property
rights. Our future growth, if any, will depend on our ability to continue to
seek patents and otherwise protect the intellectual property rights in our
network technology. However, these legal protections afford only limited
protection; competitors may gain access to our network technology, including
our software and server technology, which may result in the loss of our
customers. Other companies, including our competitors, may obtain patents or
other proprietary rights that would prevent, limit or interfere with our
ability to make, use or sell our service. This would cause our revenues to
decline and seriously harm our results of operations.
We may in the future initiate claims or litigation against third parties
for infringement of our proprietary rights or to determine the scope and
validity of our proprietary rights or the proprietary rights of competitors.
These claims could result in costly litigation and the diversion of our
technical and management personnel. As a result, our operating results could
suffer and our financial condition could be harmed.
19
<PAGE>
We could incur substantial costs defending our intellectual property from
infringement or a claim of infringement.
Any litigation or claims, whether or not valid, could result in substantial
costs and diversion of resources. Companies in the Internet industry are
increasingly bringing suits alleging infringement of their proprietary rights,
particularly patent rights. Our patent applications to date cover our
streaming platform standard, content management, distribution capabilities and
subscriber management. If a company brings a claim against us, we may be found
to infringe their proprietary rights. In the event of a successful claim of
infringement against us and our failure or inability to license the infringed
technology, our business and operating results would be significantly harmed.
In January 2000, we received a letter from a competitor, which suggested
that we review patents to which this competitor claims rights. These patents
purport to cover "a system and method for delivery of video and data over a
computer network." We believe that we do not infringe any claims of these
patents. However, there can be no assurance that this competitor will agree
with our conclusion or not pursue a claim or litigation against us. To date,
no complaint has been filed or served.
Intellectual property litigation or claims could force us to do one or more
of the following:
. Cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
. Obtain a license from the holder of the infringed intellectual property
right, which license may not be available on reasonable terms if at all;
and
. Redesign products or services that incorporate the disputed technology.
If we are forced to take any of the foregoing actions, we could face
substantial costs and our business may be seriously harmed. Although we carry
general liability insurance, our insurance may not cover potential claims of
this type or be adequate to indemnify us for all liability that may be
imposed.
Internet-related laws could cause us to change the manner in which we
operate our network, which could be disruptive, time consuming and expensive.
Our Internet broadcast network is designed to deliver streaming media to
large audiences of simultaneous users. Currently our network and the media we
broadcast is largely unregulated, even though traditional television and radio
are highly regulated by the Federal Communications Commission. If laws and
regulations that apply to communications over the Internet are enacted that
require us to change the manner in which we operate our network, our business
could be disrupted with time consuming and expensive modifications of our
technology. In addition, our business could be harmed to the extent that our
content provider customers are adversely affected. Laws and regulations that
apply to communications over the Internet are becoming more prevalent. Several
bills are currently being considered by the U.S. Congress. Recently the U.S.
Congress enacted Internet laws regarding children's privacy, copyrights,
taxation and the transmission of sexually explicit material. The European
Union recently enacted its own privacy regulations, and is currently
considering copyright legislation that may extend the right of reproduction
held by copyright holders to include the right to make temporary copies for
any reason. The adoption or modification of laws or regulations relating to
the Internet, or interpretations of existing law, could harm our business
directly or indirectly due to effects on our customers.
Risks Related To The Securities Markets And This Offering
Our stock price may be volatile which could result in litigation against us
and substantial losses for investors purchasing shares in this offering.
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering. The market for technology stocks has been
20
<PAGE>
extremely volatile. The following factors could cause the market price of our
common stock in the public market to fluctuate significantly from the price
paid by investors in this offering:
. Announcements by us or our competitors of significant contracts, new
products or services offerings or enhancements, acquisitions,
distribution partnerships, joint ventures or capital commitments;
. Variations in our quarter-to-quarter operating results including our
failure to meet estimates of financial analysts;
. Changes in financial estimates by securities analysts, if any analysts
elect to follow our stock;
. Our sales of common stock or other securities in the future or
substantial sales by current stockholders after the 180-day lock-up
expires;
. Changes in market valuations of networking, Internet and
telecommunications companies;
. The addition or departure of our personnel; and
. Fluctuations in stock market prices and volumes.
Volatility in the market price of our common stock may prevent investors
from being able to sell their common stock at or above our initial public
offering price.
In the past, class action litigation has often been brought against
companies following periods of volatility in the market price of those
companies' common stock. We may become involved in this type of litigation in
the future. Litigation is often expensive and diverts management's attention
and resources, which could materially and adversely affect our business and
results of operations.
Insiders will beneficially own approximately 37.5% of our outstanding
common stock after this offering and could limit investors' ability to
influence the outcome of key transactions, including changes of control.
We anticipate that our executive officers and directors, together with
Accel Partners and Crosspoint Venture Partners, each of which is an entity
affiliated with one of our directors, will in the aggregate, own approximately
37.5% of our outstanding common stock following the completion of this
offering. These stockholders, if acting together, would be able to influence
significantly all matters requiring approval by our stockholders, including
the election of directors and the approval of mergers or other business
combination transactions.
Provisions of our charter documents and agreements with some of our large
stockholders may have anti-takeover effects that could prevent a change in
control even if the change in control would be beneficial to our stockholders.
Our board of directors will be divided into three classes, with each class
serving staggered three-year terms. This may discourage a third party from
making a tender offer or otherwise attempting to obtain control of us because
it generally makes it more difficult for stockholders to replace a majority of
the directors. We have in place procedures which prevent stockholders from
acting without holding a meeting and which limit the ease with which a
stockholder meeting can be called. We are subject to the "interested
stockholder" provisions of Delaware law which impose restrictions on mergers
and other business combinations between us and any holder of 15% or more of
our outstanding common stock. These provisions of our amended and restated
certificate of incorporation, by-laws, and Delaware law could make it more
difficult for a third party to acquire us, even if doing so would be
beneficial to our stockholders.
In addition, each of Microsoft, Sony, Pacific Century CyberWorks, America
Online, Covad and Liberty Media, which in the aggregate will own 15.9% of our
common stock upon the closing of this offering, have agreed to vote their
securities as directed by our board of directors in any merger in which more
than 50% of our voting power is transferred or in a sale of substantially all
of our assets. This obligation lapses for each of these companies if and when
it owns less than 5% of our voting power. Microsoft, Sony, Pacific Century
CyberWorks, America Online, Excite@Home and Covad have each also agreed not to
acquire more than 15.0% of our voting stock at any time before the end of
April 2005 without our permission. Our agreement with these stockholders could
make it more difficult for a third party or one of these entities to acquire
us, even if doing so would be beneficial to our stockholders.
21
<PAGE>
The sale of a substantial number of shares of common stock could cause the
market price of our common stock to decline.
After this offering, we will have a total of 106,147,834 shares of common
stock outstanding, or 107,797,834 shares if the underwriters exercise their
entire over-allotment option. The sale by us or the resale by stockholders of
shares of our common stock in the public market after the offering could cause
the market price of the common stock to decline. The federal securities laws
impose restrictions on the ability of substantially all stockholders to resell
their shares of common stock. In addition, we, our executive officers,
directors and certain other stockholders have agreed with Morgan Stanley & Co.
Incorporated, one of the representatives of the underwriters, not to sell
their shares for a period ending 180 days from the date of the prospectus for
the offering. Accordingly, the 106,147,834 shares of common stock outstanding
after this offering will be available for resale in the public market as
follows:
<TABLE>
<CAPTION>
Number of Shares Date Available for Resale
---------------- -------------------------
<S> <C>
9,800,000 Immediately
83,071,938 180 days from the date of the prospectus
for the offering
13,275,896 Various dates thereafter
</TABLE>
In addition, 1,949,987 shares of our common stock issuable upon exercise of
warrants will become eligible for sale on various dates upon expiration or
release of the lock-up agreements.
After this offering and expiration or release of the lock-up agreements,
holders of 76,260,334 shares of the common stock and the holders of warrants
to purchase approximately 1,438,687 shares of common stock may require us to
register their shares for resale under the federal securities laws.
We intend to file a registration statement following this offering to
permit the sale of shares of common stock under our stock plans. As of March
31, 2000, options to purchase 11,816,815 shares of common stock with a
weighted average exercise price per share of $3.38 were outstanding,
substantially all of which are subject to agreements with Morgan Stanley & Co.
Incorporated not to sell such shares for 180 days from the date of the
prospectus for the offering. Registration of such shares would result in these
stockholders being able to immediately resell their shares in the public
market after expiration or release of the lock-up agreements. Any such sales
or anticipation thereof could cause the market price of the common stock to
decline.
We have no agreement or understanding with Morgan Stanley & Co.
Incorporated for a waiver of these lock-up restrictions. However, Morgan
Stanley & Co. Incorporated may, in its discretion, release us or any of our
stockholders at any time, without notice, prior to the expiration of the lock-
up period. In some cases underwriters have agreed to waive lock-up
restrictions when a company's stock has performed well for a sustained period
of time, in order to allow a follow-on offering of common stock. Any decision
by Morgan Stanley & Co. Incorporated to waive the lock-up restrictions would
depend on a number of factors, including market conditions, the performance of
our common stock in the market and our financial condition at that time. If
Morgan Stanley & Co. Incorporated were to waive the lock-up restrictions prior
to the expiration of the lock-up period, and our stockholders were to sell
additional shares of common stock to the public, the market price of our
common stock could decline.
You will experience immediate and significant dilution of book value per
share.
The initial public offering price of our common stock will be substantially
higher than the net tangible book value per share of the outstanding common
stock immediately after this offering. Therefore, based upon an assumed
initial public offering price of $10.00 per share, if you purchase our common
stock in this offering, you will incur immediate dilution of $8.40 per share.
If additional shares are sold by the underwriters following exercise of their
over-allotment option there will be further dilution.
In addition, as of March 31, 2000, we had outstanding options to purchase
11,816,815 shares of common stock at a weighted average exercise price of
$3.38 per share and, on an as converted basis, warrants to purchase 1,949,987
shares of common stock at a weighted average exercise price of $3.42 per
share. If these outstanding options or warrants are exercised there will be
further dilution.
22
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of 11,000,000 shares of common stock
in this offering at an assumed public offering price of $10.00 per share are
estimated to be approximately $100.6 million, or approximately $115.9 million
if the underwriters' over-allotment option is exercised in full, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
The principal purposes of this offering are to obtain additional working
capital, to establish a public market for our common stock, to increase our
visibility in the marketplace and to facilitate future access to public
capital markets.
We expect to use the net proceeds for general corporate purposes, including
working capital and capital expenditures, and to fund operating losses. We
anticipate spending at least $15.0 million of the proceeds of this offering on
capital expenditures primarily for the purpose of expanding our network
operations. Our management will retain broad discretion in the allocation of
the remaining net proceeds of this offering. Although we may use a portion of
the proceeds to acquire other businesses, products or technologies that are
complementary to our business, we have no specific acquisitions planned.
Pending such uses, we intend to invest the net proceeds of this offering in
short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently intend
to retain all of our future earnings to finance the growth and development of
our business. We do not intend to pay cash dividends on our common stock in
the foreseeable future.
23
<PAGE>
CAPITALIZATION
The following table sets forth our cash, cash equivalents and investments
and capitalization at March 31, 2000:
. on an actual basis;
. on a pro forma basis to reflect (i) the conversion of all outstanding
shares of our redeemable convertible preferred stock outstanding as of
March 31, 2000 into 66,489,527 shares of common stock upon the closing
of this offering; (ii) the acquisition of webcasts.com as if it had
occurred on March 31, 2000 and the conversion of the related issuance of
8,233,173 shares of series F redeemable convertible preferred stock into
the same number of shares of common stock; (iii) the issuance of
1,000,000 shares of our series G redeemable convertible preferred stock
to The Walt Disney Company prior to the completion of the offering for
$10.0 million at a price equal to the per share price to the public in
the offering and the conversion of those shares into the same number of
shares of common stock; and (iv) the issuance of 537,634 shares of our
series H redeemable convertible preferred stock to Excite@Home prior to
the completion of the offering for $5.0 million at a price equal to the
per share price to the public in the offering, less estimated
underwriting discounts and commissions, and the conversion of those
shares into the same number of shares of common stock; and
. on a pro forma basis as adjusted for the sale by us of 11,000,000 shares
of common stock in this offering and the receipt of the estimated net
proceeds therefrom, after deducting the estimated underwriting discounts
and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
March 31, 2000
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except per
share data)
<S> <C> <C> <C>
Cash, cash equivalents, and investments........ $ 21,829 $ 46,124 $146,674
======== ======== ========
Long term obligations, net of current portion.. $ 6,601 $ 7,638 $ 7,638
-------- -------- --------
Redeemable convertible preferred stock, $0.0001
par value; actual--20,000 shares authorized;
17,792 shares issued and outstanding; pro
forma--30,000 shares authorized, no shares
issued and outstanding; pro forma as
adjusted--10,000 shares authorized; no shares
issued or outstanding......................... 96,114 -- --
-------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.0001 par value; actual--
120,000 shares authorized; 18,887 shares
issued and outstanding; pro forma--120,000
shares authorized; 95,148 shares issued and
outstanding; pro forma as adjusted--413,100
shares authorized; 106,148 shares issued and
outstanding.................................. 2 10 11
Additional paid-in capital.................... 60,320 258,905 359,454
Stockholders' note receivable................. (2,000) (2,000) (2,000)
Unearned stock-based compensation............. (28,386) (28,386) (28,386)
Deficit accumulated during development stage.. (66,346) (66,346) (66,346)
-------- -------- --------
Total stockholders' equity (deficit)....... (36,410) 162,183 262,733
-------- -------- --------
Total capitalization....................... $ 66,305 $169,821 $270,371
======== ======== ========
</TABLE>
This capitalization table excludes the following shares as of March 31,
2000:
. 11,816,815 shares at a weighted average exercise price of $3.38 per
share that were subject to outstanding options as of March 31, 2000;
. 706,285 shares of common stock issuable upon the exercise of
webcasts.com stock options assumed by us in connection with our
acquisition of webcasts.com at a weighted average exercise price of
$3.54 per share and up to additional 1,243,932 shares of common stock
issuable if our webcasts.com division meets revenue targets in the next
twelve months after the closing of the acquisition; and
. 1,949,987 shares of common stock issuable upon exercise and conversion
of outstanding convertible preferred stock warrants as of March 31, 2000
at a weighted average exercise price of $3.42 per share.
24
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 2000, was $69.4
million or $0.73 per share of common stock. Our pro forma net tangible book
value per share as of March 31, 2000 represents the amount of our total
tangible assets reduced by the amount of our total liabilities and divided by
the total number of shares of our common stock outstanding assuming (i) the
conversion of all outstanding shares of our redeemable convertible preferred
stock as of March 31, 2000 into 66,489,527 shares of common stock upon the
closing of this offering; (ii) the acquisition of webcasts.com as if it
occurred on March 31, 2000 and the conversion of the related issuance of
8,233,173 shares of series F redeemable convertible preferred stock into the
same number of shares of common stock; (iii) the issuance of 1,000,000 shares
of our series G redeemable convertible preferred stock to The Walt Disney
Company prior to the completion of the offering for $10.0 million at a price
equal to the per share price to the public in the offering and the conversion
of those shares into the same number of shares of common stock; and (iv) the
issuance of 537,634 shares of our series H redeemable convertible preferred
stock to Excite@Home prior to the completion of the offering for $5.0 million
at a price equal to the per share price to the public in the offering, less
estimated underwriting discounts and commissions, and the conversion of those
shares into the same number of shares of common stock. After giving effect to
the sale by us of the 11,000,000 shares of common stock offered hereby at an
assumed initial public offering price of $10.00 per share, after deduction of
estimated underwriting discounts and commissions and estimated offering
expenses, our pro forma as adjusted net tangible book value at March 31, 2000
would have been $169.9 million or $1.60 per share. This represents an
immediate increase in net tangible book value to existing stockholders of
$0.87 per share and an immediate dilution to new investors of $8.40 per share.
The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $10.00
Pro forma net tangible book value per share as of March 31,
2000........................................................ $0.73
Increase in pro forma net tangible book value per share
attributable to new investors............................... 0.87
-----
Pro forma as adjusted net tangible book value per share after
the offering................................................. 1.60
------
Dilution per share to new investors........................... $ 8.40
======
</TABLE>
The following table sets forth on a pro forma basis as of March 31, 2000,
the difference between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by (i) the
existing stockholders; (ii) the investors in the private placements of
preferred stock that will convert into common stock at the public offering,
which includes 8,233,173 shares of series F redeemable convertible preferred
stock issued in the acquisition of webcasts.com, the issuance of 1,000,000
shares of our series G redeemable convertible preferred stock to The Walt
Disney Company for $10.0 million at a price equal to the per share price to
the public in the offering and the issuance of 537,634 shares of our series H
redeemable convertible preferred stock to Excite@Home for $5.0 million at a
price equal to the per share price to the public in the offering, less
underwriting discounts and commissions; and (iii) the new investors in this
offering (before deduction of estimated underwriting discounts and commissions
and estimated offering expenses):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------- -------------------- Price
Number Percent Amount Percent Per Share
----------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 85,377,010 81% $101,468,602 33% $ 1.19
Private investors.......... 9,770,807 9 97,331,726 31 9.96
New investors in this
offering.................. 11,000,000 10 110,000,000 36 10.00
----------- --- ------------ ---
Total.................... 106,147,817 100% $308,800,328 100%
=========== === ============ ===
</TABLE>
25
<PAGE>
The table assumes no exercise of the underwriters over-allotment option and
no exercise of stock options or warrants outstanding at March 31, 2000. As of
March 31, 2000, there were options outstanding to purchase a total of
11,816,815 shares at a weighted average exercise price of $3.38 per share,
while 4,069,804 shares were reserved for future grants under our 1998 Stock
Plan. As of March 31, 2000, there were warrants outstanding to purchase
1,949,987 shares of common stock issuable upon exercise and conversion of
outstanding convertible preferred stock warrants at a weighted average
exercise price of $3.42 per share. We will assume all outstanding options
granted under webcasts.com's 1999 Stock Option Plan, which will convert into
options to purchase 706,285 shares of series F redeemable convertible
preferred stock at a weighted average exercise price of $3.54 per share. To
the extent there are exercises of any of these options, there will be further
dilution to new investors. There will be additional dilution if our
webcasts.com division meets revenue targets in the twelve month period
following the closing of the webcasts.com acquisition, which would require us
to issue up to 1,243,932 shares of common stock to the former webcasts.com
shareholders. See "Capitalization," "Management--Compensation of Directors"
and "--Executive Compensation."
26
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with,
and are qualified by reference to, our audited financial statements and notes
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations" appearing elsewhere in this prospectus. The statements of
operations data for the period from March 20, 1998 (Inception) to December 31,
1998 and for the year ended December 31, 1999, and the balance sheet data as
of December 31, 1998 and 1999 are derived from, and are qualified by reference
to, our audited financial statements.
The unaudited pro forma statement of operations gives effect to the
webcasts.com acquisition as if it had occurred on January 1, 1999 and presents
the results of operations of iBEAM for the year ended December 31, 1999 and
for the three months ended March 31, 2000 combined with the unaudited pro
forma statement of operations of webcasts.com for the year ended December 31,
1999 and for the three months ended March 31, 2000, respectively. The
unaudited pro forma statement of operations of webcasts.com includes the
results of operations of webcasts.com for the year ended December 31, 1999
combined with the results of operations of The Rock Island Group, Inc., or
RIG, for the period from January 1, 1999 to October 14, 1999 as if the RIG
acquisition occurred on January 1, 1999. The unaudited pro forma combined
balance sheet gives effect to the acquisition of webcasts.com as if it
occurred on March 31, 2000 and combines the balance sheet of iBEAM as of
March 31, 2000 and the consolidated balance sheet of webcasts.com as of March
31, 2000. On October 15, 1999, webcasts.com completed its acquisition of all
the outstanding capital stock of RIG. The RIG acquisition was accounted for
using the purchase method of accounting and, accordingly, the net assets and
results of operations of RIG have been included in the consolidated financial
statements of webcasts.com since the acquisition date.
The pro forma financial information should also be read in conjunction with
the historical financial statements and notes to webcasts.com, which are
included elsewhere in this prospectus, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The unaudited pro
forma combined information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the transactions had been consummated at the dates
indicated, nor is it necessarily indicative of the future operating results or
the financial position of the combined companies.
<TABLE>
<CAPTION>
Three Months Ended
Period from March 31,
March 20, 1998 Year Ended ----------------------------
(Inception) to December 31, 1999 2000
December 31, --------------------- 1999 -------------------
1998 Actual Pro Forma Actual Actual Pro Forma
-------------- -------- ----------- ------- -------- ---------
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenue................. $ -- $ 149 $ 5,054 $ -- $ 532 $ 2,083
------- -------- -------- ------- -------- --------
Operating costs and
expenses:
Cost of services
(direct and
indirect)............. -- 8,249 11,788 855 8,119 9,794
Engineering and
development........... 1,468 4,531 4,801 554 4,584 5,061
Sales and marketing.... 1,788 10,363 11,438 1,268 5,768 6,966
General and
administrative........ 1,096 7,174 12,468 767 3,733 5,098
Amortization of
goodwill and acquired
intangibles........... -- -- 30,938 -- -- 7,734
------- -------- -------- ------- -------- --------
Total operating costs
and expenses.......... 4,352 30,317 71,433 3,444 22,204 34,653
------- -------- -------- ------- -------- --------
Loss from operations.... (4,352) (30,168) (66,379) (3,444) (21,672) (32,570)
Other income and
expense, net........... 125 200 110 30 317 84
------- -------- -------- ------- -------- --------
Net loss................ (4,227) (29,968) (66,269) (3,414) (21,355) (32,486)
Dividends and accretion
related to preferred
stock and warrants..... -- -- (1,797) -- (10,796) (12,056)
------- -------- -------- ------- -------- --------
Net loss attributable to
common stock........... $(4,227) $(29,968) $(68,066) $(3,414) $(32,151) $(44,542)
======= ======== ======== ======= ======== ========
Net loss per share
attributable to common
stock--basic and
diluted................ $ (0.56) $ (3.43) $ (4.01) $ (0.40) $ (3.04) $ (2.37)
======= ======== ======== ======= ======== ========
Weighted average common
shares outstanding..... 7,488 8,726 16,959 8,462 10,589 18,822
======= ======== ======== ======= ======== ========
Pro forma net loss per
share attributable to
common stock--basic and
diluted (unaudited).... $ (0.63) $ (1.22) $ (0.43) $ (0.54)
======== ======== ======== ========
Pro forma weighted
average common shares
outstanding (unaudited)
....................... 47,435 55,668 74,860 83,093
======== ======== ======== ========
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
December 31, March 31,
--------------- 2000
1998 1999 ------------------
Actual Actual Actual Pro Forma
------ ------- ------- ---------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and investments.... $2,198 $29,840 $21,829 $ 31,124
Working capital........................... 1,071 24,751 14,782 17,806
Total assets.............................. 4,207 44,741 80,426 176,135
Long term obligations, net of current
portion.................................. -- 3,627 6,601 7,638
Redeemable convertible preferred stock.... 6,905 61,192 96,114 183,593
Total stockholders' deficit............... (3,950) (26,033) (36,410) (36,410)
</TABLE>
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the financial statements and
notes included elsewhere in this prospectus. This prospectus contains forward-
looking statements that involve risks and uncertainties. Our actual results
could differ significantly from those discussed in these forward-looking
statements as a result of certain factors, including those set forth under
"Risk Factors" and elsewhere in this prospectus.
Overview
We provide a global Internet broadcast network that delivers streaming
media to large audiences of simultaneous users with viewing and listening
quality that approaches that of television and radio. We offer our services to
content providers seeking to enhance the quality of their delivery and reach
larger audiences at lower costs. In order to offer our customers a broader set
of services, in April 2000 we acquired webcasts.com, Inc., a provider of
production consulting services and tools. Webcasts.com services assist content
providers with integrating streaming media and e-commerce functions such as
chat, e-commerce data base links and pay-per-view.
iBEAM commenced operations in March 1998 and began offering streaming media
delivery service in October 1999. Since our inception, we have incurred
significant losses and as of March 31, 2000, we had an accumulated deficit of
$66.3 million. We have not achieved profitability on a quarterly basis, and
anticipate that we will continue to incur substantial and increasing net
losses. We expect to incur significant and increasing engineering and
development and sales, general and administrative expenses and, as a result,
we will need to generate significant revenues to achieve profitability.
Acquisition of webcasts.com
We entered into a definitive merger agreement to acquire privately-held
webcasts.com, a provider of interactive broadcasting services and proprietary
Internet tools on March 21, 2000. We intend to account for the transaction as
a purchase business combination. The acquisition is intended to qualify as a
tax-free reorganization.
On April 28, 2000 we consummated the transaction and issued 8,233,173
shares of our series F preferred stock to webcasts.com's security holders and
assumed webcasts.com's outstanding options which converted into 706,285 shares
of our series F preferred stock. We also issued a $3.0 million note to
webcasts.com's redeemable preferred shareholders. In addition, the former
security holders of webcasts.com may receive an additional 1,243,932 shares of
stock if our webcasts.com division meets certain revenue targets in the twelve
months after the closing of the acquisition. The purchase price was
approximately $92.2 million.
As result of the acquisition, we expect to expect to incur merger-related
costs of up to $1.7 million and to record approximately $92.8 million of
intangible assets and goodwill on our balance sheet, which will result in
amortization expense of approximately $20.6 million in 2000, $30.9 million in
2001 and 2002 and $10.4 million in 2003. These charges will increase our
expenses and losses during each of these periods and delay our ability to
achieve profitability.
Revenue
We derive our revenue from charging content providers for broadcasting
services that include On-Air, On-Stage and On-Demand distribution services. We
also derive revenue from other services, including targeted advertising,
production, event management, encoding and acquisition services. We expect
broadcasting services to provide the largest and fastest growing revenue
element of our services.
Our broadcasting services are typically charged based on the volume of
content delivered to end-users as measured in megabytes or megabits consumed
and therefore varies with the number of viewers, the access speeds of the
viewers and time viewers spend viewing content broadcast by us. Currently, On-
Air and On-Demand services are typically priced based on actual usage, which
is measured by the volume of megabits transferred during the month, for which
we typically charge $.005 to $.01 per megabyte per month subject to a minimum
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payment. In addition, for On-Demand customers, there is a monthly fee for
content stored on our network, which is measured in gigabytes. On-Stage
services can be priced under a fixed-fee arrangement or on actual usage in
terms of megabits transferred. To date, content providers have typically
elected to enter into fixed-fee arrangements in order to fix the price of a
broadcasting event. We price our fixed-fee arrangements using an estimate of
the amount of content delivered, which includes a forecast of the expected
number of viewers, the access speeds of the viewers and the duration of the
event. We typically charge $.005 to $.01 per megabyte transferred for our On-
Stage services. Other services such as production, event management, encoding
and acquisition services, are generally provided on a consulting basis on
either an hourly or fixed price billing.
Cost of Services (Direct and Indirect)
Cost of broadcasting Internet content includes both direct costs that vary
with the volume of content delivered and relatively fixed indirect costs, such
as staffing for a 24 hour network operations center. The cost of other
services, such as production, event management, encoding and acquisition
services, are primarily related to manpower costs for delivery of those
services.
Direct broadcasting costs include depreciation of network servers,
satellite transmission charges and charges for using land-line networks. In
proportion, the largest direct cost is the cost of using land-line networks.
For ISPs to which we deliver content into their end-user distribution system
via satellite broadcast, that is the "edge" of the Internet, we avoid the
land-line costs. Therefore it is our goal to increase the amount of content we
deliver to the edge of the Internet from less than 5% of traffic delivered
through our network as of March 31, 2000 to 40% by the end of 2000. Because of
our broadcast economics, we deliver content to ISPs at no charge, thereby
relieving them of charges they ordinarily would be required to pay to receive
content. As of March 31, 2000, we have agreements with over 90 ISPs that will
allow us to deliver content through their networks to the edge of the
Internet. Although four of the ISPs to which we deliver content have
negotiated access fees, these fees have represented lower costs to iBEAM than
paying for land-lines. The fees we pay to these ISPs are based on a percentage
of the revenue we derive from content delivered through their network, ranging
from 15 to 20%. As of March 31, 2000, less than 2% of revenue was subject to
access fees. Because the ISPs that we pay fees to tend to be the ISPs with
larger networks, we believe that as we expand our network, we will pay fees
with respect to more than 50% of the Internet traffic delivered through our
network. In addition, we expect the aggregate number of ISPs that receive
access fees will increase.
Indirect broadcasting costs are primarily the cost of equipment, operations
management software and personnel related to operating a 24 hour network
operations center. As such these costs are relatively fixed and independent of
volume of content delivered. We expect these indirect costs to be
approximately $23.0 million in fiscal 2000.
Engineering and Development
Engineering and development expenses consist primarily of salaries and
personnel costs related to the design, development and enhancement of our
service and the development of new applications that may be added to our
network. We believe that engineering and development is critical to our
strategic business development objectives and intend to enhance our technology
to meet the changing requirements of market demand. We expect our engineering
and development expenses to increase significantly in the future. The amount
that we will actually spend on engineering and development expenses is highly
uncertain and will depend on various factors that are difficult to predict
including the rate at which we believe it is in our business interests to
introduce new services and the availability for hire of qualified personnel.
Sales and Marketing
Sales and marketing expenses consist primarily of salaries, advertising,
promotions and related costs of sales and marketing personnel. We expect that
sales and marketing expenses will increase in the future as we hire additional
personnel, expand our operations domestically and internationally, initiate
additional marketing programs and establish sales offices in new locations.
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General and Administrative
General and administrative expenses consist primarily of salaries and
related costs, operations and finance personnel, recruiting expenses,
professional fees and legal and accounting services. We expect that general
and administrative expenses will increase in the future as we hire additional
personnel, expand our operations domestically and internationally and incur
additional costs related to the growth of our operations as a public company.
Amortization of Stock-based Compensation
In connection with the grant of stock options to employees and consultants
since inception, we recorded unearned stock-based compensation of $37.9
million, representing the difference between the deemed fair value of our
common stock at the date of grant and the exercise price of such options. Such
an amount, net of amortization, is presented as a reduction of stockholders'
equity and amortized over the vesting period of the applicable option. Stock-
based compensation expense related to stock options granted to consultants is
recognized as the stock options are earned. At each reporting date, we re-
value the stock-based compensation using the Black-Scholes option pricing
model. As a result, the stock-based compensation expense will fluctuate as the
fair market value of our common stock fluctuates. We believe that the fair
value of the stock options are more reliably measurable than the fair value of
the services received due to the facts that we do not have records of time
spent by each consultant on matters related to iBEAM and that we do not have
the ability to ascertain what the fair market billing rates are for the
consultant's work. As of March 31, 2000, we expect to amortize unearned stock-
based compensation of $12.2 million in the remainder of 2000, $9.3 million in
2001, $4.8 million in 2002 and $2.1 million 2003.
The following table summarizes operating costs and expenses, excluding the
non-cash amortization of stock-based compensation:
<TABLE>
<CAPTION>
Period from
March 20,
1998 Three Months
(Inception) to Year Ended Ended
December 31, December 31, March 31,
1998 1999 1999 2000
-------------- ------------ ------ -------
(in thousands)
<S> <C> <C> <C> <C>
Operating costs and expenses:
Cost of services (direct and
indirect) (exclusive of stock-
based compensation of $0, $761,
$21 and $989, respectively)....... $ -- $ 7,488 $ 834 $ 7,130
Engineering and development
(exclusive of stock-based
compensation of $19, $329, $21 and
$680, respectively)............... 1,449 4,202 533 3,904
Sales and marketing (exclusive of
stock-based compensation of $8,
$604, $40, and $845,
respectively)..................... 1,780 9,759 1,228 4,923
General and administrative
(exclusive of stock-based
compensation of $12, $3,699, $149
and $1,580, respectively)......... 1,084 3,475 618 2,153
Stock-based compensation............ 39 5,393 231 4,094
------ ------- ------ -------
Total operating costs and
expenses....................... $4,352 $30,317 $3,444 $22,204
====== ======= ====== =======
</TABLE>
iBEAM's Results of Operations for the Three Months Ended March 31, 1999 and
2000
Revenue. We recognized $532,000 of revenue in the first quarter of 2000. We
did not generate revenues in the first quarter of 1999. Fees for On-Stage, On-
Air and On-Demand services accounted for 25%, 27% and 36%, respectively, of
total revenue for the first quarter of 2000. As we continue to expand our
network and as more companies distribute content over our network, we expect
our revenue will increase in future periods. We also expect our On-Air and On-
Demand services will increase as a percentage of total revenue.
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Cost of Services (Direct and Indirect). Cost of services increased by $6.3
million, or 755%, from $0.8 million in the first quarter of 1999 to $7.1
million in the first quarter of 2000. This increase was primarily due to
network bandwidth, satellite transmission, co-location and content acquisition
expenses of $2.0 million, network server and software depreciation of $1.4
million and salaries, bonuses and related taxes of $1.1 million as we expanded
our network and added capacity in late 1999. Headcount included in cost of
services increased from 12 at March 31, 1999 to 56 at March 31, 2000.
Engineering and Development. Engineering and development expenses increased
by $3.4 million, or 632%, from $0.5 million in the first quarter of 1999 to
$3.9 million in the first quarter of 2000. This increase was primarily due to
an increase in consultant expenses of $0.7 million and in salaries, bonuses
and related taxes of $1.5 million as additional engineers were hired
throughout 1999. Headcount included in engineering and development increased
from 16 at March 31, 1999 to 103 at March 31, 2000.
Sales and Marketing. Sales and marketing expenses increased by $3.7
million, or 301%, from $1.2 million in the first quarter of 1999 to $4.9
million in the first quarter of 2000. This increase was primarily due to an
increase in salaries, commissions, bonuses and related taxes of $1.6 million,
travel and entertainment expenses of $0.4 million and advertising and
promotional expenses of $0.9 million as we expanded our sales and marketing
organization and promoted our network. Headcount included in sales and
marketing increased from 15 at March 31, 1999 to 78 at March 31, 2000.
General and administrative. General and administrative expenses increased
by $1.6 million, or 246%, from $0.6 million in the first quarter of 1999 to
$2.2 million in the first quarter of 2000. This increase was primarily due to
an increase in salaries and related taxes of $0.6 million and professional
services of $0.2 million as we began to provide infrastructure to support our
growing operations. Headcount included in general and administrative increased
from ten at March 31, 1999 to 40 at March 31, 2000.
Amortization of Stock-based Compensation. Amortization of employee stock-
based compensation increased by $3.9 million from $0.2 million in the first
quarter of 1999 to $4.1 million in the first quarter of 2000 primarily due to
the grant of stock options to newly hired employees and consultants. In
connection with the grant of stock options to consultants, we recorded stock-
based compensation expense of $12,000 in the first quarter of 1999 and $1.2
million in the first quarter of 2000.
Other Income and Expense, Net. Other income and expense, net increased from
$30,000 in the first quarter of 1999 to $317,000 in the first quarter of 2000
primarily due to an increase in interest income based on larger cash balances.
Net Loss. Net loss increased by $18.0 million, or 526%, from $3.4 million
in the first quarter of 1999 to $21.4 million in the first quarter of 2000.
The increase in the net loss is primarily attributable to increases in
operating costs and expenses of $18.8 million, including an increase in
amortization of stock-based compensation of $3.9 million.
Webcasts.com Results of Operations for the Three Months Ended March 31, 1999
and 2000
Webcasts.com was incorporated in 1995 and commenced its current web
production services business in 1997. Webcasts.com revenues increased from
$0.7 million in the first quarter of 1999 to $1.6 million in the first quarter
of 2000 primarily as a result of its acquisition of The Rock Island Group,
Inc., or RIG, and higher production services revenue. Webcasts.com cost of
revenues increased from $0.3 million in the first quarter of 1999 to $1.7
million in the first quarter of 2000, and its operating expenses increased
from $0.5 million in the first quarter of 1999 to $3.2 million in the first
quarter of 2000 primarily due to the RIG acquisition, additional employees,
increased selling expenses and stock-based compensation. As of March 31, 2000,
webcasts.com had an accumulated deficit of $8.0 million.
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iBEAM's Results of Operations for the Period from March 20, 1998 (Inception)
to December 31, 1998 and the Year Ended December 31, 1999
Revenue. We began generating revenue in August 1999 after we commercially
introduced our content delivery service and have recognized $149,000 through
December 1999. Fees for On-Stage, On-Air and On-Demand services accounted for
74%, 6% and 3%, respectively, of total revenue for the year ended December 31,
1999. As we continue to expand our network and as more companies distribute
content over our network, we expect our revenue will increase in future
periods. We also expect our On-Air and On-Demand services will increase as a
percentage of total revenue, while On-Stage and other services will decrease
as a percentage of total revenue.
Cost of Services (Direct and Indirect). Cost of services increased from
zero in 1998 to $7.5 million in 1999. This increase was primarily due to
network bandwidth, satellite transmission, co-location and content acquisition
expenses of $1.4 million, network server and software depreciation of $0.8
million, consulting expenses of $0.7 million and salaries, bonuses and related
taxes of $2.4 million as we began to deploy and manage our network in 1999.
Headcount included in cost of services rose from zero at December 31, 1998 to
73 at December 31, 1999.
Engineering and Development. Engineering and development expenses increased
by $2.8 million, or 190%, from $1.4 million in 1998 to $4.2 million in 1999.
This increase was primarily due to an increase in salaries and related taxes
of $1.0 million as additional engineers were hired in 1999. Headcount included
in engineering and development rose from 23 at December 31, 1998 to 45 at
December 31, 1999.
Sales and Marketing. Sales and marketing expenses increased by $8.0
million, or 448%, from $1.8 million in 1998 to $9.8 million in 1999. This
increase was primarily due to salaries, bonuses and related taxes of
$2.9 million and advertising and promotional expenses of $4.5 million,
resulting from the development of a sales and marketing organization and the
marketing of our network and corporate brand, which was publicly launched in
October 1999. Headcount included in sales and marketing rose from 13 at
December 31, 1998 to 36 at December 31, 1999.
General and Administrative. General and administrative expenses increased
by $2.4 million, or 221%, from $1.1 million in 1998 to $3.5 million in 1999.
This increase was primarily due to salaries and related taxes of $1.0 million
as we began to provide infrastructure to support our growing operations.
Headcount included in general and administrative rose from six at December 31,
1998 to 21 at December 31, 1999.
Amortization of Stock-based Compensation. Amortization of employee stock-
based compensation increased by $4.9 million from $31,000 in 1998 to $5.0
million in 1999 due primarily to the grant of stock options to newly hired
employees. In connection with the grant of stock options to consultants, we
recorded stock-based compensation expense of $8,000 in 1998 and $0.4 million
in 1999.
Other Income and Expense, Net. Other income and expense, net increased from
$125,000 in 1998 to $200,000 primarily due to an increase in interest income
based on larger cash balances.
Income Taxes. We have incurred operating losses for all periods. As of
December 31, 1999, we had net operating loss carryforwards for federal and
state tax purposes of approximately $25.8 million. These federal and state tax
loss carryforwards are available to reduce future taxable income and expire in
varying amounts beginning in 2004. Under the provisions of the Internal
Revenue Code, some substantial changes in our 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.
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Webcasts.com Results of Operations for Years Ended December 31, 1998 and
December 31, 1999
Webcasts.com had total revenue of $2.0 million in 1998 and $2.4 million in
1999. Webcasts.com costs of revenues increased from $1.3 million in 1998 to
$1.8 million in 1999, and its operating expenses increased from $0.9 million
to $4.8 million primarily due to increased selling expenses partially as a
result of its acquisition of the RIG and stock-based compensation. As of
December 31, 1999, webcasts.com had an accumulated deficit of $4.4 million.
Liquidity and Capital Resources
Since inception, we have funded our operations primarily through capital
lease obligations and the sale of our capital stock. We have raised an
aggregate of $96.1 million from the sale of our preferred stock through
March 31, 2000.
Net cash used in operating activities was $3.2 million in 1998 and $19.2
million in 1999, resulting primarily from our net loss partially offset by an
increase in accounts payable and accrued liabilities of $2.2 million,
amortization of stock-based composition of $5.4 million, depreciation and
amortization of $1.7 million and the issuance of a warrant for $1.0 million.
Net cash used in investing activities was $1.5 million in 1998, resulting
from the purchase of property and equipment. Net cash used in investing
activities was $12.5 million in 1999 and consisted of $7.5 million in
purchases of computers, equipment for network infrastructure and software and
$5.0 million of investments of surplus funds received from the issuance of our
preferred stock.
Net cash provided by financing activities was $6.9 million in 1998 and
$54.3 million in 1999. Cash provided by financing activities was the result of
net proceeds from the sales of our preferred stock and, to a lesser extent,
our common stock, partially offset by payments on our capital lease
obligations in 1999.
As of March 31, 2000, we had approximately $21.8 million in cash, cash
equivalents, and investments. We expect the build-out of a global network and
the funding of operations to develop and to market our services will require
substantial investment. As of March 2000 we had raised $96.1 million from the
sale of preferred stock and $10.1 million from equipment lease lines that are
repayable over periods of up to four years. We expect to make at least $40.0
million in capital investments in 2000, of which $26.0 million was spent in
the first quarter to date, and will require significant capital to fund other
operating expenses. We expect to raise enough proceeds from our initial public
offering to fund our operations for at least 12 to 18 months. In the absence
of a public offering, to continue to execute our current business plan, we
would attempt to raise capital in the private equity market. To the extent
such capital is not available, or until available, we would exercise control
of our discretionary expenses by reducing network costs, capital expenditures
and other discretionary expenses. Thereafter, we will need to raise additional
capital in 2001 and we may seek to raise additional capital sooner. Since our
expenditure levels will depend on discretionary factors within our control and
competitive factors outside our control we are not able to determine the
amount of future capital we will need to raise with a high degree of
certainty.
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,
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computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
We have designed our network and our service for use in the year 2000 and
beyond. To date, our service and our networks have not revealed any
significant year 2000 problems. Our network generally integrates sophisticated
hardware and software products incorporating the latest technologies at the
time of purchase.
As of March 31, 2000 we have not experienced any significant costs as a
result of year 2000 problems and do not anticipate incurring material
incremental costs in future periods due to such issues.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value. To date, we have not engaged in derivative and
hedging activities, and accordingly, do not believe that the adoption of SFAS
No. 133 will have a material impact on our financial statements and related
disclosures. We will adopt SFAS No. 133 as required by SFAS No. 137, "Deferral
of the Effective Date of the FASB Statement No. 133," in our fiscal quarter
beginning July 1, 2000.
In December 1999, the Securities and Exchange Commission issued SAB No.
101, "Revenue Recognition in Financial Statements," which provides guidance on
the recognition, presentation, and disclosure of revenue in financial
statements filed with the SEC. SAB No. 101 outlines the basic criteria that
must be met to recognize revenue and provides guidance for disclosures related
to revenue recognition policies. We have complied with the guidance in SAB No.
101 for all periods presented.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation -- an interpretation of APB Opinion No. 25". This interpretation
clarifies the definition of employee for purposes of applying Accounting
Practice Board Opinion No. 25, Accounting for Stock Issued to Employees, the
criteria for determining whether a plan qualifies as a noncompensatory plan,
the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and the accounting for an exchange of
stock compensation awards in a business combination. This interpretation is
effective July 1, 2000, but certain conclusions in this interpretation cover
specific events that occur after either December 15, 1998, or January 12,
2000. We believe that FIN 44 will not have a material effect on the financial
position or results of operation.
You Should Not Rely On Forward-Looking Statements
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" "may," "will," "should," "estimates,"
"predicts," "potential," "continue" and similar expressions to identify such
forward-looking statements. This prospectus also contains forward-looking
statements attributed to certain third parties relating to their estimates
regarding the growth of certain markets. You should not rely on forward-
looking statements in this prospectus. Forward-looking statements are subject
to known and unknown risks, uncertainties and other factors that may cause our
actual results to differ materially from expectations. These risks,
uncertainties and other factors include, among others, those identified under
"Risk Factors" and elsewhere in this prospectus.
Some of the forward-looking statements included in this prospectus involve
our indirect broadcasting costs, our unearned stock-based compensation and our
capital expenditures over the next twelve months. As to our revenue, we have
made forward-looking statements as to changes in the amount of our revenues
and the percentages of revenue attributable to each of our On-Air, On-Demand
and On-Stage services. In addition, we have made forward-looking statements
regarding the build-out and reach of our network.
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BUSINESS
Overview
We provide an Internet broadcast network that delivers streaming media to
large audiences of simultaneous users with viewing and listening quality that
can approach that of television and radio. Our network uses a combination of
land-line networks and point-to-multipoint satellite broadcasting of Internet
content to iBEAM servers located at the edge of the Internet, which is the
Internet access point closest to the end user. Our network broadcasts to iBEAM
servers located in the facilities of Internet service providers, or ISPs, and
other companies that host Internet applications and services. Our approach of
using a combination of land-line networks and satellite broadcasting to
deliver content directly to the edge of the Internet bypasses much of the web
congestion and improves the delivery of streaming audio-visual media and the
quality of the viewing and listening experience.
We provide a wide range of services to our customers to facilitate their
use of streaming media on the Internet, including event production and
broadcasting services. To expand our service offerings to our customers, we
have acquired and developed software and interface tools that enable us to
broadcast high-fidelity video and audio streams integrated with e-commerce
links and functions. Our investment in servers at the edge of the Internet
also allow for the development of new value-added services in the future such
as pay-per-view event programming, advertising to targeted end users and
interactive Internet-based training.
In April 2000, we acquired webcasts.com to add business-to-business
communications capabilities, such as online training and interactive trade
shows. Our combined technology allows users to view streaming content,
interactively obtain related data and transact online purchases. Our
technology runs with a variety of streaming media players. Most Internet users
can access our streamed content regardless of the users' multimedia and
browsing software and end users do not need to purchase special equipment. As
of March 31, 2000, our network, which we will continue to develop, is
sufficient to support up to 300,000 simultaneous Internet users accessing
streams of data from the Internet at 20 kilobits (20,000 bits) per second. We
plan to expand our network to support 1,000,000 simultaneous Internet users at
this rate by the end of 2000.
We commercially introduced our service in October 1999. We currently have
contracts to provide our services to over 100 content providers. We generate
revenue from our broadcasting services based on the volume of content stored
or delivered to end-users and from our other services such as event production
based on hourly or fixed price billing. As part of the build-out of our
broadcasting network, we have agreements to locate our servers with over 90
ISPs including America Online, the largest U.S. Internet access provider,
Excite@Home, an Internet cable access provider, and Covad Communications and
Northpoint, high-speed Internet access providers that have developed networks
with national reach. To realize the benefits of these access agreements we
will need to make substantial investments in capital equipment located at ISPs
and pay some of those ISPs fees based on revenue derived from their networks.
In January 2000, we entered into a letter of intent with Pacific Century
CyberWorks, or PCCW, to establish a joint venture, named iBEAM Asia, to expand
our international presence and to access PCCW's network of cable subscribers.
Industry Background
The Internet has evolved from a static information source to a dynamic
medium for commerce, communications and, most recently, media. However, the
Internet was not designed to support the delivery of full motion video and
high-fidelity audio simultaneously to large audiences. To date, Internet
broadcasts have been inferior to television and radio broadcasts due to high
Internet transmission costs, the low quality of the viewing and listening
experience and the inability to serve large audiences of simultaneous users.
Despite these limitations, existing and new website owners, traditional media
and entertainment companies and creators of new applications, such as online
education, are trying to attract and retain Internet users by using greater
amounts of visual and audio content on their websites. Streaming has become
the preferred method of distributing video and audio content because it allows
simultaneous broadcasting and playback of content, thereby eliminating the
requirement that an Internet user download an entire video or audio file
before viewing or listening.
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Burgeoning Demand for Streaming Media
Owners of Existing Websites
Owners of existing websites are trying to attract and retain users with
rich content. Richer content, such as an audio sample of a compact disc music
recording or a video demonstration of a product, combined with the interactive
and user-controlled capability of the Internet, are factors that increase
consumer interest and purchases. This enriched content is made possible
through streaming media. New media companies have emerged to address the
growing audience of Internet users with news and entertainment content. RHK
Research recently reported in a press release that streaming media now
comprises 10% of total Internet traffic.
Traditional Media and Entertainment Companies
Traditional media and entertainment companies are emerging as another
factor driving the demand for Internet distribution of streaming content. This
demand is in part to provide new content and to retain existing audiences
which are increasingly finding the Internet an attractive alternative to
television. Forrester Research recently reported that consumers between the
ages of 16 and 24 believe they watch 47% less television because of the
Internet.
Platform for New Applications
The demand for streaming media, at both the enterprise and consumer level,
will be driven by a host of new applications that currently are under
development or are not yet commercially available for sustained online usage.
At the enterprise level, corporate broadcasts, sales calls and product
launches are increasingly incorporating sophisticated web pages and streaming
media to reduce the number of face-to-face meetings, with the goal of
generating significant savings in planning and travel costs. Other enterprise-
wide processes being migrated onto the Internet include business-to-business
transactions such as ordering, purchasing, auctions, supply chain management
and large file distribution. Enterprises and educational institutions are also
offering streaming training videos on the web to facilitate Internet-based
distance learning. We believe that the ability to view and hear streaming
media on-demand will also drive consumer demand for other online products and
services such as advanced video games, interactive television and pay-per-view
events.
Internet Design Limitations for Streaming Media
The Internet was originally designed to ensure delivery of static data,
such as text and data files, and was not designed to ensure the continuous
flow of streaming media. The Internet's design goal of ensuring bulk data
delivery is accomplished by breaking transmissions into small packets of data
that can be routed through different delivery points at different times and,
subsequently, be interwoven with other data transmissions. Should an Internet
connection point, such as a server or router, receive traffic that exceeds its
capacity, packets are dropped temporarily. These "lost" packets are either
lost permanently or are eventually requested and re-sent, but the sequence of
receipt may be out of order and irregularities may occur in intervals of
receipt. Due to limited capacity on the Internet, today most streaming content
is transmitted in the UDP, or user datagram protocol, format where lost
packets are not recovered.
While static web pages can experience lost packets or delays without a
noticeable deterioration in quality, streaming media is much more sensitive to
these problems. The impact of packet loss and irregular latency causes a
"jitter" in viewing and listening to streaming media as streams stop and
restart waiting for packets to arrive. In addition, lost packets may include
"key frames" in the content that contain information needed to ensure the
proper decoding and playback of subsequent frames.
The rate of packet loss is significant on the Internet. In a 1998 Bell Labs
Study, packet loss rates of approximately 25% occurred during peak periods. We
believe packet loss will increase if traffic growth exceeds the addition of
server and router capacity. In addition, rapid deployment of high-speed
connections, such as DSL and cable modems, which are intended to improve the
viewing and listening experience of the end user, are
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increasing the traffic load on the Internet causing further congestion and
quality degradation. We believe that increasing packet loss and more high-
speed Internet connections are combining to significantly degrade the end
user's streaming media experience.
Cost and Scale Factors Limiting Streaming Media
To date, Internet broadcasts have been inferior to television and radio
broadcasts due to high Internet transmission costs, the low quality of the
viewing and listening experience, and the inability to serve large audiences
of simultaneous users. This is largely due to the current single point-to-
point land-line network model for Internet content delivery. In a point-to-
point network, each end user establishes a connection between his personal
computer and the computer originating the content delivery. Because of the
need for connectivity to each individual end user, content providers must make
large investments to support the bursts in demand that may sit idle during
non-peak periods. Often the amount of investment required is either difficult
to estimate or uneconomical to make. As a result, during periods of peak
demand for content, insufficient Internet user connections may prevent access
by many users to popular events. For example, many users trying to access the
Victoria's Secret fashion show and the John Glenn space shuttle launch over
the Internet experienced these problems.
The Internet requires users to pay multiple tiers of communication
providers for long distance and local access which results in multiple charges
and higher costs. Communication providers charge based on bandwidth, which is
the capacity of the communications line required to transmit a given amount of
data. Both the party sending data on the Internet and the ISP receiving
content into its network pay these charges. Streaming media, which is
inherently data rich and typically consumes multiple times the bandwidth of
static web pages, increases costs for content providers and ISPs. As an
example, we believe the cost of a transmission to a content provider of
streaming media that approaches the quality of a VCR video (a 300 kilobit
stream) would typically exceed advertising revenue derived by the content
provider from such transmission. Our belief is based on discussions with
Internet advertising specialists, which indicate that content providers will
receive approximately $40 in advertising revenue for each 30 seconds of
advertising in a three minute broadcast segment to 1,000 users, and our own
experience in purchasing capacity in the communications bandwidth market,
which indicates that the average cost of transmitting content to these 1,000
users for each three minute broadcast segment is approximately $70. In
addition, ISPs that are typically bound to fixed monthly revenues under their
contracts with end users may see their costs increase as their customers
access increasing amounts of streaming media. While we believe that land-line
data transmission cost will decline significantly over time, we also believe
the land-line networks are unlikely to approach the economies of scale
achieved by alternatives, such as point-to-multipoint broadcasting by
satellite, where there is no direct transmission cost of adding an additional
broadcast viewer.
Limitations of Current Approaches to Delivering Streaming Content
While various products and delivery services have been developed to address
the challenges of delivering streaming content, we believe they do not
adequately resolve the issues of quality, cost and scalability. Some content
hosting companies store and locate streaming content on servers located at
multiple points on the Internet closer to end users. This typically increases
the speed of connection to a user. However, it does not eliminate the
potential for packet loss as content is delivered from these servers to the
end user through the remaining Internet connections. In addition, both product
companies and hosting companies offer caching software or services that store
content most frequently requested by users closer to the user in order to
reduce the transmission costs across the Internet. This usually requires a
large investment in caching software, offers only limited improvements for
live streaming content and lacks other capabilities such as forward error
correction, which is the ability to detect and correct errors in data
transmissions before such data reaches the end users. Furthermore, it does not
generate reporting and network management data for content providers.
Many traditional communications or Internet backbone providers have been
trying to increase their network capacity. However, these fiber-optic networks
do not offer a complete managed service and rely on network connections that
are subject to packet loss and quality degradation. In addition, some of the
webcasting companies have proposed to lower transmission cost by having ISPs
agree to retransmit content in a daisy chain approach. This
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approach does lower cost, but propagates packet loss and errors as data is
transmitted to the next ISP. Also, while these approaches offer some benefits
for data which can be stored and retransmitted, neither the traditional web
hosting providers, the caching technologies nor the new fiber-optic based
networks are currently capable of large scale, high fidelity Internet
broadcasting. Our Internet broadcast network leverages the best attributes of
many of these approaches and combines them with our proprietary streaming
software to deliver cost effective streaming media broadcasting that offers
high fidelity content distribution to large numbers of simultaneous users.
The iBEAM Solution
We provide an Internet broadcast network that delivers streaming media with
viewing and listening quality that can approach that of television and radio.
Our broadcast network offers content providers the ability to serve large
audiences of simultaneous users. Our network uses a combination of land-line
networks and satellite broadcasting to deliver Internet content to iBEAM
servers located at the edge of the Internet, which is the Internet access
point closest to the end user. This improves the quality of the broadcast
stream by avoiding Internet congestion. Our satellite broadcast approach and
streaming management software bypasses the congestion of the Internet
backbone. We provide a wide range of services to our content provider
customers to facilitate their use of streaming media on the Internet. Our
investment in servers at the edge of Internet enables the delivery of new
value-added services, such as advertisement insertion, to both the content
providers and ISPs. We also provide production, event management, encoding and
acquisition services to facilitate use of our broadcasting services by content
providers.
The key benefits of our streaming media services to our customers include:
. High-Fidelity Video and Audio Streams--Our satellite broadcasting
capability and our software enable smooth, continuous content delivery
to our servers before being transmitted to the end user. By delivering
content to the edge of the Internet, our network eliminates packet loss
and jitter, thereby delivering a superior broadcast-quality stream.
. Low Cost Distribution--Using satellite technology to broadcast on a
point-to-multipoint basis at a fixed cost allows us to broadcast to each
additional user at little or no incremental cost. This economy of scale
lets us charge content providers less to distribute streaming media than
traditional Internet bandwidth providers that rely on land-line point-
to-point connectivity and may enable content providers to improve their
profitability.
. Ability to Serve Large Audiences Simultaneously--Our network of servers
and our use of satellite technology to transmit a single stream to an
unlimited number of servers are designed to allow us to serve large
audiences of simultaneous users. As we add streaming capacity through
additional investments in servers and hosting center equipment, we will
be able to serve increasingly larger audiences with the quality and
reliability that both end users and content providers demand.
. No End User Special Equipment Needed--Since we broadcast to the ISPs,
end users do not need to purchase receiver dishes, special software or
change their procedures to view content. This makes our services
transparent to the end user and we believe facilitates the rapid
deployment of our network.
. Broad Range of Service Offerings to Facilitate Use of Streaming Media--
Our streaming media services for content providers consist of, among
other things, production, event planning, encoding and production
services. The acquisition of webcasts.com will supplement our service
offerings by giving us the capability to integrate chat and e-commerce
databases with streaming media content and by adding to our other
services. Our customers do not need to utilize multiple vendors to
enable their websites to offer streaming media.
. Usage Reporting Capabilities--We have developed a web-based network
dashboard that allows content providers to determine, by individual
stream, who is watching or listening to their content, how long they
have been watching or listening and where the user is geographically
located. This dashboard gives content providers on our network the
insight they need to make intelligent programming and
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advertising decisions, which is a great advantage compared to the
traditional rating services relied on by media companies.
. Network Supports a Variety of Technologies and Applications--Our network
is designed to support all streaming media applications. We support the
major streaming media players including Windows Media Player and
RealPlayer and we intend to support new players as they gain widespread
market acceptance. Our servers deployed throughout the Internet can
execute a variety of value-added applications. Our server platform is
designed to be highly flexible, allowing for new services and
applications such as streaming advertising insertion, pay-per-view
administration and other e-commerce related services. These new
applications will create the potential for new revenue sources for our
customers.
Strategy
Our goal is to become the leading provider of high-fidelity Internet
broadcast services by developing the world's largest, premier quality, and
most cost efficient distributed streaming network. To this end, we are
capitalizing upon our innovative network architecture, proprietary technology
and early entry into streaming media broadcasting to position us as the
broadcast network of choice for reliable, high-fidelity Internet broadcasting.
Our strategy comprises the following initiatives:
Expand Our Customer Base. We currently have contracts to provide our
services to over 100 media, entertainment and technology companies. We intend
to increase our customer base by targeting existing new media, entertainment,
and e-commerce companies, as these companies begin to more fully use streaming
technology. We also intend to target traditional media and entertainment
companies, including motion picture, television, sports, newspapers and radio
companies, as customers, which we believe will increasingly seek to broadcast
video and audio over the Internet. To accomplish these goals, we intend to
expand our sales force and to further invest in marketing activities and
services and building the iBEAM brand. The acquisition of webcasts.com expands
our customer base by adding customers that use webcasts.com's business-to-
business e-commerce services including Lotus/IBM and America Online, which
were its largest customers by revenue in 1999.
Globally Build Out Our High-Fidelity Internet Broadcast Network. We plan to
build out our network internationally through joint ventures, partnerships and
other commercial arrangements with global technology and media companies that
have the local resources and expertise to extend our broadcast network to
international customers. This will serve to increase the worldwide number of
users that can be reached by our edge servers, yielding high quality
transmission at low cost. We believe our satellite-based business model will
be particularly successful in markets with less developed, land-line
infrastructure. We believe that the recent growth in Internet and data related
transmission in the United States will be repeated in numerous regions across
the globe, including Europe, Asia and Latin America. In January 2000, we
signed a letter of intent with Pacific Century CyberWorks, or PCCW, to
establish a joint venture company called iBEAM Asia. iBEAM Asia, which will be
51% owned by PCCW and 49% owned by iBEAM, will focus on distributing streaming
video and audio content in over 50 countries in the Pacific Rim, Indian
subcontinent and Middle East. iBEAM Asia expects to provide its distribution
services to Pacific Convergence Corporation, or PCC, as well as other ISPs in
these regions by the end of 2000. PCC, a provider of broadband Internet
access, online content and e-commerce services in Asia, is being acquired by
PCCW. As a result, iBEAM Asia's deployment of its edge network will initially
parallel the build-out of PCC's Internet services to cable operators that
subscribe to PCCW's broadband ISP platform and related Internet services. To
date, PCC has not launched their Internet services. iBEAM Asia intends to
predominantly use satellite distribution rather than land-lines because of the
relatively high cost of land-line bandwidth in Asia. In addition, we recently
entered into an agreement with Interpacket, a satellite-based IP network
serving ISPs in 80 countries, to deliver our customers' streaming content via
Interpacket points of presence in Asia, Europe, Latin America, Africa and the
Middle East.
Further Leverage Our Broadcast Network to Drive Economies of Scale. We have
developed a proprietary software platform that enables a number of standard
Internet applications to be run across a global
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network of distributed edge servers. The inherent advantage of our network and
its associated satellite broadcast software platform is its ability to allow
standard Internet applications to reach large audiences. As we continue to
deploy and increasingly operate through our point-to-multipoint network
architecture, we will be able to broadcast increasing amounts of content to
our highly distributed network of servers with minimal, incremental satellite
transmission cost.
Moreover, we can add additional points of presence, which are server
locations at an Internet users' access point within an ISP network, with low
capital expenditures and minimal increase in bandwidth costs. By leveraging
the existing infrastructure of local and regional Internet service providers
to carry our network traffic, we further reduce the expenditures we incur in
deploying our network infrastructure. Our broadcast network offers several
advantages to ISPs. By partnering with us, ISPs can avoid incoming bandwidth
charges and provide significantly improved end user experiences through our
broadcast network. This quality and cost advantage will enable us to continue
penetrating the streaming media content distribution market.
Introduce New Value Added Features and Services. In addition to offering
high-fidelity streaming at competitive prices, we believe we can attract new
streaming media customers through the introduction of advanced features such
as real-time traffic reporting and advanced data management that simplify the
task of streaming content on the Internet. We intend to aggressively pursue
these new applications and new markets. An example of a new application we
recently introduced is the ability to enable content providers to insert
targeted and non-targeted streaming advertising into our broadcasts. Our
servers now have the capability to insert directed local advertisements into
each copy of the broadcast stream they serve. We believe that this capability
will allow content providers to enhance their revenue by charging advertisers
a premium for advertising targeted directly to the end user. We expect to
generate revenue from targeted advertising during the second quarter of 2000.
In addition, we intend to serve enterprise customers with needs for new
applications such as Internet enabled distance learning, virtual roadshows,
digital downloads and video conferencing.
Pursue Additional Commercial Relationships and Joint Ventures. We currently
have commercial relationships with various media, entertainment and technology
companies and ISPs, including America Online, Covad Communications, Microsoft,
Pacific Century CyberWorks and Sony. These relationships provide us with
insights as to future customer requirements, Internet access trends and
emerging technologies and facilitate our network expansion. For example,
through our agreement with America Online, we will be able to deploy our
servers throughout the largest U.S. Internet access network, thus expanding
the reach of our broadcast platform. This will, in turn, make our services
more attractive to content providers, which will be able to reach more end
users through our network. We intend to pursue additional commercial
relationships to accelerate market acceptance of our services and expand our
global network. We believe that these benefits, combined with what we believe
will be the ISP's unwillingness to accommodate multiple distributed networks,
will strengthen our competitive position.
Create Open Platform for New Applications. A network of distributed
computers located at the edge of the Internet can run a wide range of
applications more efficiently than a traditional approach of running these
applications on a cluster of servers located in one or a few data centers
located on the Internet backbone. We are developing a series of application
programming interfaces that allow other applications from other providers to
take advantage of our network. We believe the open architecture of our network
will encourage other application service providers to partner with us.
iBEAM's Streaming Media Services
Distribution Services
We currently offer three primary services: iBEAM On-Air, iBEAM On-Stage and
iBEAM On-Demand. These services are typically charged based on the volume of
content delivered to end users as measured in
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megabytes or megabits consumed and therefore varies with the number of
viewers, the access speeds of the viewers and time viewers spend viewing
content broadcast by us. Currently, On-Air and On-Demand services are
typically priced based on actual usage, which is measured by the volume of
megabits transferred during the month, for which we typically charge $.005 to
$.01 per megabyte per month, subject to a minimum payment. In addition, for
On-Demand customers, there is a monthly fee for content stored on our network,
which is measured in gigabytes. On-Stage can be priced under a fixed-fee
arrangement or on actual usage in terms of megabits transferred. To date,
content providers have typically elected to enter into fixed-fee arrangements
in order to fix the price of a broadcasting event. We price our fixed-fee
arrangements using an estimate of the amount of content delivered, which
includes a forecast of the expected number of viewers, the access speeds of
the viewers and the duration of the event. We typically charge $.005 to $.01
per megabyte transferred for our On-Stage services. Other services such as
production, event management, encoding and acquisition services, are generally
provided on a consulting basis on either an hourly or fixed price billing.
iBEAM On-Air. iBEAM On-Air is the service offered for delivery of live,
continuous content streaming, such as music video channels, Internet or
traditional radio stations or news shows and sports channels. iBEAM On-Air
service is highly differentiated since it is very difficult to deliver live
content across the Internet using existing Internet delivery or caching
technologies. Video and audio streams are typically delivered by satellite to
our servers, which we call MaxCasters, bypassing the congestion of the
Internet backbone. The satellite link and our private acquisition network
allow us to offer an end-to-end connection from content source to the ISP
ensuring high fidelity video and audio streams. We derived 6% of our revenue
in 1999 from our On-Air services.
iBEAM On-Stage. iBEAM On-Stage is the same live delivery of iBEAM On-Air,
but packaged to meet the needs of the event-based customer. Target customers
for iBEAM On-Stage include concerts, trade shows and other events. Our network
is particularly important for high profile live events, such as the Metallica
1999 concert, since the large number of simultaneous users attracted by these
events often causes wide-spread congestion in the Internet backbone. Our
satellite broadcast capability allows us to bypass this congestion and deliver
a high-fidelity stream, even during periods of peak usage. We derived 74% of
our revenue in 1999 from our On-Stage services.
iBEAM On-Demand. iBEAM On-Demand is our service for on-demand media
hosting, such as music video clips, news highlights, product displays or any
type of streaming media included on a website. iBEAM On-Demand service is
based upon our network agent iDirector that manages the replication of stored
on-demand content across the array of iBEAM MaxCaster servers. Our network has
been designed with large-scale storage capabilities to accommodate the very
large content libraries of the media companies we serve. We derived 3% of our
1999 revenue from our On-Demand services.
Other Services
To supplement our core distribution services, we offer a series of other
services aimed at facilitating a complete Internet broadcasting solution for
content providers. Our services include targeted advertising, production,
event management, encoding and acquisition services. These services are
typically billed on a consulting or usage basis.
Targeted Advertising Services. We recently introduced our iBEAM On-Target
services through which we enable content providers to insert streaming
advertisements targeted toward the end user in our broadcast streams.
Production Services. We have a team of service consultants and tools that
enable the creation and management of user interfaces that enable the
integrated presentation of streaming media, chat boxes, e-commerce links and
access management controls.
Event Management Services. We have a team of event managers that will
travel to the site of broadcast events. These event managers will supervise
the interface with the content production crew, as well as provide on-site
encoding and signal acquisition.
Encoding Services. Encoding is the process of converting a raw digital
audio or video stream into a format optimized for delivery over the Internet.
Proper encoding is critical to ensure the highest fidelity streaming
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content. Optimizing the encoding process requires a combination of
quantitative and subjective assessments of the content being encoded. We
provide these services directly and indirectly through qualified third-party
vendors such as Loudeye and Entertainment Blvd.
Acquisition Services. Our acquisition services collect content from content
providers for distribution through our network. We offer a variety of signal
acquisition methods. In some instances, we will procure the acquisition
circuits on behalf of our customers.
Customers
We commenced commercial operations in October 1999. We currently have
contracts to provide our services to over 100 content providers. The following
is a partial list of our customers and webcasts.com's customers by category in
order of amount of revenue generated in 2000 through March 31, 2000:
<TABLE>
<CAPTION>
Internet Media Film
<S> <C>
National Association of Chain Drug Stores Atom Films
Republican National Committee iFilm Corporation
Jumpcut - Here and Now Cinema Now
MacWorld Always Independent Films
Decorative Arts
Music--Video/Radio News
NetRadio MSNBC
Launch Media PTV News
Entertainment Blvd. BBC World
ChoiceRadio Hollywood Stars TV
Ministry of Sound ZD Net
Sports Business to Business
University Netcasting/Fans Only Lotus/IBM
ProWebCast Amercian Online
Max Broadcasting Prepaid Legal
Cybernet Software Systems
Phillip Morris
</TABLE>
The following case studies illustrate how some of our largest customers, in
terms of the amount of content distributed through our network, are using our
service offerings.
Microsoft
When Microsoft launched its Windows Media Technologies version 4, they
promoted the launch event by hosting a live concert with Buddy Guy, a popular
blues guitarist which highlighted our capability to broadcast live events that
require high fidelity streaming video. We provided iBEAM On-Stage service to
Microsoft to broadcast a broadband video feed from the concert at the House of
Blues in Los Angeles to our network of MaxCasters deployed around the country.
Launch Media
We were chosen by Launch Media to provide iBEAM On-Demand hosting services
to deliver stored music through our network for the recently introduced
Launchcast personalized music service. This service allows users to specify
what genre of music they prefer and identify individual titles they want
included in their personal playlist. Hosting the Launchcast music service
makes extensive use of the intelligent data management of iBEAM On-Demand. The
Launchcast service supports a very large library of digitized music,
intelligently stored across our distributed network.
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MSNBC
MSNBC utilizes the high bandwidth capabilities of iBEAM On-Air to broadcast
news coverage through our network. MSNBC's continuous live video news feed is
streamed over our network. We also deploy and update news highlights that are
available on-demand to MSNBC users. In December 1999, a single 100 kilobit per
second (kbps) video stream served by us generated nearly one terabyte of
streaming media data to MSNBC users.
Internet Broadcast Network
The architecture of our network is conceptually similar to the architecture
of traditional broadcast television and cable networks but incorporates
several layers of redundancy. Traditional television is collected over a
private acquisition network, then broadcast by satellite to television
affiliates or cable facilities geographically dispersed around the country. We
collect streaming Internet content from providers, then broadcast it via
satellite and traditional land-line networks to our network of MaxCasters,
located in the facilities of ISPs. We then deliver these high-fidelity video
and audio streams to the end-user. Our services require no special end user
hardware or software. In addition to the efficient distribution of streaming
content, our MaxCasters can perform a wide range of value-added applications,
such as targeted advertising and integrating e-commerce links with streaming
content, which we will seek to introduce in the future.
As we expand our network of MaxCaster edge servers, we will increase the
number of users served, thereby reducing transmission costs to ISPs. We have
currently deployed servers in more than 90 networks. These service providers
include ISPs such as America Online, DSL providers such as Covad
Communications and Northpoint, cable modem service providers such as High
Speed Access and backbone providers such as Apex Global Internet Services.
Under agreements with ISPs, we have agreed to deliver content into their
networks at no charge, unlike network bandwidth providers that charge ISPs for
delivery of content. Furthermore, in some cases, we share a portion of our
revenue derived from content providers with the ISP. As of March 31, 2000, we
pay fees to less than 50% of the ISPs with which we have contracts. These fees
range from 15% to 20% of the revenue we derive from content delivered through
their network. Because the ISPs to which we pay fees tend to be the ISPs with
larger networks, we believe that as we expand our network we will pay fees
with respect to more than 50% of the Internet traffic delivered through our
network.
In addition to our network of MaxCaster edge servers, we have deployed a
series of regional hosting centers. The regional hosting centers are deployed
at strategic locations around the Internet backbone. They are designed to
reach users not served by a MaxCaster edge server. In addition, these hosting
centers provide a second tier of redundancy--if the MaxCaster is unavailable
for any reason, users are automatically routed to our nearest regional hosting
center.
The third layer of redundancy in our network is achieved by the deployment
of master hosting centers, which are located in co-location facilities of
companies such as Abovenet and Exodus Communications. The master hosting
centers provide a third layer of redundancy, filling in for any regional
hosting centers that may be unavailable for any reason. In addition, they have
large scale storage systems to host the complete content libraries of our
media customers.
As of March 31, 2000, our network was sufficient to support up to 300,000
simultaneous end users. As of that date we estimate that less than 5% of
traffic delivered through our network was served by our edge servers. The
remaining content delivered to end users through our land-line network is
served from our regional or master hosting centers. We expect that this
percentage will decline significantly as we install additional servers on the
edge of the Internet. We expect that we will be able to serve up to 40% of end
users on our network through our edge servers by the end of 2000.
Our geographically dispersed network of servers is monitored continuously
by our network operations center. We have developed a series of proprietary
network management tools that allow our network operations
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center personnel to have complete visibility into any of our remote servers
and to remotely manage the servers. Our network operations center personnel
can diagnose problems, restart servers, and update or re-load software using
either land-line or satellite communications with the remote server. Our
network operations center is located in a hardened facility with back-up power
supplies and redundant systems.
Our Technology
Since our inception in March 1998 through March 31, 2000, we have invested
$10.0 million on engineering and development activities, which has led to the
development of a series of software technologies that constitute the iBEAM
broadcast platform. An attribute of our broadcast platform is that it allows
any server in the network to deliver streams to any user on the network,
thereby avoiding the inefficiencies of dedicated servers only for specific
users.
Some of the key components of our broadcast platform include:
MaxCaster--the intelligent video and audio server at the network edge
The primary technical component of the broadcast platform is the iBEAM
MaxCaster. The MaxCaster is the remote server that sits at the edge of the
Internet. The MaxCaster receives the 1-way satellite broadcast, and performs
functions that integrate the satellite broadcast with the 2-way traffic of the
Internet. The MaxCaster contains software that allows it to receive, store and
manage data, as well as report back to our network operations center on the
state of the server and the content being served. Finally, the MaxCaster can
process the content to perform functions, such as inserting streaming
advertising that is targeted to each individual end user.
iRelay--the reliable transport layer
The second element of our broadcast platform is the iRelay transport layer.
The iRelay transport layer allows us to accept an input from several types of
sources, including live audio or video feed and FTP file delivery, and deliver
it to all of our servers without the potential for packet loss or the
atmospheric disturbances of satellite transmission. If a packet should be lost
or scrambled during transmission, the iRelay software will re-transmit the
missing packet to any downlink that did not receive the original data. iRelay
is a key component in enabling us to harness the full broadcast power of
satellites to deliver uninterrupted Internet streams to large numbers of our
servers located close to the end user.
iDirector--the intelligent network controller
The third element of our broadcast platform is a proprietary technology
called iDirector. The iDirector technology is an intelligent agent that
receives the end user request for content. For example, if an end user goes to
msnbc.com to look at an MSNBC news feed, iDirector identifies where the end
user is located, then makes an assessment of network conditions, satellite
link availability, and server availability to connect the end user to the
optimal server. If any component of our network is down, the iDirector system
automatically routes the end user to a different part of the network to ensure
continued service.
Acquisition of webcasts.com
In April 2000 we acquired webcasts.com, a provider of interactive
broadcasting services and proprietary tools that give businesses the ability
to conduct live and on-demand Internet broadcasts for use in distance
learning, corporate communications, sales presentations, online trade shows
and interactive television.
Webcasts.com's service and tools offerings include:
. Vuser, a tool that allows a content provider to deliver an
interactive presentation that combines streaming media, animation,
graphics, banner advertising, e-commerce text and live Internet
links in one interface;
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. Audience management services, which include audience registration,
pay-per-view and restricted access control; and
. Broadcast management services, which include event production
assistance, provision of Internet connections and encoding for
Internet transmission and event monitoring services.
We believe the combination of our broadcasting services and webcasts.com
event production services will allow us to offer a broader range of services
to customers, intended to make it easier to initiate and continue broadcasting
on the Internet.
Webcasts.com's customers include Lotus/IBM and America Online, which were
its two largest customers in 1999. Webcasts.com had 95 employees as of March
31, 2000.
Commercial Relationships
We have commercial relationships with America Online, Pacific Century
CyberWorks, Covad Communications, Excite@Home, InterPacket, Microsoft
Corporation, and Sony Corporation, and intend to enter into additional
relationships with other media, entertainment and technology companies to
accelerate market acceptance of our services and to expand and enhance our
global network. We believe relationships with technology and media companies
can accelerate market acceptance of our technology and services, increase our
brand recognition and improve access to our target customer base. Among our
more important commercial relationships are those we have entered with large
ISPs and ISPs which provide high speed Internet access. The agreements are
critical to the success of our business model which is dependent on the
deployment of our servers to the edge of the Internet. In order to secure
agreements with large ISPs and high speed Internet access providers, in four
instances we have agreed to share with ISPs between 15% and 20% of the revenue
we derive from content delivered through their networks.
America Online
In February 2000, we entered an agreement with America Online to deploy our
streaming media distribution network within America Online's data centers. The
agreement will increase the availability of content delivered through our
network on the edge of the Internet. We will deploy our Internet broadcast
platform to deliver live streams into the America Online network, providing
America Online's members with direct access to streaming content through our
network. America Online has agreed to allow us to serve Internet end users who
do not subscribe to America Online from our servers located within America
Online's facilities. We have agreed to share with America Online a portion of
the revenue generated from delivery of content from our servers in their
network to end users, including America Online subscribers and non-
subscribers. In addition, if we exceed maximum allowable bandwidth amounts
with respect to content delivered to our servers located within the America
Online network and from such servers to non-subscribers, we have agreed to
make additional payments to America Online. We do not expect to make any
payments to America Online for excess bandwidth usage. We made non-refundable
prepayments of an aggregate of $3.0 million to America Online as an advance
against payments due to them under the agreement.
In addition, in February 2000, we sold $5.0 million of our series E
preferred stock to America Online which will convert into 500,726 shares of
common stock upon the closing of the offering. America Online received a
warrant to purchase $5.0 million of our common stock at an exercise price
equal to the price to the public in this offering, less estimated underwriting
discounts and commissions, which at an assumed offering price of $10.00 per
share would be 537,634 shares.
Covad Communications
In October 1999, we entered into an agreement with Covad Communications, a
leading national broadband services provider utilizing digital subscriber line
(DSL) technology, to provide Covad with high-fidelity
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streaming video and audio content at lower cost than communication providers
that operate only land-line networks. Under the terms of the agreement, we
will deploy our MaxCaster servers in Covad's network, which is in North
America, thereby enlarging the edge of our network. As part of this deployment
initiative, we have collaborated with Covad on technical efforts aimed at
enabling new services including quality of service management, subscriber
management and pay-per-view. We have agreed to share with Covad a portion of
the revenue derived from content delivered through their network.
We sold 335,570 shares of our series D preferred stock to Covad for an
aggregate purchase price of approximately $2.0 million in October 1999 which
will convert into 1,386,239 shares of our common stock upon the closing of
this offering.
Excite@Home
In April 2000, we entered into an agreement with Excite@Home to deploy our
streaming media distribution network within the Excite@Home network as
Excite@Home completes its national data centers. The agreement also provides
for Excite@Home to deliver network connectivity services to iBEAM. We believe
the agreement will increase the availability of content delivered through our
network on the edge of the Internet. We have agreed to pay Excite@Home $2.5
million as a non-refundable prepayment for any services that are provided to
us under the agreement and the revenue we are obligated to share with
Excite@Home for content distributed through their network.
In addition, in April 2000, Excite@Home agreed to purchase $5.0 million of
our series H preferred stock at a price equal to the price to the public in
this offering, less underwriting discounts and commissions. The series H
preferred stock will convert into common stock on a one-for-one basis at the
closing of this offering. Based on an assumed public offering price of $10.00
per share, Excite@Home will purchase 537,634 shares of our series H preferred
stock.
InterPacket
In January 2000, we entered into an agreement with InterPacket, a
satellite-based IP network serving ISPs in over 80 countries worldwide. Under
the agreement, InterPacket will deliver our customers' streaming content via
their global satellite broadcast network to MaxCasters at InterPacket points
of presence in Asia, Europe, Latin America, Africa and the Middle East. We
believe this relationship will enhance our service offerings and revenue
potential and InterPacket's revenue potential. We will benefit from this
relationship by accelerating international deployment of our network to the
edge of the Internet.
Microsoft Corporation
We entered into an agreement with Microsoft, effective as of September 20,
1999, to improve the delivery of streaming media over the Internet. Under the
agreement, Microsoft recommends us as a service provider for the delivery of
broadband streaming media and we will engage in cooperative sales efforts to
promote Windows Media Technology (WMT). Additionally, for the term of the
agreement, we have agreed to provide six months of our services to content
providers chosen by Microsoft, provided that the value of these services to
all to such content providers does not exceed $200,000 in the aggregate. We
cannot currently quantify the number of content providers to which we expect
to provide free services under this arrangement. In addition to our direct
sales efforts, we are collaborating on feature development, including
technical exchanges regarding the identification and development of new
functions to be included in either our NT based network platform or WMT. We
are provided early adopter access to new WMT products and agree to incorporate
and promote new competitive WMT features. We do not have an exclusive
arrangement under which Microsoft will not recommend any other service
providers for the delivery of broadband streaming media.
Our agreement with Microsoft will extend through September 2002. Microsoft
has agreed to pay us $500,000 through April 15, 2000, all of which Microsoft
may use to purchase our services either for itself or on behalf of other
Internet content providers.
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We sold 1,677,852 shares of our series D preferred stock to Microsoft for
an aggregate purchase price of approximately $10.0 million in October 1999
which will convert into 6,931,206 shares of our common stock upon the closing
of this offering. In addition, we granted Microsoft a warrant to purchase
218,120 shares of series D preferred stock at an exercise price of $5.96 per
share which will convert into 901,053 shares of common stock.
Pacific Century CyberWorks
In March 2000, we signed a letter of intent with Pacific Century CyberWorks
Limited, a Hong Kong based Internet services and investment company, to
establish a joint venture company named iBEAM Asia. iBEAM Asia, which will be
51% owned by PCCW and 49% owned by iBEAM, will focus on distributing streaming
video and audio content in over 50 countries in the Pacific Rim, Indian
subcontinent and Middle East. iBEAM Asia plans to begin delivering content to
end users in Asia by the end of 2000.
In addition, in February 2000, we sold $30.0 million of our series E
preferred stock to PCCW which will convert into 3,004,363 shares of our common
stock upon the closing of this offering.
Sony Corporation
We entered into an investment relationship with Sony Corporation of America
in October 1999. Sony's Vice President of Interactive Services has joined our
advisory board and has assisted in sales introductions and promoting technical
discussion with Sony regarding industry issues such as digital rights
management support, encryption, distribution and hosting methodologies.
We sold 335,570 shares of our series D preferred stock to Sony for an
aggregate purchase price of approximately $2.0 million in October 1999 which
will convert into 1,386,239 shares of our common stock upon the closing of
this offering.
Sales and Marketing
We primarily sell our services through our direct sales force. We are
currently focusing our sales efforts on the world's leading media and
entertainment companies which have launched or which we believe will launch
broadband multimedia initiatives. As of March 31, 2000, we had 30 employees in
our sales force devoted to developing relationships with content providers as
well as ISPs. We compensate our sales force with salary and commissions based
primarily on increasing traffic from existing customers as well as adding new
customers. Over the next few years we intend to significantly increase the
size of our sales force and expect to increase our expenditures on sales and
marketing efforts in the next twelve months. Our expenditures on sales and
marketing over the next 12 months are highly uncertain and will depend upon
various factors that are difficult to predict, including the number of sales
and marketing people that we are able to attract and the level of investment
that we determine we will need to market our brand over the next 12 months.
In addition to our direct sales efforts, we are developing a network of
partners which include hosting companies, streaming services companies and
Internet service providers. Our partners will resell our full range of
services beyond our immediate target market.
Our technical consulting group, composed of ten systems engineers and six
program managers, supports our sales efforts by providing implementation
services for On-Stage streaming events as well as On-Air and Internet radio
and media on-demand services.
Our marketing strategy is to build a brand associated with high-fidelity
streaming media delivery. To support this objective, we have been engaged in a
direct marketing campaign that includes a presence at key trade shows,
speaking engagements at industry forums and iBEAM sponsored events and
seminars. We have also undertaken an advertising campaign aimed at our target
content provider customers. The advertising campaign consists of a mixture of
traditional media as well as Internet based advertising.
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Patents and Proprietary Rights
Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret and copyright laws and contractual
restrictions to protect the proprietary aspects of our technology. These legal
protections afford only limited protection for our technology. We have filed
eight patent applications and intend to file an additional ten patent
applications in the near future. These patent applications relate to our
streaming platform standard, content management, distribution capabilities and
subscriber management.
We seek to limit disclosure of our intellectual property by requiring
employees and consultants with access to our proprietary information to
execute confidentiality agreements with us and by restricting access to our
source code. Due to rapid technological change, we believe that factors such
as the technological and creative skills of our personnel, new product
developments and enhancements to existing products are more important than the
various legal protections of our technology to establishing and maintaining a
technology leadership position.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. The laws of many countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets, to determine the validity and scope of
the proprietary rights of others or to defend against claims of infringement
or invalidity. Any such resulting litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on our
business, operating results and financial condition. There can be no assurance
that our means of protecting our proprietary rights will be adequate or that
our competitors will not independently develop similar technology. Any failure
by us to meaningfully protect our property could have a material adverse
effect on our business, operating results and financial condition.
From time to time, third parties might claim infringement by us with
respect to our current or future products. These claims and any resulting
lawsuit, if successful, could subject us to significant liability for damages
and invalidate our proprietary rights. Any litigation or claims, whether or
not valid, could result in substantial costs and diversion of resources. In
January 2000, we received a letter from a competitor which suggested that we
review patents to which this company claims rights. These patents purport to
cover "a system and method for delivery of video and data over a computer
network." We have conducted an investigation with respect to such patents.
Based on our investigation, we believe that we do not infringe any claims of
these patents. However, there can be no assurance that the competitor will
agree with our conclusion or not pursue a claim or litigation against us. If
this competitor does pursue a claim against us, we intend to vigorously defend
against any such claim. However, a claim, if successful, could subject us to
significant liability for damages and invalidate our propriety rights.
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.
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Competition
The market for Internet broadcasting services is new, highly competitive,
and rapidly evolving. We expect competition to increase both from existing
competitors and new market entrants for various components of our service.
Unlike many of our competitors, we regard ourselves as the only Internet
broadcast network that combines satellite and land-line broadcasting of
streaming media as our primary business mission.
Our competitors primarily come from five market segments:
. Internet content distribution networks that accelerate delivery of web
pages, such as Akamai, Enron Communications and Digital Island;
. Internet webcasting companies that deliver streaming media through land-
line networks, such as InterVu, which was recently acquired by Akamai;
. Internet software vendors that reduce that cost of delivery of content
to users by storing content closer to the end user, such as Inktomi;
. Internet production and event services companies, such as Broadcast.com
and Network24 Communications, which was acquired by Akamai; and
. Satellite companies that deliver streaming video through satellite
networks, such PanAmSat and Cidera.
We compete on price and quality of delivery, customer service, and network
features. We believe we currently have several primary competitive advantages,
including the quality of our network architecture, our proprietary technology
and our early entrance into the market for Internet broadcast services.
However, our competitors may be able to respond more quickly than we can to new
or emerging technologies and changes in customer requirements. Some of our
competitors may bundle their services with Internet related products or
services from Internet device vendors or Internet service providers. These
bundling relationships may inhibit our ability to sell service to Internet
content providers or to deploy servers at Internet service providers.
Increased competition could result in price reductions, fewer customer
orders, reduced gross margins or loss of market share. Any of these conditions
could materially and adversely affect our business, financial condition, and
operational results.
Facilities
Our headquarters are currently located in approximately 58,000 square feet
of leased office space in Sunnyvale, California. We recently obtained an
additional 22,000 square feet of office space near our headquarters.
We are building a network operations center in our headquarters which began
operations in April 2000.
Webcasts.com's principal offices are in Oklahama City, Oklahoma and Phoenix,
Arizona with sales offices in various U.S. cities.
Employees
As of March 31, 2000, we had a total of 277 employees. We have never had a
work stoppage and no personnel are represented under collective bargaining
agreements. We consider our employee relations to be good.
We have rapidly increased our employee base and need to continue to hire
additional personnel. We believe that our future success will depend upon our
continued ability to attract, integrate, retain, train and motivate highly
qualified personnel and upon the continued service of our senior management and
key personnel. Competition for qualified personnel is intense, particularly in
the Silicon Valley area, where our headquarters is located. There can be no
assurance that we will successfully attract, integrate, retain, train and
motivate a sufficient number of qualified personnel to conduct our business in
the future.
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Development of our Business
We believe that the net proceeds of this offering, together with our
available funds, will be sufficient to meet our anticipated needs for working
capital and capital expenditures for the next 12 to 18 months. We expect to
spend at least $40.0 million in 2000 for capital expenditures, $26.0 million
of which was incurred in the first quarter. The purpose of these capital
expenditures is to increase the number of users the network can support at the
edge of the Internet and relates primarily to our investment in edge servers,
hosting centers and our network operations center. In addition, we expect to
make additional expenditures to fund our sales and marketing and engineering
and development efforts in 2000. Our sales and marketing expenses are related
to our efforts to build up our sales force and build our brand name in order
to increase our customer base. Engineering and development expenses will be
related to developing value added services such as advertisement insertion
capabilities. The amount we spend for these purposes will depend on various
factors that are difficult to predict, including the level of competition we
will experience and the availability for hire of qualified sales, marketing
and engineering personnel.
Legal Proceedings
On February 3, 2000, Gerald F. Chew filed a lawsuit in California state
court, County of Santa Clara, against us and one of our founders alleging
breach of contract and other claims entitled Gerald F. Chew v. iBEAM
Broadcasting, Inc. et al., No. CV 787599. Mr. Chew claims that he was one of
our founders and that we and one of our founders breached their promise to him
to issue founder's stock in exchange for his services. Mr. Chew alleges
damages of at least $10.0 million and seeks a determination from the Court
that he is entitled to an unspecified number of shares of our capital stock.
Mr. Chew's complaint is not clear whether his claims for such relief are
cumulative or in the alternative. In subsequent filings with the Court, Mr.
Chew has claimed entitlement to the same number of founders shares as received
by Mr. Wilmot. We intend to defend this action vigorously, however, litigation
is inherently uncertain and we may not prevail against Mr. Chew. Should Mr.
Chew prevail on his lawsuit, we could be required to issue stock to Mr. Chew
on the same terms as those granted to our founders and recognize an expense in
connection with such issuance, which could have a material adverse effect on
our results of operations. In addition, any such issuance would be dilutive to
existing stockholders.
On April 20, 2000, InterVu, Inc. filed a lawsuit in California state court,
County of Santa Clara, against us and three of our employees entitled InterVu,
Inc. v. iBEAM Broadcasting et al., No. CV 89308. The complaint alleges claims
for misappropriation of trade secrets and inevitable disclosure and breach of
contract and seeks a temporary restraining order, a preliminary injunction and
damages. The complaint is based on the hiring of three former InterVu
employees by iBEAM. On April 25, 2000, the Court denied InterVu's application
for a temporary restraining order and set a hearing for InterVu's motion for a
permanent injunction for May 23, 2000. We intend to defend this action
vigorously, however, litigation is inherently uncertain and we may not prevail
against InterVu. Should InterVu prevail in its lawsuit, the three employees
who are the subject of this action would not be permitted to continue their
employment at iBEAM. InterVu also seeks damages of an unspecified amount, as
well as punitive damages.
On April 20, 2000, Akamai Technologies, Inc. filed a lawsuit against us in
the Commonwealth of Massachusetts, Middlesex, Superior Court entitled Akamai
Technologies, Inc. v. iBEAM Broadcasting Corporation, 00-1944 alleging claims
for breach of contract and unauthorized acquisition of Akamai's confidential
information and trade secrets, among other claims. Akamai seeks injunctive
relief enjoining us from continuing the employment of one of its former
employees who is also the subject of the InterVu v. iBEAM case described
above. Akamai also seeks unspecified damages, as well as punitive damages. On
May 2, 2000, the court denied Akamai's request for injunctive relief
preventing us from continuing the employment of the employee in question and
from recruiting or soliciting any employee of Akamai. However, the court did
enjoin us for disclosing or using any of Akamai's trade secrets and directed
iBEAM to return to Akamai any confidential information or trade secrets. We
will continue to vigorously defend our company in this action, however,
litigation is inherently uncertain and we may not prevail against Akamai.
Should Akamai prevail in its lawsuit, the employee who is the subject of this
action would not be permitted to continue employment with us.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth information regarding our directors and
executive officers and their ages as of March 31, 2000:
<TABLE>
<CAPTION>
Executive Officers: Age Position
------------------- --- --------
<C> <C> <S>
Peter Desnoes.................... 57 President, Chief Executive Officer and
Chairman of the Board
Chris Dier....................... 47 Vice President and Chief Financial
Officer
Nils Lahr........................ 26 Chief Architect
Jeremy Zullo..................... 28 Vice President, Engineering
Dave Brewer...................... 31 Vice President, Operations
Robert Davis..................... 41 Vice President, Sales
David Strehlow................... 45 Vice President, Business Development
Tom Gillis....................... 34 Vice President, Marketing
Andrew Henry..................... 38 Vice President, Product Marketing
Daniel Sroka..................... 37 Vice President and General Counsel
Directors:
----------
Barry Baker(2)................... 47 Director
Frederic Seegal.................. 52 Director
Richard Shapero(1)(2)............ 52 Director
Peter Wagner(1)(2)............... 34 Director
Robert Wilmot.................... 55 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Peter Desnoes joined our board of directors in June 1998. He has served as
our President and Chief Executive Officer since January 1999 and as Chairman
of the Board since April 2000. Prior to joining us, Mr. Desnoes was the
founder, Managing General Partner and Chief Executive Officer of Burnham
Broadcasting Company, a partnership which owned network affiliated television
stations in several major U.S. markets in addition to operating a major
commercial production and post-production company. Mr. Desnoes started Burnham
Broadcasting Company in 1983 after a 16-year career with the American
Broadcasting Company (ABC). At ABC, Mr. Desnoes served as President and
General Manager of WLS-TV in Chicago from 1979 until 1983. Prior to that time,
he served as Vice President of Sales and Marketing for the ABC television
stations division, and was also elected Chairman of the ABC Affiliates Board
of Governors. Mr. Desnoes holds a B.A. in Philosophy from the University of
Arizona.
Chris Dier has been our Vice President and Chief Financial Officer since
joining us in November 1998. From August 1996 to February 1998, Mr. Dier
served as Vice President Administration and Chief Financial Officer of Aurum
Software Incorporated, a sales force automation software company. From January
1990 to July 1996, he served as Vice President of Administration and Chief
Financial Officer of VERITAS Software Corporation, a publicly traded company
focused on the storage management software market. Previous employment
includes Tolerant Systems and Intel Corporation where he held a variety of
operating finance positions. He holds a B.A. in Humanities and an M.B.A. from
Santa Clara University.
Nils Lahr joined us in April 1998 and has been our Chief Architect since
July 1999. From April 1998 to May 1999, he served as our Director of Server
Engineering and, from May 1999 to July 1999, he served as our Executive
Director of Technology. From May 1997 to June 1998, Mr. Lahr was an
independent contractor serving as a Senior Software Developer for Microsoft
Corporation where he helped clients deploy digital video applications and was
a key developer for Microsoft's digital video services. From April 1996 to May
1997, he served as a Senior Technical Programmer for CNN America where he
designed the technologies and
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infrastructure supporting the CNNfn.com website. From February 1995 to April
1996, Mr. Lahr worked as super-computer programmer for the United States Air
Force.
Jeremy Zullo joined us in May 1998 and has been our Vice President,
Engineering since December 1999. From May 1998 to July 1999, he served as our
Director of Development and, from July 1999 to December 1999, he served as our
Executive Director of Development. Prior to joining us, Mr. Zullo was the
Manager of Internet Products for Bloomberg Television and Internet Divisions
from February 1996 to April 1998. From 1992 to 1996, Mr. Zullo served as Chief
Executive Officer at Dominion Systems Technologies Inc., a company he founded
to create distributed real time engines. From 1993 to 1996, Mr. Zullo was also
a senior consultant for various United States military branches. Mr. Zullo
holds a B.S. in Physics from Rensselaer Polytechnic Institute.
Dave Brewer has been our Vice President, Operations since he joined us in
November 1999. From May 1991 to November 1999, Mr. Brewer was Chief Executive
Officer of Brewer Consulting Networks, a company that he founded which focuses
on designing, installing and maintaining local and wide area computer
networking systems for a variety of Fortune 1000 companies and educational
organizations. From 1986 to 1991, Mr. Brewer was a Network Engineer and
Systems Technician with Landis & Gyr Systems, Inc. a supplier of electronic
payment solutions.
Robert Davis joined us as Vice President, Sales in August 1999. From July
1996 to November 1998, Mr. Davis served in several capacities, including as
President, Chief Executive Officer and a member of the board of directors of
Formida Software Corporation, a publicly traded Australian software company.
From September 1993 to July 1996, Mr. Davis was a Senior Vice President of
Worldwide Sales and Support for Premenos Technology Corporation, a software
company. His earlier experiences include senior sales management positions
with Sprint Corporation and Southern Bell. Mr. Davis holds a B.S. Degree from
the University of Akron.
David Strehlow has served as our Vice President, Business Development since
joining us in August 1999. From September 1998 to July 1999, Mr. Strehlow
served as acting Vice President of Business Development for two startup
companies, SoftVideo, Inc. and Live Picture, Inc. From September 1996 to
September 1998, Mr. Strehlow served as Senior Director of Business Development
at RealNetworks, Inc., a provider of media delivery and digital distribution
solutions. From October 1995 to June 1996, he served as Senior Director of
Business Development at VDOnet Corporation, a provider of video applications
and online communities for use over the Internet. Prior to this time,
Mr. Strehlow served in various capacities at Oracle Corporation, a supplier of
software for information management, in both product management and product
marketing roles. Mr. Strehlow holds an M.B.A. from Carnegie Mellon University,
an M.S. in Oceanography from Oregon State University and a B.S. in
Oceanography from University of Washington.
Tom Gillis joined us in July 1998 and has served as our Vice President,
Marketing since December 1999. From July 1998 to May 1999, he served as our
Director of Product Management and, from May 1999 to December 1999, he served
as our Assistant Vice President, Marketing. Prior to joining us, from 1995 to
June 1998 Mr. Gillis served in several capacities at Silicon Graphics,
including Product Line Manager for Desktop Workstations and Product Manager
for Silicon Graphics' digital media streaming and compression hardware
products. From 1987 to 1993, Mr. Gillis was a Senior Hardware Engineer
responsible for wireless communications and radar systems design at Raytheon
Company. Mr. Gillis has an M.B.A. from Harvard University, an M.S. in
Electrical Engineering from Northwestern University and a B.S. in Electrical
Engineering from Tufts University.
Andrew Henry has been our Vice President, Product Marketing since joining
us in January 2000. Prior to joining us, from January 1994 to December 1999,
Mr. Henry held a variety of positions with Silicon Graphics, most recently
serving as Vice President and General Manager of the Visual Solutions Business
Unit. From September 1990 to January 1994, Mr. Henry served as Manager, Visual
Engineering with Failure Analysis Associates. Prior to this time, Mr. Henry
co-founded a graphics technology company called Animated Technologies and was
an engineering manager with TRW Space and Technology Group. He earned a B.S.
degree in Engineering Physics from the University of the Pacific and an
M.S.E.E. in Electro-optics from the University of Southern California.
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Daniel Sroka joined us in January 2000 as our General Counsel and has
served as our Vice President and General Counsel since February 2000. Prior to
joining us, Mr. Sroka was a partner at the law firm of Brooks, Pierce,
McLendon, Humphrey & Leonard, L.L.P. Prior to becoming partner in August 1995
and since joining the firm in 1989, Mr. Sroka was an associate with Brooks,
Pierce, McLendon, Humphrey & Leonard. Mr. Sroka's practice has specialized in
mergers and acquisitions, commercial transactions, corporate finance,
formation and capitalization of business entities, commercial real estate and
taxation. He graduated from the University of Wisconsin, Madison with a degree
in Business Administration Accounting and received his law degree from Wake
Forest School of Law.
Barry Baker has served as a member of our board of directors since January
2000. Since March 1999, Mr. Baker has been with USA Networks, Inc., a media
and electronic commerce company, most recently serving as its President and
Chief Operating Officer. Before joining USA Networks, from June 1996 to
February 1999, Mr. Baker served as Chief Executive Officer/Designate of
Sinclair Communications, a broadcasting company, where he oversaw a business
of 64 television and 54 radio stations in 28 states. From August 1989 to May
1996, Mr. Baker served in various capacities at River City Broadcasting, a
broadcasting company he founded which was later sold to Sinclair Broadcast
Group. Prior to these experiences, Mr. Baker served in management positions in
cable and radio broadcasting and managed radio startups. Mr. Baker has served
on numerous industry boards. Mr. Baker was recently appointed to the Board of
Directors of the National Association of Television Program Executives, the Ad
Council and The Production Resource Group.
Frederic Seegal has served as a member of our board of directors since
August 1999. Mr. Seegal has served as President of Wasserstein Perella Group,
Inc. and Managing Director of Wasserstein Perella & Co., Inc. since March
1994. These Wasserstein entities form part of Wasserstein Perella & Co., an
international investment banking and financial services firm. Prior to joining
the Wasserstein entities, Mr. Seegal was Managing Director/Co-Head of Domestic
Corporate Finance at Salomon Brothers, an investment bank, during the period
of 1990 through 1994. From 1982 to 1990, Mr. Seegal was in charge of Lehman
Brothers investment banking activities in the Media & Communications
Industries, where he served as Managing Director of Lehman Brothers. Mr.
Seegal holds a Bachelors Degree from Cornell University and graduated from
Harvard Law School and Harvard Business School in 1974.
Rich Shapero has served as a member of our board of directors since
April 1998. Mr. Shapero has been a general partner of Crosspoint Venture
Partners, L.P., a venture capital investment firm, since April 1993. From
January 1991 to June 1992, he served as Chief Operating Officer of Shiva
Corporation, a computer network company. Previously, he was a Vice President
of Sun Microsystems, Senior Director of Marketing at AST, and held marketing
and sales positions at Informatics General Corporation and UNIVAC's
Communications Division. Mr. Shapero serves as a member of the board of
directors of Covad Communications Group, Inc., Sagent Technology, Inc. and
several privately held companies. Mr. Shapero received a B.A. in English
literature from the University of California at Berkeley.
Peter Wagner has served as a member of the board of directors since
June 1998. Mr. Wagner joined Accel Partners, a Palo Alto-based private equity
investing firm, in July 1996, and has been a General Partner since January
1998, where he specializes in investing in companies in the communications
sector, including networking, telecommunications and wireless technology. From
September 1992 to July 1996, Mr. Wagner was a Product Line Manager for Silicon
Graphics. Mr. Wagner serves on the board of directors of NorthPoint
Communications Group, Inc. and several privately held companies. Mr. Wagner
holds a B.S. in Physics and an M.B.A. from Harvard.
Robert Wilmot is one of our founders and has served as a member of our
board of directors since our inception in March 1998. Dr. Wilmot has been
Chairman at Wilmot Consulting Inc., which provides strategic consulting
services to large and small businesses in the United States and Europe, since
May 1995. From April 1994 to May 1995, Dr. Wilmot was an independent
consultant and investor. From May 1985 through April 1994, he was Chairman at
Wilmot Enterprises Ltd., which provides strategic consulting services to large
and small businesses in the United States and Europe. In these capacities, Dr.
Wilmot has advised several Fortune 100 technology companies on their Internet
transformation. His other prior positions include Vice President and
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Managing Director of Texas Instruments and Chief Executive Officer of
International Computers PLC. Dr. Wilmot is an active angel investor and
Chairman of the Supervisory Board of Euro Ventures BV, a venture fund
operating in nine European countries. He is also a Director of COM21, FVC.COM
and @POS.COM and several private companies. Dr. Wilmot received a B.S. in
Electrical Engineering from Nottingham University.
Technical Advisory Board
The technical advisory board members are available to our executive
officers for periodic consultations relating to the development of our
technologies. The following individuals are members of our Technical Advisory
Board:
Navin Chaddha is one of our founders. He is currently Chairman of the Board
and Chief Executive Officer of Biztro, a privately held web-based company
serving small businesses. Prior to becoming Chairman and CEO of Biztro, he
held several management positions at Microsoft, the most recent of which was
Director, Broadband and Infrastructure, Streaming Media Division. While with
Microsoft, Mr. Chaddha also served as Chief Architect and Director, Commercial
Network Solutions, Microsoft's Network Solutions Group. Prior to joining
Microsoft Corporation, Mr. Chaddha founded Vxtreme (acquired by Microsoft
Corporation), an Internet media streaming software company, in December 1995.
Mr. Chaddha is an investor and serves on the advisory board of several
Internet startups. Mr. Chaddha holds a B.S. in electrical engineering from
Indian Institute of Technology, Delhi and an M.S. in electrical engineering
from Stanford University.
Llewellyn Chang is Vice President, Interactive Services for Sony
Corporation of America. In this position, he is involved in developing and
managing a range of technology-enabled products while providing technical
leadership in assessing and exploiting Sony's many digital opportunities.
Prior to joining Sony, Mr. Chang spent eleven years at Salomon Smith Barney
where he served as First Vice President and Area Manager responsible for
Enterprise Applications Engineering. This includes extensive experience in
distributed systems architecture and design, software engineering, large-scale
systems, network integration and applications development as well as the
management of strategic partner and vendor relationships. Previous to Salomon
Smith Barney, Mr. Chang held Information Technology positions at Goldman Sachs
and Company, AT&T Bell Laboratories, and Exxon Research and Engineering. Mr.
Chang holds a B.S. from the University of the West Indies and an M.S. from
Polytechnic Institute of New York, both in Electrical Engineering.
Robert Hawk is President of Hawk Communications. He previously served as
President and Chief Executive Officer of US WEST Multimedia Communications,
Inc., where he headed the cable, data and telephony communications business
from May 1996 to April 1997. He was president of the Carrier Division of US
West Communications, a regional telecommunications service provider, from
September 1990 to May 1996. Prior to that time, Mr. Hawk was Vice President of
Marketing and Strategic Planning for CXC Corporation. Prior to joining CXC
Corporation, Mr. Hawk was director of Advanced Systems Development for
AT&T/American Bell. He currently serves on the boards of PairGain
Technologies, COM21, Concord Communications, Covad Communications Group,
Radcom, Efficient Networks and several privately held companies. Mr. Hawk
received an M.B.A. from the University of San Francisco and a B.B.A. from the
University of Iowa.
Jon Kannegaard is Senior Vice President of Sun Labs. Mr. Kannegaard has
held several positions at Sun during his 12-year tenure, including Acting
President for Software Products and Platforms, Vice President and General
Manager, Java Platform, and President of SunSoft. Prior to Sun, Mr. Kannegaard
worked with Motorola for over 10 years and previously held positions at
Information Systems and Boeing Aerospace.
Rod Perth is President of Jim Henson Television Group Worldwide. Mr. Perth
has full responsibility for managing prime time and children's programming
network development and production at Henson Television. He also supervises
global television entertainment. In his previous term as President of
Entertainment at USA Networks, Mr. Perth led all programming efforts for both
the USA Network and the Sci-Fi Channel.
Philip Rosedale is an Entrepreneur-in-Residence at Accel Partners. Prior to
joining Accel in August 1999, Mr. Rosedale spent three and one-half years at
RealNetworks, most recently serving as Vice President and Chief Technology
Officer. His extensive work there included the creation of RealVideo,
development and deployment of the RealSystem 5.0 and G2 products, and
management of audio and video compression research. Before
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joining RealNetworks, Mr. Rosedale ran his own software company, Automated
Management Systems, which in 1995 developed FreeVue, a low-bitrate
videoconferencing product for Internet users. Mr. Rosedale holds a B.S. degree
in Physics from the University of California at San Diego.
Tony Werner is Vice President of Engineering and Technical Operations and
Chief Technology Officer for AT&T Broadband & Internet Services. Mr. Werner is
currently responsible for managing AT&T's broadband rollout and new service
implementation, including interactive TV, high-speed data and residential
telephone service. Prior to AT&T, Mr. Werner was the Vice President of
Operations Engineering for Rogers Communications, Inc. He also served the top
engineering role for Hong Kong Cable Communications, a joint venture between
US West, Shaw, Coditel, Sung Hun Kai and Wharf.
Board of Directors
Our board of directors currently consists of six members. Upon completion
of this offering, our board of directors will be divided into three classes,
each serving staggered three year terms. The term of office and directors
consisting of each class is as follows:
<TABLE>
<CAPTION>
Class Directors Term of Office
----- --------------------------------- ---------------------------------
<C> <C> <S>
Class I Frederic Seegal and Robert Wilmot . expires at the annual meeting
of stockholders in 2001 and at
each third succeeding annual
meeting thereafter
Class II Richard Shapero and Peter Wagner . expires at the annual meeting
of stockholders in 2002 and at
each third succeeding annual
meeting thereafter
Class III Peter Desnoes and Barry Baker . expires at the annual meeting
of stockholders in 2003 and at
each third succeeding annual
meeting thereafter
</TABLE>
The classification of directors has the effect of making it more difficult
to change the composition of the board of directors. See "Description of
Capital Stock--Delaware Law and Certain Provisions of Our Certificate of
Incorporation and Bylaws."
Our board of directors appoints our executive officers on an annual basis
to serve until their successors have been elected and qualified. There are no
family relationships among any of our directors or officers.
Voting Agreement for Directors
Under the terms of a voting agreement between us and the stockholders that
purchased shares of our preferred stock prior to the completion of this
offering, holders of our series A preferred and series B preferred had an
agreement to vote their shares at the election of directors in favor of a
director nominated by Crosspoint Venture Partners and Accel Partners. Mr.
Shapero is the nominee of Crosspoint Venture Partners and was elected to our
board of Directors as a result. Mr. Wagner is a nominee of Accel Partners and
was elected to our board of Directors as a result. This agreement terminates
with respect to these provisions upon the closing of our initial public
offering.
Board Committees
Our Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee of the Board of Directors consists of Messrs. Shapero,
Wagner and Baker. The Audit Committee reviews our financial statements and
accounting practices and makes recommendations to our Board of Directors
regarding the selection of independent auditors.
The Compensation Committee of the Board of Directors consists of Messrs.
Shapero and Wagner. The Compensation Committee makes recommendations to the
Board of Directors concerning salaries and incentive compensation for our
officers and employees and administers our employee benefit plans.
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<PAGE>
Director Compensation
We do not currently compensate our directors in cash for their service as
members of the board of directors, although directors are reimbursed for
reasonable expenses incurred in attending board or committee meetings. Our
officers are appointed by the board of directors and serve at its discretion.
We have granted options to purchase shares of our common stock to some of our
non-employee directors. In September 1999, we granted Mr. Seegal an option to
purchase 247,860 shares of common stock at an exercise price of $0.145 per
share. This option was granted under our 1998 Stock Plan. Of these shares,
214,812 shares of common stock subject to options vest over a four year period
with 25% of the shares subject to option vesting 12 months from the date of
grant and the remaining shares vesting ratably each month after that date so
long as Mr. Seegal continues to serve as our director. The remaining 33,048
shares subject to option vest over one year with 25% of the shares vesting at
the end each four month period from the date of grant so long as Mr. Seegal
continues to serve as our director.
In July 1998, we granted Mr. Desnoes an option to purchase 111,537 shares
of common stock at an exercise price of $0.040 per share. This option was
granted under our 1998 Stock Plan. The shares underlying this option were
immediately vested.
In January 2000, we granted Mr. Baker an option to purchase 82,620 shares
of common stock at an exercise price of $4.84 per share. These options were
granted under our 1998 Stock Plan. The shares underlying the option vests in
equal monthly installments over four years.
Our 2000 Director Option Plan provides for the automatic grant of non-
statutory stock options to purchase 82,620 shares of common stock to non-
employee directors who join us after this offering. For further information
regarding the provisions of the 2000 Director Option Plan, see "--Employee and
Director Benefit Plans."
Limitations on Directors' Liability and Indemnification
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
. Any breach of their duty of loyalty to the corporation or its
stockholders;
. Acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. 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.
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<PAGE>
The limitation on liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against our directors for breach of their fiduciary duty
and may reduce the likelihood of derivative litigation against our directors
and officers, even though a derivative action, if successful, might otherwise
benefit us and our stockholders. A stockholder's investment in us may be
adversely affected to the extent we pay the costs of settlement or damage
awards against our directors and officers under these indemnification
provisions.
Compensation Committee Interlocks and Insider Participation
Our compensation committee currently consists of Messrs. Wagner and
Shapero. In January 1999, Mr. Desnoes, our President and Chief Executive
Officer, resigned from the compensation committee upon being appointed an
executive officer. Other than Mr. Desnoes, none of the members of our
compensation committee is currently or has been, at any time since the time of
our formation, one of our officers or employees. None of our executive
officers currently serves, or in the past has served, as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving on our board or compensation committee. Mr. Wagner
is a general partner of Accel Partners, a holder of approximately 17.8% of our
outstanding stock that has purchased shares of our series B preferred stock,
series C preferred stock and series D preferred stock. Mr. Shapero is a
general partner of Crosspoint Venture Partners, a holder of approximately
18.9% of our outstanding stock that has purchased shares of our series A
preferred stock, series B preferred stock, series C preferred stock and
series D preferred stock. See "Certain Relationships and Related
Transactions."
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all compensation paid by us for services
rendered to us in all capacities during our fiscal year ended December 31,
1999, by (i) our chief executive officer and (ii) our four most highly
compensated executive officers who earned more than $100,000 in salary and
bonus during the fiscal year ended December 31, 1999, whom we refer to as the
"named executive officers."
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Number of
1999 Annual Compensation Shares
------------------------------ Underlying
Name and Principal Other Annual Options All Other
Position (1) Salary Bonus Compensation Granted (#) Compensation (4)
- ------------------ -------- -------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Peter Desnoes (2)....... $255,769 $157,000 $83,262(3) 1,982,880 $1,103
President and Chief
Executive Officer
Chris Dier.............. 182,500 13,500 -- 151,194 1,434
Vice President and
Chief Financial Officer
Tom Gillis.............. 126,137 -- -- 227,205 1,258
Vice President,
Marketing
Nils Lahr............... 137,311 30,000 -- 305,694 1,244
Chief Architect
Jeremy Zullo............ 142,083 7,500 -- 227,205 1,267
Vice President,
Engineering
</TABLE>
- --------
(1) This table does not include Michael Bowles who served as our Chief
Executive Officer until January 1999 and as Chairman of our Board of
Directors until September 1999. During our fiscal year ended December 31,
1999, Mr. Bowles was paid a salary of $126,769 based on an annualized
salary of $160,000. During fiscal 1999, we paid premiums for life
insurance in the amount of $1,007 on Mr. Bowles' behalf. Mr. Bowles did
not receive a bonus during fiscal 1999.
(2) Mr. Desnoes commenced full-time employment with us in February 1999. Mr.
Desnoes' salary on an annualized basis was $300,000 during fiscal 1999.
(3) Mr. Desnoes was reimbursed this amount for relocation expenses.
(4) Consists of premiums paid by us for term life insurance.
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<PAGE>
Option Grants During Year Ended December 31, 1999
The following table sets forth certain information for the year ended
December 31, 1999 with respect to grants of stock options to each of the named
executive officers. All options granted by us in 1999 were granted under our
1998 Stock Plan. These options have a term of 10 years. These options are
immediately exercisable in full at the date of grant, but shares purchased on
exercise of unvested options are subject to a repurchase right in our favor
that entitles us to repurchase unvested shares at their original exercise
price on termination of the employee's service with us. Unless otherwise
indicated, the repurchase right lapses as to 25% of the shares on the first
anniversary of the grant date and the balance over the next three years. See
"--Employee and Director Benefit Plans" for a description of the material
terms of these options.
We granted options to purchase common stock and issued shares of common
stock pursuant to restricted stock purchase agreements equal to a total of
15,061,982 shares during 1999. Potential realizable values are net of exercise
price before taxes, and are based on the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until the expiration of the ten-year term. These numbers are calculated
based on SEC requirements and do not reflect our projection or estimate of
future stock price growth.
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------- Potential Realizable Value at
Number of Percentage of Assumed Annual Rates of Stock
Securities Total Options Reassessed Price Appreciation For Option
Underlying Granted to Exercise Fair Term
Options Employees in Price Market Expiration ------------------------------
Name(1) Granted 1999 Per Share(4) Value(5) Date 0% 5% 10%
- ------- ---------- ------------- ------------ ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter Desnoes(2) 1,982,880 13.2% $0.040 $0.497 1/11/09 $905,760 $1,525,196 $2,475,533
Chris Dier.............. 151,194 1.0 0.083 0.580 2/24/09 75,103 130,207 214,748
Tom Gillis.............. 61,965 0.4 0.083 1.017 4/1/09 57,870 97,490 158,276
165,240 1.1 3.631 5.810 12/31/09 360,000 963,739 1,889,993
Nils Lahr............... 140,454(3) 0.9 0.083 0.580 2/25/09 69,768 120,958 199,492
82,620 0.6 0.145 1.235 8/12/09 90,000 154,147 252,562
82,620 0.6 3.631 5.810 12/31/09 180,000 481,869 944,996
Jeremy Zullo............ 61,965 0.4 0.083 0.580 2/25/09 30,780 53,364 88,011
61,965 0.4 0.145 1.235 8/12/09 67,500 115,610 189,421
103,275 0.7 3.631 5.810 12/31/09 225,000 602,337 1,181,245
</TABLE>
- --------
(1) Michael Bowles was not granted any options during fiscal 1999.
(2) This table does not include options to purchase 1,050,000 shares of common
stock that were granted to Mr. Desnoes in April 2000. These options vest
in equal monthly installments and are exercisable at a price of $10.00 per
share.
(3) The repurchase right lapses as to 66,096 of the shares according to the
following schedule: 34% of the shares on the first anniversary of the
grant date and the balance over the next two years.
(4) Exercises prices reflect our board of directors good faith determination
of the fair market value of our common stock on the date of grant.
(5) Based on recent developments, we reassessed the fair market value of our
common stock underlying options at the time of grant.
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<PAGE>
Aggregated Option Exercises In 1999 And Year-End Values
The following table sets forth certain information regarding exercised
stock options during the fiscal year ended December 31, 1999 and unexercised
options held as of December 31, 1999 by each of the named executive officers.
The value realized is based on the reassessed fair market value of the
underlying securities as of the date of exercise, minus the per share exercise
price, multiplied by the number of shares underlying the option. The value of
unexercised in-the-money options are based on a value of $5.81 per share, the
reassessed fair market value of our common stock on December 31, 1999. Amounts
reflected are based on the value of $5.81 per share, minus the per share
exercise price, multiplied by the number of shares underlying the option.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Year-End at Year-End
Acquired on Value ------------------------- -------------------------
Name(1) Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ------- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter Desnoes........... 2,094,417 $965,943 -- -- -- --
Chris Dier.............. 516,375 307,650 171,849 -- $ 989,483 --
Tom Gillis.............. 218,943 152,256 165,240 -- 360,000 --
Nils Lahr............... 96,252 106,091 230,096 -- 946,141 --
Jeremy Zullo............ -- -- 417,231 -- 2,027,280 --
</TABLE>
- --------
(1) Michael Bowles did not exercise any options during fiscal 1999.
Employment and Severance Agreements
Peter Desnoes. In January 1999, we entered into a written employment
agreement with Mr. Desnoes. The agreement provides that Mr. Desnoes is
entitled to receive an annual salary of $300,000 and a bonus of $200,000, to
be paid based on the achievement of performance-based milestones. We also
agreed to provide Mr. Desnoes with compensation in the form of a grant of an
option to purchase 1,982,880 shares of common stock at an exercise price of
$0.040 per share, which vests over a four year period. The agreement also
provides that Mr. Desnoes is entitled to purchase up to 80,000 shares of our
Series C preferred stock on the same terms as the other investors. Mr. Desnoes
purchased these shares on February 3, 1999. In addition, we agreed to pay
expenses related to his relocation to California. See "Executive Compensation"
and "Certain Relationships and Related Transactions."
The agreement provides that either we or Mr. Desnoes can terminate the
employment relationship for any reason with 14 days notice. The agreement
further provides that if Mr. Desnoes is terminated other than for cause, he
shall be entitled to receive up to 12 months of annual salary until the
earliest of (i) 12 months from the date of his termination, (ii) the
expiration of his continuation coverage under COBRA and (iii) the date Mr.
Desnoes receives health insurance coverage in connection with new employment.
In the event of a change of control, Mr. Desnoes will agree to continue
service with us or our successor corporation for a period not to exceed six
months if he is requested to do so. Upon the completion of this period, or if
Mr. Desnoes is not requested to remain with us or our successor, Mr. Desnoes
is entitled to receive six months salary and bonus and the options he has been
granted will vest as if he had performed an additional six months of service.
In the event that Mr. Desnoes is requested to remain with us or our successor
upon a change a control and he declines such request then Mr. Desnoes will not
be entitled to receive any additional compensation or vesting, unless his
refusal to continue service is in effect an involuntary termination, in which
case he will receive the benefits described in the preceding paragraph.
Chris Dier. In November 1998, Chris Dier accepted our offer of employment.
The offer letter provides that Mr. Dier will receive an annual salary of
$180,000 and up to an additional $20,000 bonus each year based upon the
successful attainment of mutually agreed upon performance goals. The offer
letter provides that options granted to Mr. Dier in connection with his
employment will provide for accelerated vesting in the event of a
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<PAGE>
change of control where Mr. Dier is not designated as Chief Financial Officer
reporting to the Chief Executive Officer equal to an amount of 50% of Mr.
Dier's unvested shares. In addition, Mr. Dier will receive a termination
payment equal to six months full compensation payable on the earlier of six
months after a change of control or termination of employment by the acquiring
company.
Nils Lahr. In July 1999, Nils Lahr accepted our offer of employment. The
offer letter provides that Mr. Lahr is entitled to receive an annual salary of
$150,000 and a bonus of $30,000 based on achievement of performance
milestones. Mr. Lahr has agreed to be employed by us through June 30, 2000, at
which time he will become an at-will employee. We may terminate his employment
with us at any time.
Jeremy Zullo. In July 1999, Jeremy Zullo accepted our offer of employment.
The offer letter provides that Mr. Zullo is entitled to receive an annual
salary of $155,000 and a bonus of $20,000 based on the achievement of
performance milestones. Mr. Zullo has agreed to be employed by us through June
30, 2000, at which time he will become an at-will employee. We may terminate
his employment with us at any time.
In September 1999, we entered into a Settlement Agreement and Mutual
Release with Michael Bowles in connection with his departure from our company.
We paid Mr. Bowles all salary and unused vacation through his employment end
date. In connection with Mr. Bowles' departure, the repurchase right with
respect to his shares of common stock lapsed. In addition, we and Mr. Bowles
agreed to a mutual release.
Employee and Director Benefit Plans
1998 Stock Plan
Our 1998 Stock Plan was adopted by our board of directors in March 1998,
and our stockholders initially approved the plan in April 1998. Our 1998 Stock
Plan provides for the grant of incentive stock options to our employees, and
for the grant of nonstatutory stock options and stock purchase rights to our
employees, directors and consultants.
As of March 31, 2000, there were outstanding options to purchase 11,816,815
shares of common stock and 4,069,804 shares were available for future grant.
As of the date of this prospectus, we will not grant any additional stock
options under our 1998 stock plan. Instead we will grant options under our
2000 Stock Plan.
The 1998 Stock Plan provides that in the event of a change in control, each
outstanding option shall be accelerated and become fully vested and
exercisable if such option is not assumed or substituted for by the successor
corporation.
2000 Stock Plan
Our 2000 Stock Plan was adopted by our board of directors in January 2000,
and approved by our stockholders in April 2000. An amendment to the plan is
expected to be approved by the board of directors and our stockholders in May
2000. This plan provides for the grant of incentive stock options to employees
and nonstatutory stock options and stock purchase rights to employees,
directors and consultants.
As of March 2000, a total of 9,639,000 shares of common stock were reserved
for issuance pursuant to the 2000 Stock Plan. No options have yet been issued
pursuant to the 2000 Stock Plan. The number of shares reserved for issuance
under our 2000 Stock Plan will increase annually on January 1st of each
calendar year, effective beginning in 2001, equal to the lesser of:
. 5% of the outstanding shares of common stock on the first day of the
year,
. 10,000,000 shares, or
. such lesser amount as our board of directors may determine.
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<PAGE>
Our board of directors or a committee of our board administers the 2000
Stock Plan. The committee may consist of two or more "outside directors" to
satisfy certain tax and securities requirements. The administrator has the
power to determine the terms of the options or stock purchase rights granted,
including the exercise price, the number of shares subject to each option or
stock purchase right, the exercisability of the options, the vesting schedule
of the options and the form of consideration payable upon exercise. The
administrator determines the exercise price of options granted under our stock
option plan, but with respect to incentive stock options, the exercise price
must at least be equal to the fair market value of our common stock on the
date of grant. Additionally, the term of an incentive stock option may not
exceed ten years. The administrator determines the term of all other options.
No optionee may be granted an option to purchase more than 1,377,000 shares in
any fiscal year. In connection with his or her initial service, an optionee
may be granted an additional option to purchase up to 2,754,000 shares of our
common stock.
After termination of one of our employees, directors or consultants, he or
she may exercise his or her option for the period of time stated in the option
agreement to the extent that shares have vested. If termination is due to
death or disability, the option will generally remain exercisable for 12
months following such termination. In all other cases, the option will
generally remain exercisable for three months. However, an option may never be
exercised later than the expiration of its term. The administrator determines
the exercise price of stock purchase rights granted under our 2000 Stock Plan.
Unless the administrator determines otherwise, the restricted stock purchase
agreement will grant us a repurchase option that we may exercise upon the
voluntary or involuntary termination of the purchaser's service with us for
any reason (including death or disability). The purchase price for shares we
repurchase will generally be the original price paid by the purchaser. The
administrator determines the rate at which our repurchase option will lapse.
Our stock option plan generally does not allow for the transfer of options or
stock purchase rights and only the optionee may exercise an option and stock
purchase right during his or her lifetime.
Our 2000 Stock Plan provides that in the event of our merger with or into
another corporation or a sale of substantially all of our assets, the
successor corporation will assume or substitute for each option or stock
purchase right. If the outstanding options or stock purchase rights are not
assumed or substituted for, all outstanding options and stock purchase rights
will become fully vested and exercisable prior to the merger or sale of
assets.
Our 2000 Stock Plan will automatically terminate in 2010, unless we
terminate it sooner. In addition, our board of directors has the authority to
amend, suspend or terminate the stock option plan provided it does not
adversely affect any option previously granted under our stock option plan.
2000 Employee Stock Purchase Plan
Concurrently with this offering, we intend to establish an employee stock
purchase plan. A total of 1,500,000 shares of our common stock will be made
available for sale. In addition, our plan provides for annual increases in the
number of shares available for issuance under the purchase plan on January 1st
of each year, beginning in 2001, equal to the lesser of 2% of the outstanding
shares of our common stock on the first day of the calendar year, 3,000,000
shares, or such other lesser amount as may be determined by our board of
directors. Our board of directors or a committee of our board administers the
plan. Our board of directors or its committee has full and exclusive authority
to interpret the terms of the plan and determine eligibility. All of our
employees are eligible to participate if they are customarily employed by us
or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, an employee may not be granted an
option to purchase stock under the plan if such employee:
. immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
. whose rights to purchase stock under all of our employee stock purchase
plans accrues at a rate that exceeds $25,000 worth of stock for each
calendar year.
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Our plan is intended to qualify for preferential tax treatment and contains
consecutive, overlapping 24-month offering periods. Each offering period
includes four six-month purchase periods. The offering periods generally start
on the first trading day on or after February 1 and August 1 of each year,
except for the first such offering period which will commence on the first
trading day on or after the effective date of this offering and will end on
the last trading day on or before January 31, 2001.
The plan permits participants to purchase common stock through payroll
deductions of up to 15% of their eligible compensation which includes a
participant's base straight time gross earnings, commissions and bonuses but
excluding all other compensation paid to our employees. A participant may
purchase no more than 10,000 shares during any six-month purchase period.
Amounts deducted and accumulated by the participant are used to purchase
shares of our common stock at the end of each six-month purchase period. The
price is 85% of the lower of the fair market value of our common stock at the
beginning of an offering period or after a purchase period ends. If the fair
market value at the end of a purchase period is less than the fair market
value at the beginning of the offering period, participants will be withdrawn
from the current offering period following their purchase of shares on the
purchase date and will be automatically re-enrolled in a new offering period.
Participants may end their participation at any time during an offering
period, and will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us.
A participant may not transfer rights granted under our employee stock
purchase plan other than by will, the laws of descent and distribution or as
otherwise provided under the plan.
In the event of our merger with or into another corporation or a sale of
all or substantially all of our assets, a successor corporation may assume or
substitute each outstanding option. If the successor corporation refuses to
assume or substitute for the outstanding options, the offering period then in
progress will be shortened, and a new exercise date will be set.
Our plan will terminate in 2010. However, our board of directors has the
authority to amend or terminate our plan, except that, subject to certain
exceptions described in the plan, no such action may adversely affect any
outstanding rights to purchase stock under our plan.
2000 Director Option Plan
Our board of directors adopted the 2000 Director Option Plan in January
2000 and the plan was approved by our stockholders in April 2000. As of April
2000, a total of 688,500 shares were reserved for issuance under the Director
Plan, none of which were subject to outstanding options as of this date. The
number of shares reserved for issuance under our Director Plan will increase
annually on January 1st of each calendar year, effective beginning in 2001, by
an increase equal to that number of shares granted pursuant to options under
the Director Plan in the prior fiscal year or a lesser amount determined by
the board of directors.
All grants of options to our non-employee directors under the Director Plan
are automatic. We will grant each non-employee director an option to purchase
82,620 shares upon the date when such person first becomes a non-employee
director (except for those directors who became non-employee directors by
ceasing to be employee directors).
All options granted under our Director Plan have a term of ten years and an
exercise price equal to fair market value on the date of grant. Each option
vests and becomes exercisable as to 1/48th of the shares subject to the option
on each monthly anniversary of the date of grant, provided the non-employee
director remains a director on such dates. If a non-employee director's status
as a director terminates due to death or disability, the option will remain
exercisable for 12 months. In all other cases where a director's status is
terminated, the option will remain exercisable for a period of six months.
However, an option may never be exercised later than the expiration of its
term. A non-employee director may not transfer options granted under our
Director Plan other than by will or the laws of descent and distribution. Only
the non-employee director may exercise the option during his or her lifetime.
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In the event of our merger with or into another corporation or a sale of
substantially all of our assets, the successor corporation will assume or
substitute each option. If such assumption or substitution occurs, the options
will continue to be exercisable according to the same terms as before the
merger or sale of assets. Following such assumption or substitution, if a non-
employee director is terminated other than by voluntary resignation, the
option will become fully exercisable and generally will remain exercisable for
a period of six months. If the outstanding options are not assumed or
substituted for, our board of directors will notify each non-employee director
that he or she has the right to exercise the option as to all shares subject
to the option for a period of 180 days following the date of the notice. The
option will terminate upon the expiration of the 180-day period.
Unless terminated sooner, our Director Plan will automatically terminate in
2010. Our board of directors has the authority to amend, alter, suspend, or
discontinue the Director Plan, but no such action may adversely affect any
grant made under the Director Plan.
401(k) Plan
Our employee savings and retirement plan is qualified under Section 401 of
the Internal Revenue Code. Our employees may elect to reduce their current
compensation by up to the statutorily prescribed annual limit and have the
amount of such reduction contributed to the 401(k) plan. We may make matching
or additional contributions to the 401(k) plan in amounts to be determined
annually by our board of directors.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of transactions since inception in March
1998, to which we have been a party, in which the amount involved in the
transaction exceeds $60,000 and in which any director, executive officer or
holder of more than 5% of our capital stock had or will have a direct or
indirect material interest other than compensation arrangements which are
otherwise required to be described under "Management."
Series A Preferred Stock. On April 16, 1998, we sold 1,333,333 shares of
series A preferred stock at a per share price of $1.20. The sale of the series
A preferred stock included, among others, the sale of 1,250,000 shares of
series A preferred stock to Crosspoint Venture Partners 1997, a holder of more
than 5% of our common stock, for an aggregate consideration of $1,500,000.
Upon the closing of this offering, each share of series A preferred stock will
automatically convert into 4.131 shares of common stock. As a result,
Crosspoint Venture Partners 1997 will receive 5,163,750 shares of common stock
upon conversion of their shares of series A preferred at the completion of
this offering. Based an assumed public offering price of $10.00 per share,
these shares will have a value of $51,637,500 at the time of the offering.
Series B Preferred Stock. On June 8, 1998 and July 21, 1998, we sold an
aggregate of 3,248,904 shares of series B preferred stock at a per share price
of $1.65. Upon the closing of this offering, each share of series B preferred
stock will automatically convert into 4.131 shares of common stock. The
purchasers of the series B preferred stock, included, among others:
<TABLE>
<CAPTION>
Shares of Value of
Series B As Converted Aggregate Stock at
Preferred Shares of Purchase Time of
Purchaser Stock Common Stock Price Paid Offering
--------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Accel Partners............. 1,787,943 7,385,992 $2,950,106 $73,859,920
Crosspoint Venture Partners
1997...................... 696,995 2,879,286 1,150,042 28,792,860
Media Technology Ventures.. 666,690 2,754,096 1,100,039 27,540,960
</TABLE>
Series C Preferred Stock. On February 3, 1999, we sold 3,591,816 shares of
series C preferred stock at a per share price of $3.42. Upon the closing of
this offering, each share of series C preferred stock will automatically
convert into 4.131 shares of common stock. The purchasers of the series C
preferred stock, included, among others:
<TABLE>
<CAPTION>
Shares of Value of
Series C As Converted Aggregate Stock at
Preferred Shares of Purchase Time of
Purchaser Stock Common Stock Price Paid Offering
--------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Intel Corporation.......... 877,194 3,623,688 $3,000,003 $36,236,880
Crosspoint Venture Partners
1997...................... 621,200 2,566,177 2,124,504 25,661,770
Accel Partners............. 570,454 2,356,545 1,950,953 23,565,450
Media Technology Ventures.. 212,712 878,713 727,475 8,787,130
Peter Desnoes.............. 80,000 330,480 273,600 3,304,800
Michael Bowles............. 29,240 120,790 100,000 1,207,900
Chris Dier................. 8,772 36,237 30,000 362,370
</TABLE>
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Series D Preferred Stock. On October 14, 1999, we sold 7,072,732 shares of
series D preferred stock at a per share price of $5.96. Upon the closing of
this offering, each share of series D preferred stock will automatically
convert into 4.131 shares of common stock. The purchasers of the series D
preferred stock, included, among others:
<TABLE>
<CAPTION>
Shares of Value of
Series D As Converted Aggregate Stock at
Preferred Shares of Purchase Time of
Purchaser Stock Common Stock Price Paid Offering
--------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Intel Corporation............ 1,639,584 6,773,121 $9,771,921 $67,731,210
Microsoft Corporation........ 1,677,852 6,931,206 9,999,998 69,312,060
Accel Partners............... 1,090,604 4,505,285 6,500,000 45,052,850
Crosspoint Venture Partners
1997........................ 1,090,604 4,505,285 6,500,000 45,052,850
Media Technology Ventures.... 385,906 1,594,177 2,300,000 15,941,770
Peter Desnoes IRA............ 10,906 45,052 65,000 450,520
Leonard Grossi............... 8,400 34,700 50,064 347,000
Frederic Seegal.............. 8,389 34,654 49,998 346,540
Chris Dier................... 2,000 8,262 11,920 82,620
Tom Gillis................... 2,000 8,262 11,920 82,620
David Strehlow............... 2,000 8,262 11,920 82,620
Robert Davis................. 2,000 8,262 11,920 82,620
</TABLE>
Series D Warrant. On October 14, 1999, we granted a warrant to Microsoft to
purchase 218,120 shares of our series D preferred stock at an exercise price
of $5.96 per share. By virtue of the fact that at the completion of this
offering each share of series D preferred stock will convert into 4.131 shares
of common stock, at the completion of this offering, the Microsoft warrant
will be exercisable for 901,053 shares of common stock at $1.44 per share.
Common Stock. On March 23, 1998, we sold 7,636,669 shares of common stock
at a per share price of $.00024 to our three founders. Robert Wilmot, one of
our founders, is currently serving as one of our directors. The Wilmot Living
Trust, for which Mr. Wilmott and his spouse serve as trustees, purchased
2,743,190 shares of common stock. Of these shares, 75% are subject to our
right of repurchase which lapses as to 1.5625% of the shares after each month
Mr. Wilmot continues to serve as our employee or consultant. In connection
with the formation of our company, Mr. Wilmot entered into a consulting
agreement pursuant to which he agreed to spend at least one day a week
providing certain business development services as requested from time to time
by us.
Michael Bowles, another of our founders and our former Chief Executive
Officer and director, purchased 4,114,785 shares of common stock. Of these
shares, 75% were subject to our right of repurchase which lapsed as to 1.5625%
of the shares after each month. Mr. Bowles continued to serve as our employee
or consultant. In connection with Mr. Bowles' departure from our company in
September 1999, our repurchase right lapsed with respect to Mr. Bowles' shares
of common stock. See "--Employment Agreements."
Option Grants to Certain Directors. In September 1999, we granted Mr.
Seegal options to purchase 247,860 shares of common stock at an exercise price
of $0.145 per share. These options were granted under our 1998 Stock Plan. Of
these, 214,812 shares of common stock subject to options vest over a four year
period with 25% of the shares subject to option vesting 12 months from the
date of grant and the remaining shares vesting ratably each month after that
date so long as Mr. Seegal continues to serve as our director. The remaining
33,048 shares subject to option vest over one year with 25% of the shares
vesting at the end of each four month period from the date of grant so long as
Mr. Seegal continues to serve as our director.
In July 1998, we granted Mr. Desnoes an option to purchase 111,537 shares
of common stock at an exercise price of $0.040 per share. This option was
granted under our 1998 Stock Plan. The shares underlying this option were
immediately vested.
In January 2000, we granted Mr. Baker an option to purchase 82,620 shares
of common stock at an exercise price of $4.84 per share. These options were
granted under our 1998 Stock Plan. The shares underlying the option vests in
equal monthly installments over four years.
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<PAGE>
Consulting Agreement with Director. In January 2000, we entered into a
consulting agreement with Mr. Seegal, one of our directors, wherein Mr. Seegal
agreed to assist us in financing plans and strategies and perform such other
business and marketing services as may from time to time be reasonably
requested by us. To date, Mr. Seegal has been in regular contact with our
Chief Executive Officer and other of our officers advising on financing plans
and other strategic matters. In connection with this agreement, Mr. Seegal
purchased 908,820 shares of our common stock at a per share price of $4.84 for
an aggregate purchase price of $4,395,600, all of which are subject to our
right of repurchase which lapses with respect to 12.5% of the shares six
months from the date of the purchase and which lapses ratably with respect to
1/48 of the remaining shares each month thereafter. We loaned Mr. Seegal
$1,999,998 to apply to the purchase price for these shares. As of April 12,
2000, we and Mr. Seegal mutually agreed to terminate the consulting
arrangement. The parties terminated the arrangement effective May 8, 2000. We
have the right to repurchase the shares purchased by Mr. Seegal pursuant to
the consulting arrangement at cost until June 7, 2000. We intend to repurchase
the 908,820 shares of our common stock held by Mr. Seegal for $2,395,602 and
cancel the $1,999,998 of indebtedness owed to us by Mr. Seegal by June 7,
2000.
Microsoft Relationship. We entered into a collaboration agreement with
Microsoft, effective as of September 20, 1999, to improve the delivery of
streaming media over the Internet. Under the agreement, Microsoft recommends
us as a service provider for the delivery of broadband streaming media and we
will engage in cooperative sales efforts to promote Windows Media Technology.
Additionally, for the term of the agreement we have agreed to provide six
months of our services to content providers chosen by Microsoft, provided that
the value of these services to all such content providers does not exceed
$200,000 in the aggregate. Our agreement with Microsoft will extend through
September 2002. Microsoft has agreed to pay us $500,000 through April 15,
2000, all of which Microsoft may use to purchase our services either for
itself or on behalf of other Internet content providers. Microsoft's
obligations under the agreement are conditioned upon the performance of our
obligations under the agreement and our meeting certain performance criteria
for our services. On June 21, 1999, we also entered into an agreement with
Microsoft providing that Microsoft pay us $200,000. In consideration for this
payment we agreed to provide up to an aggregate of $200,000 in services to
content providers designated by Microsoft. This agreement extends through June
30, 2000 unless terminated by either party. This agreement may be terminated
by either party upon material breach of the other.
Agreement with Brewer Consulting. In connection with the hiring of David
Brewer, our Vice President of Operations, we agreed to purchase at least $2.0
million of services from Brewer Consulting Networks, a company controlled by
Mr. Brewer, beginning January 1, 2000 and ending December 31, 2001. Brewer
Consulting Networks provides us with consulting services related to the
installation of our network servers. Our obligation to purchase these services
from Brewer Consulting Networks is contingent on Mr. Brewer relinquishing
operational or ownership control of Brewer Consulting Networks. We paid Brewer
Consulting Networks an aggregate of $702,395 for services provided in 1999.
Indemnification
We have entered into indemnification agreements with each of our directors
and officers. These indemnification agreements and our certificate of
incorporation and bylaws require us to indemnify our directors and officers to
the fullest extent permitted by Delaware law. See "Management--Limitations on
Directors' Liability and Indemnification."
Conflict of Interest Policy
We believe that all transactions with affiliates described above were made
on terms no less favorable to us than could have been obtained from
unaffiliated third parties. Our policy is to require that a majority of the
independent and disinterested outside directors on our board of directors
approve all future transactions between us and our officers, directors,
principal stockholders and their affiliates. These transactions will continue
to be on terms no less favorable to us than we could obtain from unaffiliated
third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of March 31, 2000 (assuming conversion of all outstanding shares of
preferred stock into common stock upon the closing of this offering and as
adjusted to reflect the sale of the shares offered by this prospectus) by:
. each person who is known by us to beneficially own more than 5% of our
common stock;
. each of the named executives and each of our directors; and
. all of our officers and directors as a group.
Percentage of ownership is based on 95,147,834 shares outstanding as of
March 31, 2000, assuming conversion of the preferred stock, and 106,147,834
shares outstanding after this offering and no exercise of the underwriters'
over-allotment options. Beneficial ownership is calculated based on SEC
requirements. All shares of the common stock subject to options currently
exercisable or exercisable within 60 days after March 31, 2000 are deemed to
be outstanding for the purpose of computing the percentage of ownership of the
person holding such options, but are not deemed to be outstanding for
computing the percentage of ownership of any other person. Unless otherwise
indicated below, each stockholder named in the table has sole voting and
investment power with respect to all shares beneficially owned, subject to
applicable community property laws. Unless otherwise indicated in the table,
the address of each individual listed in the table is iBEAM Broadcasting
Corporation, 645 Almanor Avenue, Suite 100, Sunnyvale, CA 94086.
<TABLE>
<CAPTION>
Number of Percentage of Shares
Shares of Beneficially Owned
Beneficially ------------------------------
Name of Beneficial Owner Owned Before Offering After Offering
------------------------ ------------ --------------- --------------
<S> <C> <C> <C>
5% Stockholders:
Crosspoint Venture Partners 1997.. 15,114,498 15.9% 14.2%
2925 Woodside Road
Woodside, CA 94062
Accel Partners (1)................ 14,247,817 15.0 13.4
428 University Avenue
Palo Alto, Ca 94301
Intel Corporation................. 10,396,809 11.0 9.8
2200 Mission College Blvd.
Santa Clara, CA 95052-8119
Microsoft Corporation (2)......... 7,832,259 8.2 7.3
One Microsoft Way
Redmond, WA 98052-6399
Media Technology Ventures, L.P.
(3).............................. 5,226,985 5.5 4.9
One First Street
Los Altos, CA 94022
Executive Officers and Directors:
Peter Desnoes (4)................. 3,519,949 3.7 3.3
Chris Dier (5).................... 732,724 * *
Tom Gillis (6).................... 392,445 * *
Nils Lahr (7)..................... 439,952 * *
Jeremy Zullo (8).................. 417,231 * *
Barry Baker (9)................... 82,620 * *
Frederic Seegal(10)............... 1,191,334 1.3 1.1
Robert Wilmot (11)................ 2,743,190 2.9 2.6
Richard Shapero (12).............. 15,114,498 15.9 14.2
Peter Wagner (13)................. 14,247,817 15.0 13.4
All executive officers and
directors as a group (15 persons)
(14)............................. 41,115,392 41.7 37.5
</TABLE>
- --------
* Represents less than 1% of our outstanding common stock.
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<PAGE>
(1) Includes 1,481,771 shares held by Accel Internet Fund II L.P., 983,099
shares held by Accel Investors '98 L.P., 185,216 shares held by Accel
Keiretsu VI L.P. and 11,597,731 shares held by Accel VI L.P.
(2) Includes 901,053 shares issuable upon exercise of a warrant, which was
exercisable within 60 days of March 31, 2000.
(3) Includes 314,943 shares held by Media Technology Entrepreneurs Fund,
L.P., 282,787 shares held by Media Technology Ventures Entrepreneurs
Fund, L.P. and 4,629,255 shares held by Media Technology Ventures L.P.
(4) Includes 45,052 shares held by Peter Desnoes, IRA for which the Guarantee
& Trust Company is trustee. Also includes 1,050,000 shares subject to
options that were granted to Mr. Desnoes on April 11, 2000, all of which
are exercisable within 60 days of March 31, 2000.
(5) Includes 171,850 shares subject to options, all of which were exercisable
within 60 days of March 31, 2000. Includes 4,131 shares held by a member
of Mr. Dier's immediate family.
(6) Includes 165,240 shares subject to options, all of which were exercisable
within 60 days of March 31, 2000.
(7) Includes 209,442 shares subject to options, all of which were exercisable
within 60 days of March 31, 2000.
(8) All of these shares are subject to options and immediately exercisable.
(9) All of these shares are subject to options, all of which were exercisable
within 60 days of March 31, 2000.
(10) Includes 908,820 shares of common stock that we intend to repurchase from
Mr. Seegal in connection with the termination of our consulting
arrangement with Mr. Seegal.
(11) All of these shares are held in the name of the Wilmot Living Trust, of
which Mr. Wilmot and his spouse are trustees.
(12) All of these shares are held by Crosspoint Venture Partners 1997. Mr.
Shapero is a general partner of Crosspoint Venture Partners 1997 and is
one of our directors. Mr. Shapero disclaims beneficial ownership of
shares held by this entity, except to the extent of his proportional
partnership interest in Crosspoint Venture Partners 1997.
(13) All of these shares are held by entities affiliated with Accel Partners
(as described in footnote 1). Mr. Wagner is a general partner of Accel
Partners and is one of our directors. Mr. Wagner disclaims beneficial
ownership of shares held by these entities, except to the extent of his
proportional interest arising from his partnership interest in Accel
Partners.
(14) Includes 3,509,577 shares subject to options, all of which were
exercisable within 60 days of March 31, 2000.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, we will be authorized to issue
413,100,000 shares of common stock, $.0001 par value per share, and 10,000,000
shares of undesignated preferred stock, $.0001 par value per share. The
following description of our capital stock does not purport to be complete and
is subject to and qualified by our certificate of incorporation and bylaws,
which are included as exhibits to the registration statement of which this
prospectus forms a part, and by the provisions of applicable Delaware law.
Common Stock
As of March 31, 2000, there were 95,147,834 shares of common stock
outstanding, assuming the conversion of all outstanding shares of preferred
stock into common stock, which were held of record by approximately 260
stockholders. This number includes:
. 66,489,527 shares of common stock to be issued upon automatic conversion
of all outstanding shares of our series A, B, C, D and E preferred stock
upon completion of this offering;
. 8,233,173 shares of our series F preferred stock issued in connection with
the acquisition of webcasts.com and the conversion of those shares into
the same number of shares of common stock;
. 1,000,000 shares of our series G preferred stock to be issued to The Walt
Disney Corporation for $10.0 million at a per share price equal to the
price to the public in this offering and the conversion of these shares
into the same number shares of common stock; and
. 537,634 shares of our series H preferred stock to be issued to Excite@Home
for $5.0 million at a per share price equal to the price to the public in
this offering, less estimated underwriting commissions and discounts, and
the conversion of these shares into the same number of shares of common
stock.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock
are entitled to receive ratably dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of our liquidation, dissolution
or winding up, the holders of common stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. The common
stock has no preemptive or conversion rights or other subscription rights.
There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are fully paid and
nonassessable, and the shares of common stock to be issued upon the closing of
this offering will be fully paid and nonassessable.
Preferred Stock
The board of directors has the authority, without action by our
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. The effect of the
issuance of any shares of preferred stock upon the rights of holders of the
common stock might include, among other things, restricting dividends on the
common stock, diluting the voting power of the common stock, impairing the
liquidation rights of the common stock and delaying or preventing a change in
control of iBEAM without further action by the stockholders. We have no
present plans to issue any shares of preferred stock.
Warrants
On an as converted basis, as of March 31, 2000, there were warrants
outstanding to purchase a total of 1,949,987 shares of common stock. All of
these warrants will remain outstanding after the completion of this offering.
Of these, warrants to purchase 511,300 shares of common stock will expire
three years from the date of this prospectus unless earlier exercised, of
which 112,664 shares are exercisable at an exercise price of $0.40 per share,
268,246 shares are exercisable at an exercise price of $0.56 per share, 26,421
shares are exercisable at an exercise price of $1.14 per share and 103,969
shares are exercisable at an exercise price of $1.44 per share.
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<PAGE>
Another warrant to purchase 901,053 shares of common stock expires four years
from the completion of this offering unless earlier exercised and has an
exercise price of $1.44 per share. Another warrant to purchase 537,634 shares
of common stock expires four years from the closing of this offering unless
earlier exercised and has an exercise price of equal to the price to the
public in the offering, less estimated underwriting discounts and commissions.
Registration Rights
After this offering, the holders of approximately 76,260,334 shares of
common stock and the holders of warrants to purchase approximately 1,438,687
shares of common stock will be entitled to rights with respect to the
registration of these shares under the Securities Act. These holders are
entitled to demand registration rights pursuant to which they may require us
on up to two occasions to file a registration statement under the Securities
Act at our expense. We are required to use all reasonable efforts to effect
this registration. These registration rights are subject to the right of the
underwriters of an offering to limit the number of shares included in such
registration. They are also subject to our right not to effect a requested
registration within 180 days following an offering of our securities pursuant
to a registration statement in connection with an underwritten public
offering, including this offering, or if we believe that a registration at
that time would be seriously detrimental to us. Additionally, if we propose to
register any of our securities under the Securities Act, either for our
account or the account of other security holders exercising registration
rights, these holders are entitled to notice of such registration and are
entitled to include some or all of their shares of common stock in the
registration. These registration rights are also subject to the right of the
underwriters of an offering to limit the number of shares included in the
registration. Further, holders may require us to file registration statements
on Form S-3 at our expense. These registration rights are subject to our right
not to effect a requested registration if it would be seriously detrimental to
us to file an S-3 registration statement at that time.
Delaware Law and Certain Provisions of Our Certificate of Incorporation and
Bylaws
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make it more difficult to acquire us by means of a tender offer,
a proxy contest or otherwise and the removal of incumbent officers and
directors. These provisions, summarized below, are expected to discourage
certain types of coercive takeover practices and inadequate takeover bids and
to encourage persons seeking to acquire control of us to first negotiate with
us. We believe that the benefits of increased protection of our potential
ability to negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure us outweigh the disadvantages of
discouraging takeover or acquisition proposals because, among other things,
negotiation of these proposals could result in an improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became
an interested stockholder, unless, with exceptions, the business combination
or the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a business combination includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. Generally, an interested stockholder is
a person who, together with affiliates and associates, owns, or within three
years prior to the determination of interested stockholder status, did own,
15% or more of a corporation's voting stock. The existence of this provision
would be expected to have an anti-takeover effect with respect to transactions
not approved in advance by the board of directors, including the
discouragement of attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
Our certificate of incorporation and bylaws require that any action
required or permitted to be taken by our stockholders must be effected at a
duly called annual or special meeting of the stockholders and may not be
effected by a consent in writing. In addition, special meetings of our
stockholders may be called only by the board of directors or certain of our
officers. Our certificate of incorporation and bylaws also provide that,
beginning upon the closing of this offering, our board of directors will be
divided into three classes, with each
72
<PAGE>
class serving staggered three-year terms. These provisions may have the effect
of deterring hostile takeovers or delaying changes in control or management of
iBEAM.
Agreement with Investors
America Online, Pacific Century CyberWorks, Microsoft, Sony, Covad and
Exite@Home have each agreed not to acquire more than 15% of our voting stock
at any time before October 2004 without our permission. This standstill
agreement terminates under the following circumstances:
. we sell equity securities to another company with whom we have a strategic
relationship, and such company does not enter into a similar standstill
agreement;
. with respect to one of these investors, if another investor breaches the
standstill agreement and the breach is not cured within ten days; or
. another company or group initiates a tender offer for 15% or more of our
capital stock, acquires 15% of our capital stock, acquires all or
substantially all of our assets, enters an agreement to acquire 15% or
more of our capital stock, or solicits proxies in opposition to a proxy
solicitation of iBEAM.
In addition, these investors have agreed not to transfer shares of our
capital stock owned by them for a period of one year after the closing date of
this offering.
Voting Agreement
Each of Pacific Century CyberWorks, America Online, Microsoft, Sony, Covad
and Liberty Media, which in the aggregate will own 15.9% of our common stock
upon the closing of this offering, have agreed to vote their securities as
directed by our board of directors, in any merger in which more than 50% of
our voting power is transferred or in a sale of substantially all of our
assets. This obligation lapses for each of these companies if and when it owns
less than 5% of our voting power.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Equiserve Trust
Company. The transfer agent's address is P.O. Box 2533, mail stop 4691, Jersey
City, NJ 07303, and its telephone number is (201) 222-5610.
73
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of common stock in the
public market could adversely affect the market price of our common stock.
Upon completion of this offering, we will have outstanding 106,147,834
shares of common stock, assuming the issuance of 11,000,000 shares of common
stock offered by us and no exercise of options outstanding after March 31,
2000. Of the 11,000,000 shares sold in this offering, 9,800,000 shares will be
freely tradable without restriction or further registration under the
Securities Act, except for shares purchased by our affiliates, as defined
under the Securities Act. The Securities Act defines affiliates to be persons
that directly, or indirectly through one or more intermediaries, controls, or
is controlled by, or is under common control with, iBEAM. These persons
typically include our executive officers and directors. Shares purchased by
affiliates would be subject to the limitations and restrictions that are
described below.
Of the remaining 96,347,834 shares of common stock, 95,147,834 shares were
issued and sold by us in reliance on exemptions from the registration
requirements of the Securities Act and 1,200,000 shares were issued in this
offering as part of our directed share program. All these shares will be
subject to lock-up agreements, described below, on the date of this
prospectus. Upon expiration of the lock-up agreements, 83,071,938 shares will
become eligible for sale pursuant to Rule 144(k), Rule 144, and Rule 701.
Thereafter, 13,275,876 shares will become eligible for sale pursuant to Rule
144.
<TABLE>
<CAPTION>
Approximate
Number of
Shares Eligible
Relevant Dates for Future Sale Comment
- -------------- --------------- --------------------------------------
<S> <C> <C>
On the date of this 9,800,000 Freely tradable shares sold in
prospectus.............. this offering
180 days after the date 83,071,938 All shares subject to lock-up
of this prospectus...... agreements released; shares saleable
under Rules 144, 144(k) and 701
Thereafter............... 13,275,876 Shares saleable under Rule 144
</TABLE>
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately 1,061,478 shares immediately after this offering, or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to other requirements regarding the
manner of sale, notice filing and the availability of current public
information about us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, notice
filing, volume limitation or notice provisions of Rule 144. Therefore, unless
otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
Rule 701
In general, under Rule 701, any of our employees, directors, officers,
consultants, or advisors who purchases shares from us in connection with a
compensatory stock or option plan or other written agreement before the
74
<PAGE>
effective date of this offering is entitled to resell such shares 90 days
after the effective date of this offering in reliance on Rule 144, without
having to comply with the holding period requirements or other restrictions
contained in Rule 701.
The Securities and Exchange Commission has indicated that Rule 701 will
apply to typical stock options granted by an issuer before it becomes subject
to the reporting requirements of the Securities Exchange Act, along with the
shares acquired upon exercise of such options, including exercises after the
date of this prospectus. Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this prospectus, may be sold by
persons other than "affiliates," as defined in Rule 144, subject only to the
manner of sale provisions of Rule 144 and by "affiliates" under Rule 144
without compliance with its one-year minimum holding period requirement.
Registration Rights
Beginning six months after the date of this offering, the holders of
approximately 76,260,334 shares of common stock and the holders of warrants to
purchase approximately 1,438,687 shares of common stock will be entitled to
certain rights with respect to the registration of these shares for sale in
the public market. See "Description of Capital Stock--Registration Rights."
Registration of these shares under the Securities Act would result in these
shares becoming freely tradeable in the public market without restriction.
Warrants
As of March 31, 2000, there were a total of 1,949,987 shares of common
stock subject to outstanding warrants, all of which are subject to lock-up
agreements similar to those described below. These shares will become eligible
for sale on various date upon expiration or release of the 180-day lock-up
agreements.
Stock Options
As of March 31, 2000, there were a total of 11,816,815 shares of common
stock subject to outstanding options under our 1998 Stock Plan, all of which
are subject to lock-up agreements similar to those described below.
Immediately after the completion of the offering, we intend to file
registration statements on Form S-8 under the Securities Act to register all
of the shares of common stock issued or reserved for future issuance under our
1998 Stock Plan, 2000 Stock Plan, 2000 Director Stock Option Plan, and 2000
Employee Stock Purchase Plan. After the effective dates of these registration
statements, shares purchased upon exercise of options granted under the 1998
Stock Plan, 2000 Stock Plan, 2000 Director Stock Plan and 2000 Employee Stock
Purchase Plan will be available for resale in the public market.
Lock-up Agreements
All of our officers and directors and substantially all of our
stockholders, have agreed, subject to limited exceptions, not to offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise transfer or dispose of, directly or indirectly, or
enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of any shares of
common stock or any securities convertible into or exercisable or exchangeable
for shares of common stock for a period ending 180 days after the date of this
prospectus, without the prior written consent of Morgan Stanley & Co.
Incorporated. In addition, the participants in the directed share program, as
described in the section entitled "Underwriters," will be subject to similar
lock-up restrictions.
We have no agreement or understanding with Morgan Stanley & Co.
Incorporated for a waiver of these lock-up restrictions. However, Morgan
Stanley & Co. Incorporated may, in its discretion, release us or any of our
stockholders at any time, without notice, prior to the expiration of the lock-
up period. In some cases underwriters have agreed to waive lock-up
restrictions when a company's stock has performed well for a sustained period
of time in order to allow a follow-on offering of common stock. Any decision
by Morgan Stanley & Co. Incorporated to waive the lock-up restrictions would
depend on a number of factors, including market conditions, the performance of
our common stock in the market and our financial condition at that time. If
Morgan Stanley & Co. Incorporated were to waive the lock-up restrictions prior
to the expiration of the 180-day period, and our stockholders were to sell
additional shares of common stock to the public, the market price of our
common stock could decline.
75
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., FleetBoston
Robertson Stephens Inc., and J.P. Morgan Securities Inc. are acting as
representatives, have severally agreed to purchase, and iBEAM has agreed to
sell to them, severally, the number of shares indicated below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ----------
<S> <C>
Morgan Stanley & Co. Incorporated................................
Bear, Stearns & Co. Inc. ........................................
FleetBoston Robertson Stephens Inc. .............................
J.P. Morgan Securities Inc. .....................................
----------
Total.......................................................... 11,000,000
==========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from iBEAM and subject to prior sale. The
underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of common stock
offered by this prospectus are subject to the approval of certain legal
matters by their counsel and to certain other conditions. The underwriters are
obligated to take and pay for all of the shares of common stock offered by
this prospectus if any such shares are taken. However, the underwriters are
not required to take or pay for the shares covered by the underwriters' over-
allotment option described below.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price listed on the cover
page of this prospectus and part to certain dealers at a price that represents
a concession not in excess of $ a share under the public offering price.
No underwriter will allow, and no dealer will reallow, a concession to other
underwriters or to dealers. After the initial offering of the shares of common
stock, the offering price and other selling terms may from time to time be
varied by the representatives.
iBEAM has granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to an aggregate of 1,650,000
additional shares of common stock at the public offering price listed on the
cover page of this prospectus, less underwriting discounts and commissions.
The underwriters may exercise this option solely for the purpose of covering
overallotments, if any, made in connection with the offering of the shares of
common stock offered by this prospectus. To the extent the option is
exercised, each underwriter will become obligated, subject to certain
conditions, to purchase about the same percentage of the additional shares of
common stock as the number listed next to the underwriter's name in the
preceding table bears to the total number of shares of common stock listed
next to the names of all underwriters in the preceding table. If the
underwriters' option is exercised in full, the total price to the public would
be $ , the total underwriters' discounts and commissions would be $
and total proceeds to iBEAM would be $ .
The underwriting discounts and commissions will be determined by
negotiations between iBEAM and the representatives and will be a percentage of
the offering price to the public. The primary factors to be considered in
determining the discounts and commissions will be the size of the offering,
the nature of the securities offered and the discounts and commissions charged
in comparable transactions. The estimated offering expenses payable by iBEAM,
in addition to the underwriting discounts and commissions, are approximately
$1,750,000, which includes legal, accounting and printing costs and various
other fees associated with registering and listing the common stock.
76
<PAGE>
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters of iBEAM. These amounts are
shown assuming both no exercise and full exercise of the underwriters' over-
allotment option.
<TABLE>
<CAPTION>
Per Share Total
----------------- -----------------
No Full No Full
Exercise Exercise Exercise Exercise
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Underwriting discounts and commission paid
by iBEAM................................. $ $ $ $
</TABLE>
The underwriters have informed iBEAM that they do not intend sales to
discretionary accounts to exceed 5% of the total number of shares of common
stock offered by them.
Application has been made for quotation on the Nasdaq National Market under
the symbol "IBEM."
Each of iBEAM and the directors, executive officers and certain other
stockholders of iBEAM has agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not,
during the period ending 180 days after the date of this prospectus:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock.
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise. The restrictions
described in this paragraph do not apply to:
. the sale of shares to the underwriters;
. the issuance by iBEAM of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing; or
. transactions by any person other than iBEAM relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters are not required to engage in
these activities, and may end any of these activities at any time.
iBEAM and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
At the request of iBEAM, the underwriters have reserved for sale, at the
initial offering price, up to 1,200,000 shares offered hereby for directors,
officers, employees and business associates and related persons, such as
consultants and suppliers, of iBEAM. The shares of common stock available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any reserved shares which are not so
77
<PAGE>
purchased will be offered by the underwriters to the general public on the
same basis as the other shares offered hereby. Purchasers of these shares that
are not otherwise subject to the restrictions described above must represent
that they will not sell, transfer, assign, pledge or hypothecate these shares
for the period ending 180 days after the date of this prospectus.
Morgan Stanley Dean Witter Online Inc., an affiliate of Morgan Stanley &
Co. Incorporated, will distribute shares of common stock over the Internet to
its eligible account holders. E*TRADE Securities, Inc. will also distribute
shares of common stock over the Internet to its customers. In connection with
these Internet distributions, each of these underwriters will provide for
offers and acceptances of offers to be made through e-mail and over the
Internet.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between iBEAM and the representatives. The primary factors to be considered in
determining the initial public offering price will be the future prospects of
iBEAM and its industry in general, revenues, operating results and certain
other financial operating information of iBEAM in recent periods, and the
price-earnings ratios, price-revenues ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to those of iBEAM. The estimated initial public offering price range
set forth on the cover page of this preliminary prospectus is subject to
change as a result of market conditions and other factors.
iBEAM sold an aggregate of 83,893 shares of Series D preferred stock to
J.P. Morgan Direct Venture Capital Institutional Investors LLC and J.P. Morgan
Direct Venture Capital Private Investors LLC in October 1999, each of which is
a fund of investors associated with J.P. Morgan Securities Inc., one of the
representatives in this offering.
78
<PAGE>
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for iBEAM by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California. An investment partnership composed of current and
former members of and persons associated with Wilson Sonsini Goodrich &
Rosati, Professional Corporation, beneficially owns series D preferred stock
convertible into 34,654 shares of our common stock upon completion of this
offering. Davis Polk & Wardwell, Menlo Park, California, is representing the
underwriters in connection with this offering.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and for the
period from March 20, 1998 (inception) to December 31, 1998 and 1999 and for
the year ended December 31, 1999 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of webcasts.com as of December 31,
1998 and 1999, and for the years then ended have been included herein in
reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act in connection with this
offering. This prospectus does not contain all of the information in the
registration statement and the accompanying exhibits and schedules. For
further information with respect to our company and our common stock, we refer
you to the registration statement and the accompanying exhibits and schedules.
Statements contained in this prospectus as to the contents of any contract or
any other document referred to are not necessarily complete. In each instance,
we refer you to the copy of such contract or document filed as an exhibit to
the registration statement, and each such statement is qualified in all
respects by such reference. The registration statement, including the
accompanying exhibits and schedules, may be inspected without charge at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, Suite 1300, New York, New York 10048 and
Northwestern Atrium Center, 500 Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of these materials may be obtained from the public
reference section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a website that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's website is sec.gov. The information on the Commission's website
is not incorporated into this prospectus.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and will
file periodic reports, proxy statements and other information with the
Commission. Such periodic reports, proxy statements and other information will
be available for inspection and copying at the regional offices, public
reference facilities and website of the Commission referred to above.
79
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
iBEAM Broadcasting Corporation
Report of Independent Accountants....................................... F-2
Balance Sheets.......................................................... F-3
Statements of Operations................................................ F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders'
Deficit................................................................ F-5
Statements of Cash Flows................................................ F-6
Notes to Financial Statements........................................... F-7
Unaudited Pro Forma Combined Financial Information...................... F-22
webcasts.com, Inc. and Subsidiary
Independent Auditors' Report............................................ F-28
Consolidated Balance Sheets............................................. F-29
Consolidated Statements of Operations................................... F-30
Consolidated Statements of Stockholders' Equity (Deficit)............... F-31
Consolidated Statements of Cash Flows................................... F-32
Notes to Consolidated Financial Statements.............................. F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
iBEAM Broadcasting Corporation
In our opinion, the accompanying balance sheets and the related statements
of operations, of redeemable convertible preferred stock and stockholders'
deficit and of cash flows present fairly, in all material respects, the
financial position of iBEAM Broadcasting Corporation (a development stage
company) as of December 31, 1998 and 1999 and the results of its operations
and its cash flows for the period from March 20, 1998 (inception) to December
31, 1998, and for the year ended December 31, 1999, and for the period from
March 20, 1998 (inception) to December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
January 28, 2000, except as to the third
paragraph of Note 2, which is as of April 11, 2000
F-2
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
----------------- March 31, March 31,
1998 1999 2000 2000
------- -------- --------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 2,198 $ 24,863 $ 9,849
Short-term investments............. -- 4,977 11,980
Accounts receivable ............... -- 70 217
Prepaid expenses and other current
assets............................ 125 796 6,857
------- -------- --------
Total current assets.............. 2,323 30,706 28,903
Property and equipment, net......... 1,477 12,912 36,886
Note receivable due from
webcasts.com....................... -- -- 10,000
Other assets........................ 407 1,123 4,637
------- -------- --------
$ 4,207 $ 44,741 $ 80,426
======= ======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable................... $ 815 $ 3,055 $ 8,012
Accrued liabilities................ 437 879 3,187
Deferred revenue................... -- 448 331
Current portion of capital lease
obligations....................... -- 1,573 2,591
------- -------- --------
Total current liabilities......... 1,252 5,955 14,121
Capital lease obligations, net of
current portion.................... -- 3,627 6,601
------- -------- --------
Total liabilities................. 1,252 9,582 20,722
------- -------- --------
Commitments and contingencies (Note
6)
Redeemable convertible preferred
stock, $0.0001 par value; 20,000
shares authorized; 4,582, 15,247,
17,792 (unaudited) and no
(unaudited) shares issued and
outstanding (aggregate liquidation
value at December 31, 1999 and
March 31, 2000 of $61,398 and
$96,398, respectively)............. 6,905 61,192 96,114 $ --
------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.0001 par value;
40,000 shares authorized; 9,827,
17,132, 18,887 (unaudited) and
85,377 (unaudited) shares issued
and outstanding................... 1 2 2 9
Additional paid-in capital......... 853 21,773 60,320 156,427
Stockholders' note receivable...... -- -- (2,000) (2,000)
Unearned stock-based compensation.. (577) (13,613) (28,386) (28,386)
Deficit accumulated during
development stage................. (4,227) (34,195) (66,346) (66,346)
------- -------- -------- --------
Total stockholders' equity
(deficit)........................ (3,950) (26,033) (36,410) $ 59,704
------- -------- -------- ========
$ 4,207 $ 44,741 $80,426
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from Period from
March 20, 1998 March 20, 1998 Three Months
(Inception) to Year Ended (Inception) to Ended March 31,
December 31, December 31, December 31, -----------------
1998 1999 1999 1999 2000
-------------- ------------ -------------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue................. $ -- $ 149 $ 149 $ -- $ 532
------- -------- -------- ------- --------
Operating costs and
expenses:
Cost of services....... -- 8,249 8,249 855 8,119
Engineering and
development........... 1,468 4,531 5,999 554 4,584
Sales and marketing.... 1,788 10,363 12,151 1,268 5,768
General and
administrative........ 1,096 7,174 8,270 767 3,733
------- -------- -------- ------- --------
Total operating costs
and expenses......... 4,352 30,317 34,669 3,444 22,204
------- -------- -------- ------- --------
Loss from operations.... (4,352) (30,168) (34,520) (3,444) (21,672)
Interest income......... 125 579 704 73 473
Loss on disposal of
assets................. -- (199) (199) -- --
Interest and other
expense................ -- (180) (180) (43) (156)
------- -------- -------- ------- --------
Net loss................ (4,227) (29,968) (34,195) (3,414) (21,355)
Deemed dividend related
to preferred stock..... -- -- -- -- (10,796)
------- -------- -------- ------- --------
Net loss attributable to
common stock........... $(4,227) $(29,968) $(34,195) $(3,414) $(32,151)
======= ======== ======== ======= ========
Net loss per share
attributable to common
stock--basic and
diluted................ $ (0.56) $ (3.43) $ (0.40) $ (3.04)
======= ======== ======= ========
Weighted average common
shares outstanding..... 7,488 8,726 8,462 10,589
======= ======== ======= ========
Pro forma net loss per
share--basic and
diluted (unaudited).... $ (0.63) $ (0.43)
======== ========
Pro forma weighted
average common shares
outstanding
(unaudited)............ 47,435 74,860
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Redeemable
Convertible Deficit
Preferred Accumulated
Stock Common Stock Additional Stockholders' Unearned During Total
-------------- -------------- Paid-in Note Stock-based Development Stockholders'
Shares Amount Shares Amount Capital Receivable Compensation Stage Deficit
------ ------- ------ ------ ---------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 20,
1998 (Inception)
Issuance of common stock
in March 1998........... -- $ -- 7,636 $ 1 $ 1 $ -- $ -- $ -- $ 2
Issuance of series A
redeemable convertible
preferred stock at $1.20
per share, less issuance
costs of $33, in April
1998.................... 1,333 1,567 -- -- -- -- -- -- --
Issuance of series B
redeemable convertible
preferred stock at $1.65
per share, less issuance
costs of $22, in June
and July 1998........... 3,249 5,338 -- -- -- -- -- -- --
Exercise of employee
stock options........... -- -- 2,191 -- 17 -- -- -- 17
Issuance of warrants in
connection with capital
leases (Note 7)......... -- -- -- -- 219 -- -- -- 219
Unearned stock-based
compensation, net....... -- -- -- -- 616 -- (577) -- 39
Net loss................ -- -- -- -- -- -- -- (4,227) (4,227)
------ ------- ------ --- ------- ------- -------- -------- --------
Balance at December 31,
1998 4,582 6,905 9,827 1 853 -- (577) (4,227) (3,950)
Issuance of series C
redeemable convertible
preferred stock at $3.42
per share, less issuance
costs of $83, in
February 1999........... 3,592 12,201 -- -- -- -- -- -- --
Issuance of series D
redeemable convertible
preferred stock at $5.96
per share, less issuance
costs of $67, in October
1999.................... 7,073 42,086 -- -- -- -- -- -- --
Exercise of employee
stock options, net...... -- -- 6,987 1 685 -- -- -- 686
Issuance of common stock
for services rendered... -- -- 318 -- 232 -- -- -- 232
Issuance of warrants in
connection with capital
leases (Note 7)......... -- -- -- -- 574 -- -- -- 574
Issuance of warrant to
an investor in October
1999 (Note 7)........... -- -- -- -- 1,000 -- -- -- 1,000
Unearned stock-based
compensation, net....... -- -- -- -- 18,429 -- (13,036) -- 5,393
Net loss................ -- -- -- -- -- -- -- (29,968) (29,968)
------ ------- ------ --- ------- ------- -------- -------- --------
Balance at December 31,
1999 15,247 61,192 17,132 2 21,773 -- (13,613) (34,195) (26,033)
Issuance of series E
redeemable convertible
preferred stock at
$13.75 per share, less
issuance cost of $78, in
February 2000
(unaudited)............. 2,545 34,922 -- -- -- -- -- -- --
Deemed dividend related
to issuance of series E
redeemable convertible
preferred stock
(unaudited)............. -- -- -- -- 10,796 -- -- (10,796) --
Issuance of common stock
(unaudited)............. -- -- 909 -- 4,396 (2,000) -- -- 2,396
Issuance of common stock
for services rendered
(unaudited)............. -- -- 4 -- 50 -- -- -- 50
Repurchase of common
stock (unaudited)....... -- -- (518) -- (21) -- -- -- (21)
Exercise of employee
stock options
(unaudited)............. -- -- 1,360 -- 1,709 -- -- -- 1,709
Issuance of warrant in
February 2000 (Note
10)(unaudited).......... -- -- -- -- 2,750 -- -- -- 2,750
Unearned stock-based
compensation, net
(unaudited)............. -- -- -- -- 18,867 -- (14,773) -- 4,094
Net loss (unaudited).... -- -- -- -- -- -- -- (21,355) (21,355)
------ ------- ------ --- ------- ------- -------- -------- --------
Balance at March 31,
2000 (unaudited)........ 17,792 $96,114 18,887 $ 2 $60,320 $(2,000) $(28,386) $(66,346) $(36,410)
====== ======= ====== === ======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from Period from
March 20, 1998 March 20, 1998 Three Months
(Inception) to Year Ended (Inception) to Ended March 31,
December 31, December 31, December 31, -----------------
1998 1999 1999 1999 2000
-------------- ------------ -------------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(4,227) $(29,968) $(34,195) $(3,414) $(21,355)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 65 1,707 1,772 117 2,067
Loss on disposal of
assets............... -- 199 199 -- --
Amortization of stock-
based compensation... 39 5,393 5,432 231 4,094
Issuance of common
stock for services... -- 232 232 -- 50
Issuance of warrant
(see Note 7)......... -- 1,000 1,000 -- --
Changes in assets and
liabilities:
Accounts receivable.. -- (70) (70) -- (147)
Prepaid expenses and
other assets........ (313) (813) (1,126) (214) (6,825)
Accounts payable..... 815 2,240 3,055 (259) 4,957
Accrued liabilities.. 437 442 879 42 2,308
Deferred revenue..... -- 448 448 -- (117)
------- -------- -------- ------- --------
Net cash used in
operating
activities......... (3,184) (19,190) (22,374) (3,497) (14,968)
------- -------- -------- ------- --------
Cash flows from
investing activities:
Purchase of property
and equipment......... (1,542) (7,491) (9,033) (320) (21,768)
Purchase of
investments........... -- (4,977) (4,977) -- (7,003)
Note receivable due
from webcasts.com..... -- -- -- -- (10,000)
------- -------- -------- ------- --------
Net cash used in
investing
activities......... (1,542) (12,468) (14,010) (320) (38,771)
------- -------- -------- ------- --------
Cash flows from
financing activities:
Issuance of convertible
preferred stock....... 6,905 54,287 61,192 12,201 34,922
Issuance of common
stock................. 19 686 705 318 4,084
Proceeds from lease
financing............. -- -- -- 1,001 --
Payment of capital
lease obligations..... -- (650) (650) (73) (281)
------- -------- -------- ------- --------
Net cash provided by
financing
activities......... 6,924 54,323 61,247 13,447 38,725
------- -------- -------- ------- --------
Net increase in cash and
cash equivalents....... 2,198 22,665 24,863 9,630 (15,014)
Cash and cash
equivalents at
beginning of period.... -- 2,198 -- 2,198 24,863
------- -------- -------- ------- --------
Cash and cash
equivalents at end of
period................. $ 2,198 $ 24,863 $ 24,863 $11,828 $ 9,849
======= ======== ======== ======= ========
Supplemental non-cash
investing and financing
activities:
Property and equipment
purchased under
capital lease
obligations........... $ -- $ 5,850 $ 5,850 $ 872 $ 4,273
Issuance of warrants... 219 574 793 -- 2,750
Deemed dividend related
to preferred stock.... -- -- -- -- 10,796
Supplemental cash flows
disclosures:
Cash paid for
interest.............. -- 140 140 28 100
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
1. The Company
iBEAM Broadcasting Corporation (the "Company"), formerly Bowles, Inc., was
incorporated on March 20, 1998 in Delaware. iBEAM provides an Internet
broadcast network that enables content providers to broadcast content over the
Internet. The network uses point-to-multipoint satellite broadcasting of
Internet content to intelligent iBEAM servers located at the edge of the
Internet, which is the Internet access point closest to the end user.
Prior to March 31, 2000 the Company was in the development stage, devoting
substantially all of its efforts to product development and raising capital
financing. The Company has funded its operating losses since inception through
capital lease obligations and the sale of equity securities. Management's
plans for funding operations include generating revenue while controlling
costs, the sale of equity securities and the utilization of equipment lease
lines (see Note 5). The Company's failure to sell its services or to raise
sufficient capital would unfavorably impact the Company.
2. Significant Accounting Policies
Unaudited interim results
The accompanying interim financial statements as of March 31, 2000 and for
the three-months ended March 31, 1999 and 2000 are unaudited. The unaudited
interim financial statements have been prepared on the same basis as the
annual financial statements and, in the opinion of management, reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial position, results of operations and
cash flows as of March 31, 2000 and for the three months ended March 31, 1999
and 2000. The financial data and other information disclosed in these notes to
financial statements related to these periods are unaudited. The results for
the three months ended March 31, 2000 are not necessarily indicative of the
results to be expected for the year ending December 31, 2000.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Stock split
The Company's Board of Directors authorized a 3-for-1 stock split of the
Company's common stock in January 2000. In March 2000, the Company's Board of
Directors authorized a 1.377-for-1 stock split of the Company's common stock.
All common and per share information in these financial statements has been
retroactively adjusted to reflect these stock splits. As a result of these
splits, the conversion rate of Series A, B, C, and D redeemable convertible
preferred stock into common stock automatically adjusts from 1:1 to 1:4.131
and has been retroactively adjusted in these financial statements (see note
7). The Company issued Series E redeemable convertible preferred stock in
February 2000. The conversion rate of Series E redeemable convertible
preferred stock into common stock automatically adjusts from 1:1 to 1:1.377.
Risks and uncertainties
The Company is subject to all of the risks inherent in an early stage
company conducting electronic services over the Internet. These risks include,
but are not limited to, a limited operating history, limited management
F-7
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
resources, dependence upon consumer acceptance of the Internet and the
changing nature of the electronic broadcasting industry. The Company's
operating results may be materially affected by the foregoing factors.
Cash, cash equivalents, restricted cash and investments
The Company considers all highly liquid investments purchased with original
or remaining maturities of three months or less at the date of purchase to be
cash equivalents. Restricted cash of $107,000 consists of a certificate of
deposit held as collateral against the Company's corporate credit cards and is
included in other assets.
The Company classifies all short-term investments as available-for-sale in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
Company's short-term investments are invested in high-grade corporate
securities and government bonds maturing approximately twelve months or less
from the date of purchase. At December 31, 1999, these investments are carried
at cost, which approximates fair value. Material unrealized gains or losses,
if any, are reported in stockholders' equity and included in other
comprehensive income. The cost of securities sold is based on the specific
identification method. For the year ended December 31, 1999, realized gains
and losses on available-for-sale securities were immaterial.
Fair value of financial instruments
The reported amounts of certain of the Company's financial instruments,
including cash and cash equivalents, short-term investments, accounts
receivable, accounts payable and accrued liabilities approximate fair value
due to their short maturities.
Concentration of credit risk
Cash and cash equivalents are deposited in large domestic financial
institutions that management believes are creditworthy. With respect to
accounts receivable, the Company's customer base is dispersed across many
geographic areas primarily within the United States. The Company performs
ongoing credit evaluations of its customers financial condition, generally
requires no collateral from its customers, and establishes allowances for bad
debt as warranted.
Property and equipment
Property and equipment are stated at cost. Depreciation is generally
computed using the straight-line method over the estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Network equipment, computers, software and 3 years
other equipment.............................
Furniture and fixtures....................... 5-7 years
Leasehold improvements....................... Shorter of the lease term or
the estimated useful life
</TABLE>
Long-lived assets
The Company evaluates the recoverability of its long-lived assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," which requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets.
F-8
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Revenue recognition
On-Air is a service that provides the customer the ability to transfer live
content 24 hours a day, 7 days a week. On-Air services are provided under
contracts that typically last for a period of three to twelve months. These
services are billed based upon either the peak capacity purchased, which is
expressed as the maximum volume that can be delivered per second, or upon
actual usage, which is the total amount of megabytes transferred in the month.
These contracts may also provide for minimum monthly fees. Revenue for these
services is recognized as the service is provided.
On-Stage services are provided under contracts that typically relate to a
single event. These services are billed based upon the peak capacity purchased
which is the maximum megabits delivered per second per event, or upon actual
usage, which is the total amount of megabits transferred. These contracts may
also provide for minimum fees. Revenue for these services is recognized as the
service is provided.
On-Demand is a service that allows the customer to store content on the
Company's network, which can then be accessed by end users at any time. This
service is provided under contracts that typically last for a period of three
to twelve months. There are two streams of revenue associated with this
service. Firstly, there is a fee for the amount of content stored, measured in
gigabytes per month. Secondly, there is a charge for the amount of content
delivered to end users which is billed based upon either the peak capacity
purchased, which is the maximum megabits delivered per second, or upon actual
usage, which is the total amount of megabytes transferred in the month. These
contracts may also provide for minimum monthly fees. Revenue for these
services is recognized as the service is provided.
The Company has the ability to insert advertisements into the content
delivered in connection with the On-Air, On-Stage and On-Demand services.
Revenue from advertising is recognized over the period the advertisements are
delivered.
Other services such as encoding, production, event management, acquisition
services, custom web integration with chat and e-commerce tools are generally
provided on a consulting basis on either hourly or fixed price billing over a
period of 30 days or less. Revenue for these services is recognized upon
completion of the services.
The Company is required to share 15%-20% of the revenue generated from the
delivery of content from the On-Air, On-Stage and On-Demand services with
certain internet service providers. The Company records the revenue from On-
Air, On-Stage and On-Demand services gross because they act as the principal
in the transactions and are wholly responsible for the delivery of the
services. In addition, the Company bears the risk of loss for collection from
the customer. The Company records the revenue sharing amount as cost of
services.
Cash payments received in advance of services provided are recorded as
deferred revenue.
Engineering and development expense
Engineering and development costs are expensed as incurred, except for
certain software development costs. In January 1999, the Company adopted
Statement of Position ("SOP") 98-1, which requires software development costs
associated with internal use software to be charged to operations until
certain capitalization criteria are met. For the year ended December 31, 1999,
software development costs of approximately $800,000 were capitalized and
included in property and equipment.
F-9
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Advertising expense
Expenses related to advertising and promotion of products is charged to
sales and marketing expense as incurred. Advertising expense for the period
from March 20, 1998 (inception) to December 31, 1998 and for the year ended
December 31, 1999 was $23,000 and $2,621,000, respectively.
Stock-based compensation expense
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25 ("APB
No. 25"), "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation expense is based on the
difference, if any, on the date of grant, between the fair value of the
Company's shares and the exercise price of the option. Equity instruments
issued to nonemployees are accounted for in accordance with the provisions of
SFAS No. 123 and Emerging Issues Task Force ("EITF") 96-18.
Comprehensive income (loss)
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity (net assets) during a
period from non-owner sources. There is no difference between net loss and
comprehensive loss.
Net loss per share
Basic and diluted net loss per share is computed by dividing the net loss
for the period by the weighted average number of shares of common stock
outstanding during the period. The calculation of diluted net loss per share
excludes potential common shares if the effect is antidilutive. Potential
common shares are comprised of common stock subject to repurchase rights and
incremental shares of common and preferred stock issuable upon the exercise of
stock options or warrants and upon conversion of Series A, Series B, Series C
and Series D convertible preferred stock (collectively, "Preferred Stock").
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Period from
March 20, 1998 Three Months
(Inception) to Year Ended Ended March 31,
December 31, December 31, -----------------
1998 1999 1999 2000
-------------- ------------ ------- --------
(unaudited)
<S> <C> <C> <C> <C>
Net loss attributable to common
stock.......................... $(4,227) $(29,968) $(3,414) $(32,151)
======= ======== ======= ========
Basic and diluted:
Weighted average common shares
outstanding................... 9,610 14,678 13,937 18,132
Weighted average unvested
common shares subject to
repurchase.................... (2,122) (5,952) (5,475) (7,543)
------- -------- ------- --------
Weighted average shares used to
compute basic and diluted net
loss per share attributable to
common stock.................. 7,488 8,726 8,462 10,589
======= ======== ======= ========
Net loss per share attributable
to common stock--basic and
diluted........................ $ (0.56) $ (3.43) $ (0.40) $ (3.04)
======= ======== ======= ========
</TABLE>
F-10
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table sets forth potential common shares that are not
included in the diluted net loss per share calculation above because to do so
would be antidilutive (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1998 1999 2000
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Convertible preferred stock upon conversion to
common stock....................................... 18,930 62,984 66,489
Convertible preferred stock warrants upon conversion
to common stock.................................... 381 1,413 1,950
Unvested common shares subject to repurchase........ 2,191 7,101 7,785
Options to purchase common stock.................... 4,513 9,437 11,817
------ ------ ------
26,015 80,935 88,041
====== ====== ======
</TABLE>
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1999 and the
three months ended March 31, 2000 is computed using the weighted average
number of common shares outstanding, including the pro forma effects of the
automatic conversion of the Company's Preferred Stock into shares of common
stock effective upon the closing of the offering, as if such conversion
occurred on January 1, 1999 or at the date of original issuance, if later. The
resulting pro forma adjustment includes an increase in the weighted average
shares used to compute basic and diluted net loss per share of 38,709,000
shares for the year ended December 31, 1999 and 64,271,000 shares for the
three months ended March 31, 2000.
Pro forma stockholders' equity (unaudited)
Immediately prior to the effective date of the offering, the Preferred
Stock outstanding will automatically convert into common stock at a one-to-one
ratio. The pro forma effects of this transaction is unaudited and has been
reflected in the accompanying Pro Forma Stockholders' Equity as of March 31,
2000.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value. The Company, to date, has not engaged in derivative
and hedging activities, and accordingly does not believe that the adoption of
SFAS No. 133 will have a material impact on the financial reporting and
related disclosures of the Company. The Company will adopted SFAS No. 133 as
required by SFAS No. 137, "Deferral of the Effective Date of the FASB
Statement No.133," beginning with the third quarter of fiscal 2000.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements," which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
The Company has complied with the guidance in SAB 101 for all periods
presented.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation -- an interpretation of APB Opinion No. 25" ("FIN 44"). This
Interpretation clarifies the definition of employee for purposes of applying
Accounting Practice Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25'), the criteria for determining whether a plan qualifies as
a noncompensatory plan, the accounting consequence of various modifications to
the terms of
F-11
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
a previously fixed stock option or award, and the accounting for an exchange
of stock compensation awards in a business combination. This Interpretation is
effective July 1, 2000, but certain conclusions is this Interpretation cover
specific events that occur after either December 15, 1998, or January 12,
2000. Management believes that FIN 44 will not have a material effect on the
financial position or results of operations of the Company.
3. Balance Sheet Components (in thousands)
<TABLE>
<CAPTION>
December 31,
---------------
March 31,
1998 1999 2000
------ ------- -----------
(unaudited)
<S> <C> <C> <C>
Property and equipment, net:
Network software and equipment............... $ 366 $ 8,224 $30,629
Computers, software and equipment............ 705 5,494 8,330
Furniture and fixtures....................... 456 631 1,177
Leasehold improvements....................... 15 180 434
------ ------- -------
1,542 14,529 40,570
Less: Accumulated depreciation and
amortization................................ (65) (1,617) (3,684)
------ ------- -------
$1,477 $12,912 $36,886
====== ======= =======
Accrued liabilities:
Accrued payroll and related liabilities...... $ 54 $ 489 $ 1,301
Other accrued liabilities.................... 236 390 1,886
Deferred rent................................ 147 -- --
------ ------- -------
$ 437 $ 879 $ 3,187
====== ======= =======
</TABLE>
4. Income Taxes
No provision for federal and state income taxes has been recorded as the
Company has incurred net operating losses since inception. The components of
the Company's deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Net operating loss carryforwards........................... $ 1,343 $10,552
Nondeductible expenses..................................... 333 588
Research and development credit carryovers................. 58 477
Other...................................................... -- 187
------- -------
1,734 11,804
Less: Valuation allowance.................................. (1,734) (11,804)
------- -------
$ -- $ --
======= =======
</TABLE>
Management believes that, based on a number of factors, it is more likely
than not that the deferred tax assets will not be utilized; and accordingly, a
full valuation allowance has been recorded. The change in the valuation
allowance was $1,734,000 and $10,070,000 for the period from March 20, 1998
(inception) to December 31, 1998 and for the year ended December 31, 1999,
respectively.
At December 31, 1999, the Company had approximately $25.8 million of
federal and state net operating loss carryforwards available to offset future
taxable income which expire in varying amounts beginning in 2004.
F-12
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Under the Tax Reform Act of 1986, the amounts of and benefits from net
operating loss carryforwards may be impaired or limited in certain
circumstances. Events which cause limitations in the amount of net operating
losses that the Company may utilize in any one year include, but are not
limited to, a cumulative ownership change of more than 50%, as defined, over a
three year period.
5. Capital Lease Obligations
The Company entered into a master lease agreement with Comdisco, Inc. in
November 1998 with aggregate lines of credit totaling $4.5 million, which
expired in January 2000. The Company received additional lines totaling $1.0
million in September 1999, which expired in September 2000, and an extension
to existing lines for an additional $3.0 million in December 1999, which
expired in January 2000. Advances under the lines are to be repaid over
periods ranging from 30 months to 48 months, bear interest at rates ranging
from 7% to 8%, and are collateralized by the purchased equipment. As of
December 31, 1999, the Company had $2.9 million available under its lease
lines, of which $0.9 million could be used for software, tenant improvements
and tooling specifically approved by Comdisco, Inc. and $2.0 million could be
used for equipment specifically approved by Comdisco, Inc. Warrants were
issued to Comdisco, Inc. in conjunction with the master lease agreement and
each additional increase in credit (see Note 7).
The advances under the lines have been classified as capital leases. As of
December 31, 1999, the cost of such leased equipment was approximately
$5,850,000 with accumulated amortization of $842,000. As of December 31, 1999,
future minimum lease payments under these agreements are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2000................................................................ $ 1,947
2001................................................................ 1,976
2002................................................................ 1,597
2003................................................................ 244
-------
Total minimum lease payments........................................ 5,764
Less: Amount representing interest (7% to 8%)....................... (564)
-------
Present value of minimum lease payments............................. 5,200
Less: Current portion of capital lease obligations.................. (1,573)
-------
Long-term portion of capital lease obligations...................... $ 3,627
=======
</TABLE>
6. Commitments and contingencies
The Company leases office space and equipment under non-cancelable
operating leases with various expiration dates through February 2002. Rent
expense for the period from March 31, 1998 (inception) to December 31, 1998
and for the year ended December 31, 1999 was approximately $107,000 and
$803,000, respectively. The Company also leases bandwidth from a satellite
service provider under a non-cancelable lease agreement, which expires on
December 2002.
Future minimum lease payments under non-cancelable operating leases are as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2000................................................................. $ 2,744
2001................................................................. 4,029
2002................................................................. 4,457
-------
$11,230
=======
</TABLE>
F-13
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
In September and October 1999, the Company entered into three-year service
agreements with Northpoint Communications, Inc. ("NorthPoint") and Covad
Communications Group, Inc. ("Covad"), respectively, to provide streaming video
and audio. Under the terms of the agreements, the Company will deploy its
servers in NorthPoint and Covad hubs in North America and pay up to twenty
percent of all revenues created from the transport of content through their
networks. No amounts have been incurred under these arrangements as of
December 31, 1999.
In connection with the hiring of David Brewer, Vice President of
Operations, the Company agreed to purchase at least $2.0 million of services
from Brewer Consulting Networks, a company controlled by Mr. Brewer, beginning
January 1, 2000. The obligation to purchase these services from Brewer
Consulting Networks is contingent on Mr. Brewer relinquishing operational or
ownership control of Brewer Consulting Networks.
The Company is subject to legal proceedings, claims and litigation arising
in the ordinary course of business. The Company's management does not expect
that the ultimate costs to resolve these matters will have a material adverse
effect on the Company's financial position, results of operations, or cash
flows.
7. Redeemable Convertible Preferred Stock
The following table summarizes convertible preferred stock at December 31,
1999 (in thousands):
<TABLE>
<CAPTION>
Shares
---------------------- Liquidation Net
Designated Outstanding Amount Proceeds
---------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Series A......................... 1,350 1,333 $ 1,600 $ 1,567
Series B......................... 3,380 3,249 5,361 5,338
Series C......................... 3,650 3,592 12,284 12,201
Series D......................... 7,500 7,073 42,153 42,086
------ ------ ------- -------
15,880 15,247 $61,398 $61,192
====== ====== ======= =======
</TABLE>
iBEAM's Certificate of Incorporation, as amended, authorizes iBEAM to issue
20 million shares of $0.0001 par value preferred stock in the aggregate.
The rights, privileges and restrictions of holders of series A, B, C and D
convertible preferred stock ("Series A," "Series B," Series C" and "Series D,"
respectively) are set forth in iBEAM's amended and restated Certificate of
Incorporation, and are summarized as follows:
Voting
Each share of Preferred Stock has voting rights equal to an equivalent
number of shares of common stock into which it is convertible and votes
together as one class with the common stock.
As long as at least any shares of Preferred Stock remain outstanding, the
Company must obtain approval from a majority of the holders of Preferred Stock
in order to alter the Certificate of Incorporation as related to Preferred
Stock, change the authorized number of shares of Preferred Stock, repurchase
any shares of common stock other than shares subject to the right of
repurchase by the Company, change the authorized number of Directors,
authorize a dividend for any class or series other than Preferred Stock,
create a new class of stock or effect a merger, consolidation or sale of
assets where the existing shareholders retain less than 50% of the voting
stock of the surviving entity.
F-14
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Dividends
Holders of Series A, B, C and D are entitled to receive noncumulative
dividends at the per annum rate of $0.096, $0.132, $0.274 and $0.477 per
share, respectively, when and if declared by the Board of Directors. The
holders of Preferred Stock will also be entitled to participate in dividends
on common stock, when and if declared by the Board of Directors, based on the
number of shares of common stock held on an as-if converted basis. No
dividends on the Preferred Stock or common stock have been declared by the
Board from inception through December 31, 1999.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's common stock and Preferred Stock own less than 51% of the
resulting voting power of the surviving entity, the holders of Series A, B, C
and D are entitled to receive an amount of $1.20, $1.65, $3.42 and $5.96 per
share, respectively, plus any declared but unpaid dividends prior to and in
preference to any distribution to the holders of common stock. Should the
Company's legally available assets be insufficient to satisfy the liquidation
preferences, the funds will be distributed ratably among the holders of Series
A, B, C and D in proportion to the amount of such stock owed by each holder.
The remaining assets, if any, shall be distributed among the holders of Series
A, B, C and D and common stock pro-rated based on the number of shares of
common stock held by each (assuming full conversion of all such shares Series
A, B, C and D) until the value of the assets distributed to or the
consideration received aggregate $180 million.
Conversion
Each share of Preferred Stock is convertible, at the option of the holder,
according to a conversion ratio of 4.131 shares of common stock for one share
of Preferred Stock, subject to adjustment for dilution and common stock
splits, and Preferred Stock automatically converts into the number of shares
of common stock into which such shares are convertible at the then effective
conversion ratio upon: (1) the closing of a public offering of common stock at
a per share price of at least $3.97 per share with gross proceeds of at least
$20 million or (2) the consent of the holders of the majority of Preferred
Stock.
Warrants for Preferred Stock
The Company issued warrants to purchase 27,273 and 64,935 shares of Series
B at $1.65 per share and $2.31 per share, respectively, in October 1998, 6,396
shares of Series C at $4.69 per share in September 1999, and 25,168 shares of
Series D at $5.96 per share in December 1999 to Comdisco, Inc. upon signing
various equipment lease lines as described in Note 5. These warrants expire
the earlier of five years from the date of grant or three years from the
effective date of the Company's initial public offering. The Company valued
the warrants using the Black-Scholes option pricing model applying expected
lives of five years, a weighted average risk free rate of 6%, a dividend yield
of zero percent and volatility of 80%. The fair value of approximately
$793,000 represents additional interest on the equipment lease lines and is
being expensed over the lease term using the effective interest rate method.
No amounts were amortized in 1998, and $40,000 was amortized during the year
ended December 31, 1999.
In October 1999, the Company also issued a warrant to purchase 218,120
shares of Series D at $5.96 per share to a new investor. In September 1999,
the Company entered into sales and marketing cooperative agreement with this
investor. These warrants expire the earlier of seven years from the date of
grant or four years from the effective date of the Company's initial public
offering and were valued using the Black-Scholes option
F-15
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
pricing model applying an expected life of seven years, a weighted average
risk free rate of 6%, a dividend yield of zero percent and volatility of 80%.
The fair value of approximately $1,000,000 represents a non-cash inducement to
enter into future commercial agreements and was included in sales and
marketing expense during the quarter ended December 31, 1999.
8. Benefit Plans
Stock Option Plan
On March 23, 1998, the Company adopted the 1998 Stock Option Plan (the
"Plan"). The Plan provides for the granting of stock options to employees and
consultants of the Company. Options granted under the Plan may be either
incentive stock options or non-qualified stock options. Incentive stock
options ("ISO") may be granted only to Company employees (including officers
and directors who are also employees). Non-qualified stock options ("NSO") may
be granted to Company employees and consultants. As of December 31, 1999, the
Company had reserved approximately 22,038,000 shares of common stock for
issuance under the Plan.
Options under the Plan may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO and NSO shall not be less than 100% and 85% of
the estimated fair value of the shares on the date of grant, respectively, and
(ii) the exercise price of an ISO and NSO granted to a 10% shareholder shall
not be less than 110% of the estimated fair value of the shares on the date of
grant. Options are exercisable immediately subject to repurchase options held
by the Company which lapse with the options vesting schedule. Options may have
a maximum term of up to 10 years as determined by the Board of Directors. To
date, options granted generally vest over four years.
The following table summarizes activity under the Plan since inception (in
thousands, except per share data):
<TABLE>
<CAPTION>
Period from
March 20, 1998
(Inception) to Year Ended Three Months Ended
December 31, 1998 December 31, 1999 March 31, 2000
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- --------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 4,513 $ 0.04 9,437 $ 0.87
Granted................ 6,704 0.03 15,062 0.59 4,022 8.79
Exercised.............. (2,191) 0.01 (8,900) 0.09 (1,360) 1.26
Cancelled.............. -- -- (1,238) 0.06 (282) 6.77
--------- --------- ---------
Outstanding at end of
period................. 4,513 0.04 9,437 0.87 11,817 3.38
========= ========= =========
Options vested at end of
period................. 17 0.04 2,488 0.07 3,885 0.09
========= ========= =========
</TABLE>
At December 31, 1998 and 1999, shares of common stock subject to a
repurchase option held by the Company totaled approximately 2,191,000 and
7,101,000 shares at a weighted average price of $0.02 and $0.24 per share,
respectively.
F-16
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes information regarding stock options
outstanding as of December 31, 1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
----------------------------------------------------------------
Weighted
Average Weighted
Range of Number Remaining Average
Exercise of Options Contractual Exercise
Prices Outstanding Life Price
---------- ----------- ----------- --------
<S> <C> <C> <C>
$0.04 1,270 8.7 years $0.04
$0.08 666 8.8 years 0.08
$0.15 902 9.0 years 0.15
$0.29 4,028 9.0 years 0.29
$1.45 1,156 9.9 years 1.45
$3.63 1,415 10.0 years 3.63
-----
$0.04-$3.63 9,437 9.2 years 0.87
=====
</TABLE>
Fair value disclosures
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for the awards under a
method prescribed by SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Period from
March 20, 1998
(Inception) to Year Ended
December 31, December 31,
1998 1999
-------------- ------------
<S> <C> <C>
Net loss:
As reported.................................... $(4,227) $(29,968)
Pro forma...................................... (4,265) (30,731)
Net loss per share--basic and diluted:
As reported.................................... $ (0.56) $ (3.43)
Pro forma...................................... (0.56) (3.52)
</TABLE>
The Company calculated the value of each option grant on the date of grant
using the Black-Scholes option pricing model with the following assumptions
for all periods: dividend yield expected and volatility of 0%; expected lives
of four years and risk free interest rate of 5.75%. These pro forma amounts
may not be representative of the effects on reported net loss for future years
as options vest over several years and additional awards are generally made
each year. The weighted average fair value of options granted was $0.19 and
$1.80 for the period from March 20, 1998 (inception) to December 31, 1998 and
for the year ended December 31, 1999, respectively.
Stock-based compensation
In connection with certain stock option grants to employees and board
members, the Company recognized approximately $608,000, $17,290,000 and
$10,577,000 (unaudited) of unearned stock-based compensation for the excess of
the deemed fair market value over the exercise price at the date of grant for
the period from March 10, 1998 (inception) to December 31, 1998, for the year
ended December 31, 1999 and for the three months ended March 31, 2000,
respectively. The compensation expense is being recognized, using the multiple
option method as prescribed by FASB Interpretation No. 28, over the option's
vesting period of generally four
F-17
<PAGE>
iBEAM BROADCASTING CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
years. As a result, the Company recorded stock-based compensation expense of
$31,000, $4,974,000 and $2,920,000 (unaudited) for the period from March 20,
1998 (inception) to December 31, 1998, for the year ended December 31, 1999
and for the three months ended March 1, 2000, respectively.
Stock-based compensation expense related to stock options granted to
consultants is recognized as the stock options are earned. The fair value of
the stock options granted is calculated at each reporting date using the
Black-Scholes option pricing model. As a result, the stock-based compensation
expense will fluctuate as the fair market value of our common stock
fluctuates. The Company believes that the fair value of the stock options are
more reliably measurable than the fair value of the services received. In
connection with the grant of stock options to consultants, the Company
recorded stock-based compensation expense of $8,000, $419,000 and $1,174,000
for the period from March 20, 1998 (inception) to December 31, 1998, for the
year ended December 31, 1999, and for the three month ended March 31, 2000,
respectively.
As of March 31, 2000, the Company expects to amortize stock-based
compensation expense of $12,227,000 in the remainder of fiscal 2000,
$9,262,000 in 2001, $4,843,000 in 2002, and $2,054,000 in 2003.
401(k) Plan
The Company's employee savings and retirement plan is qualified under
Section 401 of the Internal Revenue Code. Employees may elect to reduce their
current compensation by up to the statutorily prescribed annual limit and have
the amount of such reduction contributed to the 401(k) Plan. The Company
currently does not make matching or additional contributions to the 401(k)
Plan on its employees' behalf.
9. Segment Information
The Company currently operates in a single business segment as there is
only one measurement of profitability for its operations. Through December 31,
1999, foreign operations have not been significant in either revenues or
investments in long-lived assets.
A summary of the Company's revenues by service offering is as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1999 March 31, 2000
----------------- ------------------
(unaudited)
<S> <C> <C>
iBEAM On-Stage.......................... $110 $132
iBEAM On-Air............................ 9 144
iBEAM On-Demand......................... 5 191
Other services.......................... 25 65
---- ----
$149 $532
==== ====
</TABLE>
For the year ended December 31, 1999, the Company's significant customers
were ProWebCast, MusicNow, Inc. and Pixelworld, which represented 40%, 15% and
13% of total revenue, respectively. At December 31, 1999, Pacific Century
Group and Pixelworld represented 43% and 28%, respectively, of the accounts
receivable balance. For the three months ended March 31, 2000 one customer,
NetRadio, represented 12% of the Company's revenue.
10. Subsequent Events (Unaudited):
Series E Financing
In February 2000, the Company issued 2,545,454 shares of series E
redeemable convertible preferred stock ("Series E") at a price of $13.75 per
share, for aggregate proceeds of $35.0 million. These convertible preferred
F-18
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
shares will automatically convert into 3,505,089 shares of common stock upon
the closing of this offering. The difference between the mid-point of the
estimated price range for shares in the Company's initial public offering
("IPO") and the conversion price resulted in a beneficial conversion feature
of approximately $10.8 million. Under Emerging Issues Task Force No. 98-5,
Accounting for Convertible Securities with Beneficial Conversion Features, the
beneficial conversion feature resulted in a "deemed" preferred dividend of
$10.8 million for the three months ended March 31, 2000.
Acquisition of webcasts.com, Inc.
In March 2000, the Company entered into an agreement to acquire with
webcasts.com, Inc. ("webcasts.com"), a provider of interactive broadcasting
services and proprietary tools that give businesses the ability to conduct
live and on-demand Internet broadcasts for use in distance learning, corporate
communications, sales presentations, on-line trade shows and interactive
television. The acquisition was consummated on April 28, 2000 and was
accounted for as a purchase business combination with a purchase price of
$92.2 million.
Under the terms of the agreement, all issued and outstanding shares and
warrants of webcasts.com were exchanged for 8,233,173 shares of the Company's
series F redeemable convertible preferred stock ("Series F") equal to 8% of
the as adjusted capitalization of the combined companies immediately following
the acquisition. Such shares had a value of approximately $82.3 million. In
addition, based on an exchange ratio of 0.34743 shares of iBEAM for every
share of webcasts.com, all of the outstanding options granted under the
webcasts.com 1999 Stock Option Plan converted into options to purchase 706,285
shares of the Company's Series F. The fair value of these options of
approximately $5.2 million was determined using the Black-Scholes option
pricing model and is included as a component of the purchase price. The
Company also issued a $3.0 million note to the webcasts.com's redeemable
preferred stockholders, which is payable on September 20, 2000 and bears
interest at 10% per annum. The Company anticipates incurring approximately
$1.7 million in acquisition related expenses, which consist primarily of
financial advisory, accounting and legal fees. See Unaudited Pro Forma
Combined Financial Information.
America Online, Inc.
In February 2000, the Company entered into a two year commercial agreement
with America Online, Inc. to deploy the Company's streaming media distribution
network within America Online's network. Under the agreement, the Company
agreed to pay an advance of $3.0 million against future revenue sharing
obligations derived from content delivered through their network. In the event
the Company does not deliver a minimum amount of traffic to America Online,
they can terminate this agreement, at which time, a portion of the advance
will be refunded to the Company. In addition, America Online may purchase
services pursuant to the Company's standard service terms and conditions.
In February 2000, America Online purchased $5 million of Series E for
$13.75 per share, which converts into 500,726 shares of common stock at the
closing of this offering, and received a warrant to purchase 537,634 shares of
our common stock at an exercise price equal to the price to public in this
offering, less underwriting discounts and commissions. The warrant was a
condition to the commercial agreement and was valued using the Black-Scholes
option pricing model. The fair value of $2.8 million represents an expense for
receiving equipment rack space at each of America Online's data centers and
will be recognized ratably over the term of the agreement.
F-19
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Pacific Century CyberWorks (PCCW)
The Company has entered into an agreement with Pacific Century CyberWorks
Limited (PCCW) to establish a joint venture company that will bring high-
fidelity streaming audio and video to Asia. The new company, to be called
iBEAM Asia, will be responsible for extending the Company's current business
and services to Asia. This will include deployment and operation of MaxCaster
servers into ISPs and Internet access providers and distributing video and
audio content from media companies to end users in over 50 countries in the
Pacific Rim, Indian subcontinent, and Middle East. The joint venture will be
51% owned by PCCW and 49% owned by iBEAM and is expected to be operational by
the end of 2000. The joint venture will be accounted for under the equity
method of accounting. In addition, in February 2000, PCCW purchased $30
million of Series E for $13.75 per share.
RealNetworks, Inc.
In February 2000, the Company entered into a seven-year Infrastructure
Software License Agreement with RealNetworks, Inc. for an initial payment of
$10.0 million for the G2 streaming software platform. Additionally, the
Company has agreed to pay RealNetworks a quarterly royalty, subject to certain
annual minimum and maximum payments. The aggregate future minimum payments
under the agreement are $15 million.
The Walt Disney Company
In March 2000, the Company agreed to issue shares of series G redeemable
convertible preferred stock ("Series G") to The Walt Disney Company for $10.0
million at a price per share equal to the price to the public in the initial
public offering. Series G will convert into common stock on a one-for-one
basis at the closing of this offering. Based on an assumed public offering
price of $10.00 per share, Walt Disney will purchase 1,000,000 shares of
Series G.
Excite@Home
In April 2000, the Company agreed to issue shares of series H redeemable
convertible preferred stock ("Series H") to Excite@Home for $5.0 million at a
price per share equal to the price to the public in the initial public
offering, less underwriting commissions and discounts. Series H will convert
into common stock on a one-for-one basis at the closing of this offering.
Based on an assumed public offering price of $10.00 per share, Excite@Home
will purchase 537,634 shares of Series H.
Stock Option Plans
The Company's 2000 Stock Plan (the "2000 Plan") was adopted by the Board of
Directors in January 2000, as amended in May 2000, subject to stockholder
approval. The 2000 Plan provides for the grant of incentive stock options to
employees and non-statutory stock options and stock purchase rights to
employees, directors and consultants.
A total of 9,639,000 shares of common stock were reserved for issuance
pursuant to the 2000 Plan. No options have yet been issued. The number of
shares reserved for issuance under the 2000 Plan will increase annually on
January 1st of each calendar year, effective beginning in 2001, equal to the
lesser of:
. 5% of the outstanding shares of common stock on the first day of the
year,
. 10,000,000 shares or
. such lesser amount as determined by the Board of Directors.
F-20
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
In January 2000, the Board of Directors adopted, subject to stockholder
approval, the 2000 Director Option Plan (the "Director Plan"). The Director
Plan provides for the periodic grant of nonstatutory stock options to non-
employee directors. A total of 500,000 shares were reserved for issuance under
the Director Plan.
In January 2000, the Board of Directors adopted, subject to stockholder
approval, the 2000 Employee Stock Purchase Plan (the "Purchase Plan"), which
was subsequently amended in May 2000. A total of 1,500,000 shares of common
stock will be made available under the Purchase Plan. The Purchase Plan
provides for annual increases in the number of shares available for issuance
on January 1st of each year, beginning in 2001, equal to the lesser of (i) 2%
of the outstanding shares of common stock on the first day of the calendar
year, (ii) 3,000,000 shares, or (iii) such other lesser amount as determined
by the Board of Directors. The Purchase Plan is intended to qualify for
preferential tax treatment and contains consecutive, overlapping 24-month
offering periods. Each offering period includes four 6-month purchase periods.
The offering periods generally start on the first trading day on or after
February 1 and August 1 of each year, except for the first such offering
period which will commence on the first trading day on or after the effective
date of this offering and will end on the last trading day on or before
January 31, 2001. The Purchase Plan permits participants to purchase common
stock through payroll deductions of up to 15% of their eligible compensation.
A participant may purchase no more than 10,000 shares during any 6-month
purchase period. Amounts deducted and accumulated by the participant are used
to purchase shares of our common stock at the end of each 6-month purchase
period. The price is 85% of the lower of the fair market value of our common
stock at the beginning of an offering period or after a purchase period ends.
F-21
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
OVERVIEW
On March 21, 2000, iBEAM Broadcasting Corporation ("iBEAM" or the
"Company") entered into a definitive agreement to acquire webcasts.com, Inc.
("webcasts.com") in a transaction to be accounted for as a purchase business
combination. Webcasts.com provides interactive broadcasting services and
proprietary tools that give businesses the ability to conduct live and on-
demand Internet broadcasts for use in distance learning, corporate
communications, sales presentations, on-line trade shows and interactive
television.
On April 28, 2000, the Company consummated this acquisition. All issued and
outstanding shares and warrants of webcasts.com were exchanged for shares of
the Company's series F redeemable convertible preferred stock ("Series F")
equal to 8% of the as adjusted capitalization of the combined companies
immediately following the acquisition. Using the capitalization of the
companies as of April 28, 2000 as adjusted for the planned issuance of
1,537,634 shares of preferred stock to The Walt Disney Company and Excite@Home
and the repurchase of 908,820 shares of common stock in May 2000, the Company
issued 8,233,173 shares, at $10.00 per share, for a value of approximately
$82.3 million. In addition, based on an exchange ratio of 0.34743 shares of
iBEAM for every share of webcasts.com, all of the outstanding options granted
under the webcasts.com 1999 Stock Option Plan were converted into options to
purchase 706,285 shares of the Company's Series F. The fair value of these
options of approximately $5.2 million was determined using the Black-Scholes
option pricing model and is included as a component of the purchase price. The
Company also issued a $3.0 million note to the webcasts.com's redeemable
preferred stockholders, which is payable on September 20, 2000 and bears
interest at 10% per annum. The Company anticipates incurring approximately
$1.7 million in acquisition related expenses, which consist primarily of
financial advisory, accounting and legal fees. In addition, the former
securityholders of webcasts.com may receive an additional 1,243,932 shares of
common stock if the webcasts.com subsidiary meets revenue targets in the
twelve months after the closing of the acquisition.
The total purchase price of $92.2 million will be allocated to the assets
acquired, including tangible and intangible assets, and liabilities assumed
based upon the fair value of such assets and liabilities on the date of
acquisition. The total estimated purchase price of the acquisition has been
allocated based on a preliminary basis to assets and liabilities based on
management estimates of their fair value and an independent appraisal of
certain intangible assets with the excess cost over the net assets acquired
allocated to goodwill. This allocation is subject to change pending a final
analysis of the total purchase price and fair value of the assets acquired and
liabilities assumed. The aggregate purchase price has been allocated as
follows (in thousands):
<TABLE>
<S> <C>
Tangible assets received......................................... $12,896
Purchased technology............................................. 2,000
Assembled workforce.............................................. 2,150
Non-competition agreements....................................... 4,700
Goodwill......................................................... 83,963
Liabilities assumed.............................................. (13,530)
-------
$92,179
=======
</TABLE>
The tangible assets consist primarily of cash and cash equivalents,
accounts receivable and property and equipment. The liabilities assumed
consist primarily of accounts and notes payable and a revolving line of
credit. Webcasts.com's tangible assets received and liabilities assumed as of
March 31, 2000 were used for purposes of calculating the pro forma adjustments
as they approximate fair value at such date. The amounts allocated to
purchased technology, assembled workforce, and non-competition agreements are
being amortized over their estimated useful lives of three years. The purchase
price in excess of net identified tangible and intangible assets is allocated
as goodwill, which is being amortized over three years.
The acquisition is expected to be structured as a tax-free exchange of
stock, therefore, the differences between the recognized fair values of
acquired assets, including tangible and intangible assets and their historical
tax bases, are not deductible for tax purposes.
F-22
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
March 31, 2000
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Historical -----------------------
iBEAM webcasts.com Adjustments Combined
ASSETS ---------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $ 9,849 $9,295 $ -- $ 19,144
Short-term investments...... 11,980 -- -- 11,980
Accounts receivable, net.... 217 831 -- 1,048
Prepaid expenses and other
current assets............. 6,857 91 -- 6,948
-------- ------- -------- --------
Total current assets....... 28,903 10,217 -- 39,120
Property and equipment, net.. 36,886 2,581 -- 39,467
Note receivable due from
webcasts.com................ 10,000 -- (10,000)(A) --
Goodwill and acquired
intangible assets........... -- 3,796 89,017 (B) 92,813
Other assets................. 4,637 98 -- 4,735
-------- ------- -------- --------
$ 80,426 $16,692 $ 79,017 $176,135
======== ======= ======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............ $ 8,012 $ 1,567 $ -- $ 9,579
Accrued liabilities......... 3,187 581 1,700 (B) 5,468
Deferred revenue............ 331 116 -- 447
Current portion of capital
lease obligations.......... 2,591 107 -- 2,698
Revolving line of credit,
current portion............ -- 122 -- 122
Note payable due to iBEAM... -- 10,000 (10,000)(A) --
Notes payable to
webcasts.com's redeemable
preferred stockholders..... -- -- 3,000 (B) 3,000
-------- ------- -------- --------
Total current liabilities.. 14,121 12,493 (5,300) 21,314
Revolving line of credit..... -- 969 -- 969
Capital lease obligations,
net of current portion...... 6,601 68 -- 6,669
-------- ------- -------- --------
Total liabilities.......... 20,722 13,530 (5,300) 28,952
-------- ------- -------- --------
Redeemable convertible
preferred stock............. 96,114 -- 87,479 (B) 183,593
-------- ------- -------- --------
Redeemable preferred stock... -- 2,639 (2,639)(B) --
-------- ------- -------- --------
Stockholders' equity
(deficit):
Common stock................ 2 -- -- 2
Additional paid-in capital.. 60,320 8,497 (8,497)(B) 60,320
Stockholders' note
receiveable................ (2,000) -- -- (2,000)
Unearned stock-based
compensation............... (28,386) -- -- (28,386)
Deficit accumulated during
development stage.......... (66,346) (7,974) 7,974 (B) (66,346)
-------- ------- -------- --------
Total stockholders' equity
(deficit)................. (36,410) 523 (523) (36,410)
-------- ------- -------- --------
$ 80,426 $16,692 $ 79,017 $176,135
======== ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
F-23
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Three Months Ended March 31, 2000
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical Historical
iBEAM webcasts.com Adjustments Combined
---------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Revenue....................... $ 532 $ 1,551 $ -- $ 2,083
-------- ------- ------- --------
Operating costs and expenses:
Cost of services............. 8,119 1,675 -- 9,794
Engineering and development.. 4,584 477 -- 5,061
Sales and marketing.......... 5,768 1,198 -- 6,966
General and administrative... 3,733 1,365 -- 5,098
Goodwill amortization........ -- 143 7,591 (C) 7,734
-------- ------- ------- --------
Total costs and operating
expenses.................. 22,204 4,858 7,591 34,653
-------- ------- ------- --------
Loss from operations.......... (21,672) (3,307) (7,591) (32,570)
Other income (expense), net... 317 (233) -- 84
-------- ------- ------- --------
Net loss...................... (21,355) (3,540) (7,591) (32,486)
Dividends and accretion
related to preferred stock
and redeemable warrants...... (10,796) (1,260) -- (12,056)
-------- ------- ------- --------
Net loss attributable to
common stock................. $(32,151) $(4,800) $(7,591) $(44,542)
======== ======= ======= ========
Net loss per share
attributable to common stock:
Basic and diluted............ $ (3.04) $ (2.37)
======== ========
Weighted average common
shares outstanding.......... 10,589 18,822
======== ========
Pro forma net loss per share
attributable to common
stock: (D)
Basic and diluted............ $ (0.43) $ (0.54)
======== ========
Weighted average common
shares outstanding.......... 74,860 83,093
======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
F-24
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
webcasts.com Pro Forma
------------------------------------------------ ---------------------
Historical Historical Historical Adjust- Pro Forma Adjust-
iBEAM webcasts.com RIG ments webcasts.com ments Combined
---------- ------------ ---------- ------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 149 $ 2,431 $ 2,648 $(174)(E) $ 4,905 $ -- $ 5,054
-------- ------- ------- ----- ------- -------- --------
Operating costs and
expenses:
Cost of services....... 8,249 1,800 1,913 (174)(E) 3,539 -- 11,788
Engineering and
development........... 4,531 235 35 -- 270 -- 4,801
Sales and marketing.... 10,363 768 307 -- 1,075 -- 11,438
General and
administrative 7,174 3,681 1,585 28 (F) 5,294 -- 12,468
Amortization of
goodwill and acquired
intangibles........... -- 97 -- 476 (G) 573 30,365 (C) 30,938
-------- ------- ------- ----- ------- -------- --------
Total operating costs
and expenses......... 30,317 6,581 3,840 330 10,751 30,365 71,433
-------- ------- ------- ----- ------- -------- --------
Loss from operations.... (30,168) (4,150) (1,192) (504) (5,846) (30,365) (66,379)
Other income (expense),
net.................... 200 (86) (472) 468 (H) (90) -- 110
-------- ------- ------- ----- ------- -------- --------
Net loss................ (29,968) (4,236) (1,664) (36) (5,936) (30,365) (66,269)
Dividends and accretion
related to preferred
stock and redeemable
warrants............... -- (1,797) -- -- (1,797) -- (1,797)
-------- ------- ------- ----- ------- -------- --------
Net loss attributable to
common stock........... $(29,968) $(6,033) $(1,664) $ (36) $(7,733) $(30,365) $(68,066)
======== ======= ======= ===== ======= ======== ========
Net loss per share
attributable to common
stock:
Basic and diluted...... $ (3.43) $ (4.01)
======== ========
Weighted average common
shares outstanding.... 8,726 16,959
======== ========
Pro forma net loss per
share attributable to
common
stock: (D)
Basic and diluted...... $ (0.63) $ (1.22)
======== ========
Pro forma weighted
average common shares
outstanding........... 47,435 55,668
======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
F-25
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
1. Basis of presentation
The unaudited pro forma combined balance sheet gives effect to this
acquisition as if it occurred on March 31, 2000 and combines the balance sheet
of iBEAM as of March 31, 2000 and the consolidated balance sheet of
webcasts.com as of March 31, 2000.
On October 15, 1999, webcasts.com completed its acquisition of all the
outstanding capital stock of The Rock Island Group, Inc. ("RIG"). The RIG
acquisition was accounted for using the purchase method of accounting and,
accordingly, the net assets and results of operations of RIG have been
included in the consolidated financial statements of webcasts.com since the
acquisition date.
The unaudited pro forma statement of operations gives effect to the
webcasts.com acquisition as if it had occurred on January 1, 1999 and presents
the results of operations of iBEAM for the year ended December 31, 1999
combined with the unaudited pro forma statement of operations of webcasts.com
for the year ended December 31, 1999. The unaudited pro forma statement of
operations of webcasts.com includes the results of operations of webcasts.com
for the year ended December 31, 1999 combined with the results of operations
of RIG for the period from January 1, 1999 to October 14, 1999 as if the RIG
acquisition occurred on January 1, 1999.
The unaudited pro forma combined information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the transactions had been
consummated at the dates indicated, nor is it necessarily indicative of the
future operating results or the financial position of the combined companies.
2. Pro forma adjustments
The following adjustments were applied to iBEAM's historical financial
statements and those of webcasts.com to arrive at the pro forma combined
financial information:
A To eliminate the intercompany promissory note.
B To reflect the issuance of Series F preferred stock and the assumption
of options to purchase Series F preferred stock in connection with the
acquisition of webcasts.com and to record the issuance of a $3.0 million
note payable by iBEAM to webcasts.com's redeemable preferred
stockholders, estimated transaction costs of $1.7 million and other
assets and liabilities at their fair value.
C To reflect the amortization of goodwill and other intangibles over their
estimated useful lives as follows:
<TABLE>
<CAPTION>
Amortization Expenses
------------------------------------ ---
Amortization Year Ended Three Months Ended
Amount Period December 31, 1999 March 31, 2000
------- ------------ ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Goodwill................ $83,963 3 years $27,987 $6,996
Purchased technology.... 2,000 3 years 667 167
Assembled workforce..... 2,150 3 years 717 179
Non-compete agreements.. 4,700 3 years 1,567 392
</TABLE>
The estimated useful life related to the assembled workforce was based
on the remaining vesting schedule of the employees' stock options and
the historical experience of employee turnover. The estimated useful
life related to the non-compete agreement was based on the term of the
non-compete provisions.
D Pro forma basic and diluted net loss per share attributable to common
stock is computed using the weighted average number of common shares
outstanding, including the pro forma effects of the automatic conversion
of the Company's outstanding redeemable convertible preferred stock
effective upon the closing of the Company's initial public offering as
if such conversion occurred on January 1, 1999, or at the date of
original issuance, if later. The shares of Series F, issued as
consideration for the
F-26
<PAGE>
iBEAM BROADCASTING CORPORATION
(a development stage company)
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION--(Continued)
acquisition, are assumed to be converted into the Company's common stock
under the automatic conversion feature and outstanding as of January 1,
1999. Common stock subject to repurchase rights and incremental shares
of common and preferred stock issuable upon the exercise of stock
options and warrants, aggregating 22,258,000 shares at March 31, 2000
and 18,657,000 shares at December 31, 1999, have been excluded from the
diluted net loss per share calculation because to do so would be
antidilutive.
E To eliminate revenue related to product sales to webcasts.com by RIG
prior to webcasts.com's acquisition of RIG. Additionally, the related
cost of revenue recognized by RIG has been eliminated.
F To reflect additional depreciation expense on the fair value of tangible
assets acquired.
G To record the additional amortization of goodwill related to the
acquisition of RIG as if the transaction occurred on January 1, 1999.
H To reduce interest expense, resulting from the settlement of notes
payable in connection with the acquisition of RIG as if the settlement
occurred on January 1, 1999.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
webcasts.com, Inc.
We have audited the accompanying consolidated balance sheets of
webcasts.com, Inc. and subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
webcasts.com, Inc. and subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
KPMG LLP
Oklahoma City, Oklahoma
February 21, 2000
F-28
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, March 31,
--------------- -----------
1998 1999 2000
------ ------- -----------
(unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash............................................. $ 23 $ 1,780 $ 9,295
Trade accounts receivable, net of allowance for
doubtful accounts of $22, $31 and $36 in
1998, 1999 and 2000, respectively............... 411 902 831
Prepaid expenses and other current assets........ 6 132 53
Costs of uncompleted contracts................... 57 27 38
------ ------- -------
Total current assets............................ 497 2,841 10,217
------ ------- -------
Equipment......................................... 138 2,200 2,912
Less accumulated depreciation and amortization... (41) (181) (331)
------ ------- -------
Net equipment..................................... 97 2,019 2,581
Goodwill, net of accumulated amortization of $98
and $241, respectively........................... -- 3,939 3,796
Other assets...................................... -- 71 98
------ ------- -------
$ 594 $ 8,870 $16,692
====== ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C> <C>
Current liabilities:
Accounts payable................................. $ 242 $ 1,178 $ 1,567
Deferred revenues................................ 139 134 116
Accrued liabilities.............................. 67 378 581
Notes payable, current portion................... 203 64 10,000
Revolving line of credit, current portion........ -- -- 122
Notes payable to common stockholders............. 419 -- --
Notes payable to preferred stockholders.......... -- 2,720 --
Current portion of capital lease obligations..... 23 99 107
------ ------- -------
Total current liabilities....................... 1,093 4,573 12,493
Revolving line of credit.......................... -- 978 969
Notes payable, net of current portion............. -- 52 --
Capital lease obligations, net of current
portion.......................................... 18 102 68
------ ------- -------
Total liabilities............................... 1,111 5,705 13,530
------ ------- -------
Redeemable Preferred Stock:
Series A Senior Preferred Stock, $.0001 par value
with a redemption and liquidation value of $200
per share; 30 shares authorized, 23 shares
issued and outstanding.......................... -- 1,878 1,997
Series B Senior Preferred Stock, $.0001 par value
with a redemption and liquidation value of $200
per share; 4 shares authorized, 3 shares issued
and outstanding................................. -- 244 259
Series C Senior Preferred Stock, $.0001 par value
with a redemption and liquidation value of $200
per share; 5 shares authorized, 4 shares issued
and outstanding................................. -- 361 383
------ ------- -------
Total redeemable preferred stock................ -- 2,483 2,639
------ ------- -------
Stockholders' equity (deficit):
Series D Senior Convertible Preferred Stock,
$.0001 par value with a liquidation value of
$17.39 per share, 230 shares authorized and 210
shares issued and outstanding in 1999; and 361
shares authorized and 345 shares issued and
outstanding in 2000............................. -- -- --
Common stock, $.00001 par value, 50,000 shares
authorized, 12,875 shares issued and 10,787
shares outstanding in 1998, 12,150 shares issued
and outstanding in 1999 and 20,105 shares issued
and outstanding in 2000......................... -- -- --
Warrants to purchase common stock................ -- 2,292 --
Additional paid in capital....................... 73 2,824 8,497
Accumulated deficit.............................. (198) (4,434) (7,974)
Treasury stock, 2,087 shares at cost in 1998..... (392) -- --
------ ------- -------
Total stockholders' equity (deficit)............ (517) 682 523
------ ------- -------
Commitments and contingencies (Notes 3, 4, 8 and
10).............................................. -- -- --
------ ------- -------
$ 594 $ 8,870 $16,692
====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Years Ended Ended
December 31, March 31,
---------------- ---------------
1998 1999 1999 2000
------- ------- ------ -------
(unaudited)
<S> <C> <C> <C> <C>
Revenues.................................... $ 1,997 $ 2,431 $ 734 $ 1,551
Cost of revenues............................ 1,300 1,800 296 1,675
------- ------- ------ -------
Gross profit (loss)....................... 697 631 438 (124)
Operating expenses.......................... 896 4,781 497 3,183
------- ------- ------ -------
Loss from operations........................ (199) (4,150) (59) (3,307)
Interest income............................. -- 33 -- 58
Interest expense............................ (48) (119) (18) (291)
------- ------- ------ -------
Net loss.................................. (247) (4,236) (77) (3,540)
Preferred stock dividends in arrears and
accretion of discount on preferred stock
and redeemable warrants.................... -- (1,797) -- (1,260)
------- ------- ------ -------
Net loss applicable to common stock....... $ (247) $(6,033) $ (77) $(4,800)
======= ======= ====== =======
Net loss per average common share
outstanding--basic and diluted............. $ (0.02) $ (0.51) $(0.01) $ (0.39)
======= ======= ====== =======
Weighted average common shares--basic and
diluted.................................... 12,226 11,758 10,931 12,240
======= ======= ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Series D
Preferred Retained Total
Stock Common Stock Warrants Additional Earnings Stockholders'
------------- -------------- to Purchase Paid-in (Accumulated Treasury Equity
Shares Amount Shares Amount Common Stock Capital Deficit) Stock (Deficit)
------ ------ ------ ------ ------------ ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997................... -- $-- 12,875 $ -- $ -- $ -- $ 77 $ -- $ 77
Distributions to
stockholders........... -- -- -- -- -- -- (28) -- (28)
Purchase of 2,392 shares
of treasury stock, at
cost................... -- -- -- -- -- -- -- (450) (450)
Sale of 304 shares of
treasury stock......... -- -- -- -- -- 73 -- 58 131
Net loss................ -- -- -- -- -- -- (247) -- (247)
--- --- ------ ---- ------- ------- ------- ----- -------
Balance, December 31,
1998................... -- -- 12,875 -- -- 73 (198) (392) (517)
Common stock issued to
employees.............. -- -- 2,031 -- -- 516 -- -- 516
Sale of common stock.... -- -- 859 -- -- 126 -- -- 126
Exercise of stock
options................ -- -- 4 -- -- 1 -- -- 1
Issuance of preferred
stock for acquisition.. 210 -- -- -- -- 4,000 -- -- 4,000
Retirement of treasury
stock.................. -- -- (3,619) -- -- (392) -- 392 --
Sale of Bridge Loan
Warrants............... -- -- -- -- 311 -- -- -- 311
Sale of preferred stock
warrants............... -- -- -- -- 633 -- -- -- 633
Issuance of options and
warrants for services.. -- -- -- -- -- 91 -- -- 91
Accretion of redeemable
preferred stock........ -- -- -- -- -- (276) -- -- (276)
Accretion of warrants to
purchase common stock.. -- -- -- -- 1,348 (1,348) -- -- --
Stock-based
compensation........... -- -- -- -- -- 33 -- -- 33
Net loss................ -- -- -- -- -- -- (4,236) -- (4,236)
--- --- ------ ---- ------- ------- ------- ----- -------
Balance, December 31,
1999................... 210 -- 12,150 -- 2,292 2,824 (4,434) -- 682
Exercise of stock
options (unaudited).... 4 -- 31 -- -- 34 -- -- 34
Issuance of preferred
stock (unaudited)...... 11 -- -- -- -- 275 -- -- 275
Conversion of debt to
preferred stock
(unaudited)............ 120 -- -- -- -- 2,782 -- -- 2,782
Exercise of warrants
(unaudited)............ -- -- 7,924 -- (3,259) 3,281 -- -- 22
Accretion of redeemable
preferred stock
(unaudited)............ -- -- -- -- -- (156) -- -- (156)
Accretion of warrants to
purchase common stock
(unaudited) -- -- -- -- 967 (967) -- -- --
Stock-based compensation
(unaudited)............ -- -- -- -- -- 424 -- -- 424
Net loss (unaudited).... -- -- -- -- -- -- (3,540) -- (3,540)
--- --- ------ ---- ------- ------- ------- ----- -------
Balance, March 31, 2000
(unaudited)............ 345 $-- 20,105 $ -- $ -- $ 8,497 $(7,974) $ -- $ 523
=== === ====== ==== ======= ======= ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Years Ended Ended
December 31, March 31,
-------------- -------------
1998 1999 1999 2000
----- ------- ---- -------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................... $(247) $(4,236) $(77) $(3,540)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 33 238 9 293
Accretion of debt discount.................. -- 31 -- 62
Issuance of warrants and options for
services................................... -- 91 -- --
Stock-based compensation.................... -- 549 -- 424
Net change in:
Accounts receivable........................ (85) (79) (74) 71
Prepaid expenses and other current assets.. (2) (103) (7) 79
Costs of uncompleted contracts............. (57) 30 33 (11)
Other assets............................... -- -- -- (27)
Accounts payable........................... 3 466 321 389
Deferred revenues.......................... 97 (5) (82) (18)
Accrued liabilities........................ 55 142 16 203
----- ------- ---- -------
Net cash used in operating activities..... (203) (2,876) 139 (2,075)
----- ------- ---- -------
Cash flows used in investing activities:
Purchase of equipment......................... (36) (1,598) (57) (712)
Legal fees paid for acquisition............... -- (85) -- --
----- ------- ---- -------
Net cash used in investing activities..... (36) (1,683) (57) (712)
----- ------- ---- -------
Cash flows from financing activities:
Proceeds from sale of preferred stock......... -- 2,841 -- 275
Proceeds from sale of common stock............ -- 77 -- 56
Proceeds from notes payable................... 203 264 -- 10,000
Payments on notes payable..................... -- (420) (60) (116)
Proceeds from notes payable to preferred
stockholders................................. -- 3,000 -- --
Net proceeds from revolving line of credit.... -- 978 -- 113
Payments on notes payable to stockholders..... (4) (419) (19) --
Cash paid for treasury stock.................. (40) -- -- --
Proceeds from sale of treasury stock.......... 130 -- -- --
Distributions to stockholders................. (28) -- -- --
Payments on capital lease obligations......... (23) (24) (4) (26)
Cash received through acquisition............. -- 19 -- --
----- ------- ---- -------
Net cash provided by financing
activities............................... 238 6,316 (83) 10,302
----- ------- ---- -------
Net change in cash.............................. (1) 1,757 (1) 7,515
Cash at beginning of period..................... 24 23 23 1,780
----- ------- ---- -------
Cash at end of period........................... $ 23 $ 1,780 $ 22 $ 9,295
===== ======= ==== =======
Supplemental cash flow information:
Cash paid for interest........................ $ 38 $ 88 $ 12 $ 32
Debt exchanged for common stock............... -- 50 -- --
Acquisition consummated through issuance of
preferred stock.............................. -- 4,000 -- --
Accretion of redeemable preferred stock....... -- 276 -- 156
Purchase of treasury stock, at cost, through
issuance of notes payable.................... 410 -- -- --
Purchase of equipment through capital leases.. 13 -- -- --
Bridge loan conversion to Series D Preferred
Stock........................................ -- -- -- 2,782
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1999
(Information insofar as it relates to March 31, 2000 and the
three months ended March 31, 1999 and 2000 is unaudited)
(1) Summary of Significant Accounting Policies
(a) Organization, Nature of Business and Basis of Presentation
webcasts.com, Inc. (the Company) was founded in 1995 as an interactive
digital marketing agency that also develops proprietary technologies. These
tools include Internet/Web development and CD-Roms which accounted for
approximately 52% of revenues in 1999. The Company also provides custom
programming, consulting, and other digital products and services as well as
network design, implementation and management based upon specific needs of
clients which accounted for approximately 23% of revenues in 1999. During
1997, the Company launched a business to become a web-based interactive
broadcasting provider that enables web site and content owners to provide high
quality streaming of live and on-demand audio and video content over the
Internet which accounted for approximately 13% of revenues in 1999. The
Company provides all of the infrastructure to facilitate end-to-end
broadcasting which includes production capabilities, sponsorship revenue
generation, a network for the delivery of rich media including video, audio,
text, graphics and animations, and an integrated, e-commerce enabled
interface.
In the opinion of management, the accompanying unaudited financial
statements as of March 31, 2000 and for the three months ended March 31, 1999
and 2000, reflect adjustments (all of which are normal and recurring) which,
in the opinion of management, are necessary for a fair presentation of the
financial position and results of operations of the interim periods presented.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of webcasts.com,
Inc. and its wholly owned subsidiary. All significant intercompany balances
and transactions have been eliminated in consolidation.
(c) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(d) Revenue and Cost Recognition
Revenue is recognized on the completed contract method for all revenue
streams due to the short-term nature of the contracts, generally one to three
months in duration. The Company's revenue streams consist generally of four
types: Internet/Web development and CD-ROMs; custom programming and consulting
for digital products and services; network design, implementation and
management; and web-based interactive broadcasting of high quality streaming
of live and on-demand audio and video content over the Internet.
Revenue is recognized upon completion of the contract. Indirect costs and
general and administrative expenses are expensed as incurred. Contract costs,
consisting primarily of direct labor and material costs, and related revenues
are deferred in the balance sheet until completion. A contract is considered
complete when all costs have been incurred and the product is performing
according to specifications or has been accepted by the customer. The Company
also records deferred revenues for advance payment on customer projects. The
deferred revenues are recorded as income in the period the services are
provided.
F-33
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Costs of revenues include all direct labor and material costs and those
indirect costs related to contract performance. Operating expenses are charged
to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined.
(e) Allowance for Doubtful Trade Accounts Receivable
The Company extends credit to customers in accordance with normal industry
standards and terms. The Company has established an allowance for doubtful
accounts based on known factors surrounding the credit risk of specific
customers, historical trends and other information. The Company may require
that a portion of the estimated billings be paid prior to delivering products
or performing services. In addition, the Company may terminate customer
contracts if outstanding amounts are not paid.
(f) Warrants to Purchase Common Stock
The Company has issued debt and preferred stock with detachable common
stock purchase warrants. The stock purchase warrants are initially recorded
based on their fair value with the balance of the proceeds allocated to the
debt or preferred stock. The debt is accreted to its face value over its term
and the accretion is recorded as interest expense in the accompanying
statements of operations. Preferred stock which is redeemable for cash at the
option of the holder is accreted to its redemption value and the accretion is
recorded as a decrease to additional paid in capital in the accompanying
statement of stockholders' equity (deficit). Warrants are initially recorded
in stockholders' equity (deficit) and warrants which may be put back to the
Company for cash at the option of the holder are accreted to the put value
over the period from the date of issuance to the earliest put date of the
warrants.
(g) Equipment
Equipment, stated at cost or the present value of minimum lease payments
for assets under capital leases, is depreciated over the estimated useful
lives of the assets using the straight-line method. Estimated useful lives
range from 3 to 7 years. Significant improvements and betterments are
capitalized if they extend the useful life of the asset. Routine repairs and
maintenance are expensed when incurred.
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
(h) Research and Software Development Costs
Research and development costs are charged to operations as incurred.
Software development and prototype costs incurred prior to establishment of
technological feasibility are included in research and development and are
expensed as incurred. Software development costs incurred subsequent to the
establishment of technological feasibility until general market availability
of the product are capitalized, if material. To date, all software development
costs incurred subsequent to the establishment of technological feasibility
have been expensed as incurred due to their immateriality.
(i) Income Taxes
During 1998 the Company was taxed as an S-Corporation under the Internal
Revenue Code. As such, income taxes were the responsibility of the
shareholders and were not accounted for in the consolidated financial
F-34
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
statements of the Company. In 1999, the Company received permission from the
Internal Revenue Service to change its election from an S-Corporation and,
effective January 1, 1999, is taxed as a C-Corporation. As a result, income
taxes are accounted for using the asset and liability method under which
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities and tax operating loss carryforwards. The effect on deferred
taxes for a change in tax rates is recognized in income in the period that
includes the enactment date. The effect of recognizing deferred tax assets and
liabilities due to the change in tax status is included in income tax expense
and is fully offset by the income tax benefit generated in 1999.
(j) Stock Options
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," (APB No. 25), and related interpretations.
Compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeds the exercise price of the stock
options, and the expense is recognized over the vesting period.
Stock options and warrants issued to non-employees for services rendered
are recorded as expense upon issuance based on their estimated fair value.
(k) Loss per Share
Loss per share is computed by dividing net loss applicable to common stock
by the weighted average number of common shares outstanding for the period.
The effect of warrants to purchase common stock, convertible preferred stock,
and stock options has been excluded since the effect would be anti-dilutive.
(l) Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of
funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
(m) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value. The Company, to date, has not engaged in derivative
and hedging activities, and accordingly does not believe that the adoption of
SFAS No. 133 will have a material impact on the financial reporting and
related disclosures of the Company. The Company will adopt SFAS No. 133 as
required by SFAS No. 137, "Deferral of the Effective Date of the FASB
Statement No. 133," beginning with the first quarter of 2001.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements," which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue
F-35
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
recognition policies. Management believes that the impact of SAB 101 will not
have a material effect on the financial position or results of operations of
the Company.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation--an interpretation of APB
Opinion No. 25" ("FIN 44"). Among other issues, this interpretation clarifies
the definition of employee for purposes of applying APB Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), the criteria for
determining whether a plan qualifies as a noncompensatory plan, the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1,
2000, but certain conclusions in this Interpretation cover specific events
that occur after either December 15, 1998, or January 12, 2000. Management
believes that FIN 44 will not have a material effect on the financial position
or results of operations of the Company.
(2) Acquisition of The Rock Island Group, Inc.
On October 15, 1999, the Company acquired The Rock Island Group, Inc.
(RIG), a network design, implementation and management company for
approximately $5,000,000. The Company issued 210,000 shares of Series D Senior
Convertible Preferred Stock, granted 20,000 options to purchase Series D
Senior Convertible Preferred Stock at an option price of $.01, and assumed
liabilities of approximately $1,000,000 in exchange for all of the outstanding
common and preferred shares of RIG. The purchase price was allocated to the
assets acquired based on their estimated fair values, and approximately
$450,000 was allocated to current assets. The excess of the purchase price
over the fair value of the net assets acquired was approximately $4 million
and is being amortized on a straight-line basis over 7 years. In determining
the purchase price allocation, the Company identified intangible assets
consisting of customer base and assembled workforce. The allocation of the
purchase price to these identifiable assets would not materially impact the
financial position or the results of operations for 1999 or future results.
The acquisition was accounted for by the purchase method of accounting for
business combinations. Accordingly, the accompanying consolidated statements
of operations do not include any revenues or expenses related to the
acquisition prior to the closing date.
(3) Notes Payable and Revolving Line of Credit
In February 1998, the Company entered into an agreement to transfer up to
$450,000 of trade receivables with full recourse. The agreement allowed the
Company to remit receivables with an aggregate face value of $450,000 to a
bank; however, the bank had no obligation to purchase the receivables. For a
receivable accepted in accordance with the agreement, the bank would remit 80%
of the face value to the Company. The remaining 20% was remitted to the
Company after collection of the receivable by the bank. Proceeds from the
transfers contemplated by this agreement, which totaled $153,083 at December
31, 1998, are reported as borrowings in accordance with Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities," and are included in notes
payable in the accompanying 1998 balance sheet. The bank received monthly
interest of 2.75% of the average daily balance of the receivables purchased
and an administrative fee of 1% of all receivables purchased. The
administrative fees are included in operating expenses in the accompanying
statement of operations. The borrowings were secured by all assets of the
Company and a personal guaranty of the president of the Company.
The receivable transfer agreement was terminated in May 1999, and replaced
with a revolving line of credit with a separate financial institution in the
amount of $2,000,000 in September 1999. The revolving line of credit is
comprised of a working capital loan not to exceed $1,000,000 and an equipment
loan not to exceed $1,000,000. The working capital loan expires September 15,
2000, and there were no borrowings against the loan at
F-36
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and approximately $113,000 borrowed at March 31, 2000. The
equipment loan expires September 15, 2002, and there was $978,480 borrowed
against the loan at December 31, 1999 and March 31, 2000. The loans are
secured by equipment and trade accounts receivable and bear interest at the
prime rate plus 1% (approximately 9.5% and 9.75% at December 31, 1999 and
March 31, 2000, respectively).
In August 1998, the Company borrowed $50,000 from two individuals which was
included in notes payable at December 31, 1998. The promissory notes accrued
interest at 8% and were convertible to common shares of the Company at
maturity of the notes. The notes were converted to common stock in May 1999.
The Company has three promissory notes to a financial institution
outstanding which bear interest at rates ranging from 8.75% to 10.5% at
December 31, 1999. The notes are secured by equipment, fixtures and accounts
receivable. The notes are due as follows: $63,777 in 2000; $17,306 in 2001;
$20,670 in 2002; and $13,596 in 2003.
During 1998, the Company entered into an agreement to purchase 2,392,006
shares of the Company's common stock from two significant stockholders for
$450,000. Each stockholder received $20,000 upon execution of the agreement; a
promissory note in the amount of $180,000, due November 30, 1998, bearing
interest at 8%, secured by all assets of the Company; and an unsecured
promissory note in the amount of $25,000 to be paid in monthly installments of
$1,000, plus accrued interest at 8%. Each stockholder received payments of
$2,000 on the unsecured notes during 1998. The stockholders extended the
payment terms of the secured promissory notes and during May 1999 the
agreement was restructured and the stockholders transferred approximately
1,500,000 additional shares to the Company. The Company then paid the
promissory notes in full.
The Company had a note payable to the President of the Company in the
amount of $13,000 at December 31, 1998. The note accumulated interest at 8%
and was included in notes payable to common stockholders in the accompanying
1998 balance sheet. The note was repaid in 1999.
During November 1999, the Company issued unsecured bridge promissory notes
to preferred stockholders in the aggregate amount of $3,000,000. The notes
bear interest at 10% with interest and principal due on September 30, 2000.
The notes were issued with detachable common stock purchase warrants (the
Bridge Warrants) and the recorded value is net of amounts allocated to the
Bridge Warrants. The debt increased approximately $31,000 and $62,000 for the
accretion of the debt to its face value during 1999 and the three months ended
March 31, 2000, respectively. The promissory notes were converted to 120,000
shares of Series D Preferred Stock on February 29, 2000.
In March 2000, the Company entered into a $10,000,000 promissory note with
iBEAM Broadcasting Corporation (iBEAM). The note bears interest at prime rate
+1%, with principal and interest due at maturity on March 1, 2001.
(4) Redeemable Preferred Stock
During May and June 1999, the Company issued 23,093 shares of Series A
Senior Preferred Stock (Series A Stock), 3,000 shares of Series B Senior
Preferred Stock (Series B Stock), and 4,000 shares of Series C Senior
Preferred Stock (Series C Stock) (collectively the Preferred Stock), together
with detachable warrants to purchase an aggregate of 7,756,243 shares of
common stock (Preferred Warrants), for approximately $3,000,000. The Preferred
Stock is not convertible, ranks senior to the common stock and Series D
Preferred Stock of the Company and has a liquidation preference of $200 per
share plus all accrued, accumulated and unpaid dividends. Dividends on the
Preferred Stock are cumulative and accrue at an annual rate of $8 per share,
payable quarterly when and if declared by the Company. As of December 31, 1999
and March 31, 2000, cumulative dividends in arrears for the Preferred Stock
were approximately $120,000 and $180,000, respectively. The Company may elect
to pay all or part of dividends declared before June 30, 2002 by issuing
additional Preferred Stock and Preferred Warrants. All dividends not declared
before the earlier of a Qualified Public Offering, as defined in the Preferred
F-37
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock purchase agreements, or June 30, 2004 will be deemed to have not
accumulated and will not be required to be paid or declared.
The holders of the Series A and B Stock have voting rights equivalent to
23.10 common shares and holders of Series C Stock have voting rights
equivalent to 14.684 common shares. The holders of the Preferred Stock, voting
together as a class, are entitled to elect two directors of the Company,
including Chairman of the Board, and certain actions of the Company require
approval by the holders of the Preferred Stock. These rights terminate upon
redemption of all of the Preferred Stock.
The Preferred Warrants have an exercise price of less than $.01 and may be
exercised at any time prior to expiration. Approximately 6,255,000 of the
Preferred Warrants expire in May 2009 and approximately 1,501,000 Preferred
Warrants expire in June 2009.
The Company may redeem the Preferred Stock for cash at any time for $200
per share plus all accrued, accumulated and unpaid dividends. The owners of
the Preferred Stock have the option any time after May 14, 2003, to require
the Company to redeem one or more shares of their Preferred Stock at the
liquidation preference of $200 per share. In addition, each owner of the
Preferred Stock, the related Preferred Warrants, and shares obtained through
exercise of the Preferred Warrants, have the option any time after May 14,
2004 but before May 14, 2006 to require the Company to purchase all or part of
their Preferred Stock, Preferred Warrants or shares obtained through exercise
of the Preferred Warrants at the fair value of the securities. The estimated
fair value of the Preferred Warrants is approximately $14,100,000 at December
31, 1999. The Preferred Warrants were exercised on March 31, 2000 for
7,756,000 shares of common stock.
(5) Stockholders' Equity (Deficit)
Common Stock
During 1999, the board of directors and shareholders of the Company
approved amended and restated certificates of incorporation which ultimately
authorized 50,000,000 shares of common stock ($.00001 par value) and 2,000,000
shares of preferred stock ($.0001 par value). In addition, the Company
increased its outstanding shares through two splits of the common stock
aggregating 21,458-for-1. The Company's common stockholders have entered into
an agreement which provides for restrictions on transfers of stock and certain
rights of first refusal of shares of stock offered for sale by stockholders.
All share information has been restated for the stock splits.
Preferred Stock and Preferred Stock Options
As discussed in note 2, 210,000 shares of the Series D Senior Convertible
Preferred Stock (Series D Stock) and options to purchase 20,000 shares of
Series D Stock were issued in 1999 in connection with the acquisition of RIG.
The Series D Stock ranks senior to the common stock of the Company and has a
liquidation preference of $17.39 per share plus all accrued, accumulated and
unpaid dividends. Dividends on the Series D Stock are cumulative and accrue at
an annual rate of $1.22 per share, payable quarterly when and if declared by
the Company. As of December 31, 1999 and March 31, 2000, cumulative dividends
in arrears for the Series D Stock were approximately $53,000 and $120,000,
respectively. The holders of the Series D Stock have voting rights equivalent
to those of common stockholders. The options to purchase additional Series D
Stock have an exercise price of $.01 per share, a term of 10 years and fully
vested on March 31, 2000. No options to purchase the Series D Stock have been
exercised as of December 31, 1999.
The Series D Stock and related options are convertible to an aggregate of
2,300,000 shares of the Company's common stock at any time, however, if not
converted prior to the Company's next private placement of equity securities
and the fair value of the Company is determined to be less than $40,000,000 at
the time of the private placement, the Series D Stock and related options are
convertible into 2,400,000 shares of the Company's common stock. In addition,
the Series D Stock and related options are automatically converted upon
F-38
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
a Qualified Public Offering, as defined in the acquisition agreement. Options
to purchase 4,500 shares of Series D Stock were exercised in the three months
ended March 31, 2000, and 15,500 options remain outstanding at March 31, 2000.
Warrants to Purchase Common Stock
As discussed in note 3, the Company issued unsecured bridge promissory
notes with detachable Bridge Warrants during 1999. The amount of Bridge
Warrants to be issued to each holder is equal to 10% of the unsecured bridge
promissory notes (total of $300,000) divided by (a) the implied value of one
share of common stock in a Qualified Transaction or (b) $1.75 in the event a
private placement does not occur prior to the maturity of the Bridge Warrants
on November 30, 2009. The Bridge Warrants are exercisable any time after a
Qualified Transaction and before maturity at an exercise price of $.01. The
Bridge Warrants were exercised in the three months ended March 31, 2000 for
120,000 shares of common stock.
The Company also issued warrants to purchase 47,406 shares of common stock
at an exercise price of $.01 to a third party in exchange for services
provided to the Company. These warrants are exercisable any time prior to
expiration in May 2004. The warrants were exercised in full in the three
months ended March 31, 2000.
(6) Equipment
Equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December
31, March 31,
----------- -----------
1998 1999 2000
---- ------ -----------
(unaudited)
<S> <C> <C> <C>
Office equipment..................................... $ 16 $ 67 $ 97
Computer equipment................................... 122 2,133 2,815
---- ------ ------
$138 $2,200 $2,912
==== ====== ======
</TABLE>
(7) Capital Leases
The Company leases certain equipment under agreements which are classified
as capital leases. The leases have original terms ranging from 2 to 7 years.
Leased capital assets included in property and equipment are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, March 31,
-------------- -----------
1998 1999 2000
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Furniture and fixtures........................... $ 63 $ 40 $ 40
Computer equipment............................... -- 230 230
------ ------ ----
63 270 270
Less: Accumulated amortization................... (23) (59) (80)
------ ------ ----
$ 40 $ 211 $190
====== ====== ====
</TABLE>
F-39
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following is a schedule by year of future minimum lease payments for all
capital leases together with the present value of the net minimum lease
payments as of December 31, 1999 ( in thousands):
<TABLE>
<S> <C>
2000................................................................... $108
2001................................................................... 52
2002................................................................... 42
2003................................................................... 19
----
Total minimum lease payments........................................... 221
Less: Imputed interest................................................. (20)
----
Present value of minimum lease payments................................ 201
Less: Current maturities............................................... (99)
----
Long-term obligations.................................................. $102
====
</TABLE>
(8) Operating Leases
The Company leases office space and equipment under noncancellable operating
leases. Rental expense for the office space and equipment was approximately
$33,000 and $154,000 in 1998 and 1999, respectively. The future minimum
payments by year as of December 31, 1999, are as follows (in thousands):
<TABLE>
<S> <C>
2000................................................................... $ 232
2001................................................................... 200
2002................................................................... 187
2003................................................................... 100
-----
$ 719
=====
</TABLE>
(9) Income Taxes
As discussed in note 1, the Company was taxed as an S-Corporation during
1998. As such, income taxes were the responsibility of the shareholders and
were not accounted for in the accompanying 1998 financial statements. Income
tax expense differed from the amounts computed by applying the U.S. federal
income tax rate of 34% to loss before income taxes in 1999 as a result of the
following (in thousands):
<TABLE>
<S> <C>
Computed expected tax benefit...................................... $(1,440)
State income taxes benefit......................................... (207)
Increase in the valuation allowance................................ 1,432
Other, net......................................................... 215
-------
$ --
=======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1999 are as
follows (in thousands):
<TABLE>
<S> <C>
Net operating loss carryforwards................................... $2,998
Other, primarily accrued liabilities and stock awards.............. 98
------
Deferred tax assets................................................ 3,096
Deferred tax liability-- property and equipment temporary
differences....................................................... (167)
------
2,929
Less valuation allowance........................................... (2,929)
------
Net deferred tax asset............................................. $ --
======
</TABLE>
F-40
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
A valuation allowance has been provided for the deferred tax assets because
the Company's management has determined it is more likely than not that the net
deferred tax asset will not be realized.
At December 31, 1999 the Company has net operating loss carryforwards of
approximately $7,900,000 for federal and state income tax purposes and the
carryforwards expire in 2011 to 2015. Approximately $4,200,000 of the net
operating loss carryforwards were generated by RIG prior to the acquisition
(see note 2) and begin to expire in 2011. Utilization of these carryforwards is
limited by section 382 of the Internal Revenue Code (section 382). In addition,
changes in ownership, as defined by section 382, during 1999 and in future
periods could limit the amount of net operating loss carryforwards used in any
one year. Any tax benefit recognized as a result of utilization of RIG pre-
acquisition tax operating losses will reduce goodwill recorded in connection
with the RIG acquisition and will not reduce future financial income tax
expense.
(10) Employment Agreements
The Company has employment agreements with four key executive officers which
expire in May 2002. In addition to a base salary, the agreements provide for an
annual performance bonus of up to $50,000 and six months severance if
terminated without cause. Two of the officers owned approximately 7,100,000
shares of common stock upon execution of the employment agreements, and two of
the officers were granted approximately 2,000,000 shares of common stock.
Approximately 29% of the 2,000,000 shares granted is subject to repurchase if
specific web-based broadcasting revenue targets are not achieved. If the
employees resign or are terminated with cause, 75% of the stock not repurchased
based on the specific revenue targets is subject to further repurchase.
(11) Stock Option Plan
During 1999, the Company adopted a stock option plan (the Plan) and
authorized the issuance of incentive and non-qualified options to purchase
2,200,000 shares of the Company's common stock. All employees have the ability
to earn stock options through a performance option program and all options
granted in 1999 were non-qualified and issued at a discount of approximately
15% from the fair value of the Company's common stock. Each option allows the
applicable employee to purchase one share of common stock at the exercise price
determined by the board of directors. Options become exercisable at a rate of
no less than 20% per year over five years from the grant date. The exercise
price for an employee who owns stock representing more than ten percent of all
voting power of all classes of common stock shall be no less than 110% of the
fair value of the common stock on the date of grant. The exercise price for all
other employees shall be no less than 85% of the fair value of the common stock
on the grant date. The term of each option can be no more than ten years from
the date of grant. If a participant owns stock representing more than ten
percent of the voting power of all classes of stock of the Company, the term of
the option will be five years from the date of grant.
Stock option activity is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March 31,
1999 2000
---------------- ----------------
(unaudited)
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
------ -------- ------ --------
<S> <C> <C> <C> <C>
Balance at beginning of period............. -- $ -- 1,366 $1.07
Granted.................................... 1,396 1.06 653 1.55
Exercised.................................. (4) 0.32 (31) 0.88
Forfeited.................................. (26) 0.32 -- 0.32
----- -----
Balance at end of period................... 1,366 1.07 1,988 1.23
===== =====
</TABLE>
F-41
<PAGE>
WEBCASTS.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information about stock options outstanding at December 31, 1999, is as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Options Weighted Options
Range of Outstanding at Average Exercisable at Fair Value
Option December 31, Remaining December 31, at
Prices 1999 Contract Life 1999 Grant Date
-------- -------------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
$0.32 308 9.75 years -- $0.19
0.50 259 9.65 years 94 0.30
1.55 799 9.89 years 55 0.92
</TABLE>
The Company applies APB Opinion 25 and related interpretations in accounting
for its Plan. The amount of expense recognized in 1999 related to employee
stock options was $33,000. No expense was recognized in 1998, since no options
were granted until 1999. Had the Company applied SFAS 123 in accounting for the
plans, the additional compensation costs would have been approximately $64,000.
The fair value of each option grant was estimated using an option-pricing model
with the following weighted-average assumptions: dividend yield of 0%; expected
volatility of 0%; risk-free interest rate of 5.5% and expected lives of
approximately five years.
(12) 401(k) Plan
During 1999, the Company established a 401(k) plan in which substantially
all employees of the Company are eligible to participate. Company contributions
to the 401(k) plan are at the Company's discretion and there were no
contributions in 1999.
(13) Business and Credit Concentrations
In 1998, two customers accounted for 45% of the Company's total revenue, and
47% of trade accounts receivable at December 31, 1998. In 1999, two customers
accounted for 24% of the Company's total revenue, and 13% of trade accounts
receivable at December 31, 1999. For the three months ended March 31, 2000, two
customers accounted for 26% of the Company's total revenue, and 51% of trade
accounts receivable.
(14) Related Party Transactions
The Company leased certain equipment from a corporation controlled by an
officer of the Company in 1998 and 1999. The leases expire from December 1999
to October 2000. Aggregate lease payments of approximately $29,000 were made in
1998 and 1999. An aggregate payment of approximately $8,000 will be made in
2000.
(15) Subsequent Event-Proposed Business Combination (Unaudited)
In April 2000, the Company merged with iBEAM Broadcasting Corporation
(iBEAM) in a transaction to be accounted for as a purchase of the Company by
iBEAM. Under the terms of the merger, all issued and outstanding shares of
common and preferred stock and warrants to purchase shares of the Company were
exchanged for approximately 8.2 million shares of series F redeemable
convertible preferred stock of iBEAM which are convertible into common stock of
iBEAM on a share for share basis upon the closing of iBEAM's initial public
offering. In addition, holders of the Company's securities may receive
approximately an additional 1.1 million shares of iBEAM common stock if the
Company meets revenue targets in the twelve months following the acquisition.
Options granted under the Company's 1999 stock option plan were converted into
options to purchase shares of iBEAM's series F redeemable convertible preferred
stock.
F-42
<PAGE>
[LOGO OF IBEAM BROADCASTING]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses Of Issuance And Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of Common Stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 45,540
NASD filing fee.................................................. 17,750
Nasdaq National Market listing fee............................... 90,000
Printing and engraving costs..................................... 300,000
Legal fees and expenses.......................................... 600,000
Accounting fees and expenses..................................... 600,000
Blue Sky fees and expenses....................................... 5,000
Transfer Agent and Registrar fees................................ 10,000
Miscellaneous expenses........................................... 81,710
----------
Total.......................................................... $1,750,000
==========
</TABLE>
Item 14. Indemnification Of Directors And Officers
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article X of our Amended and Restated Certificate of Incorporation provides
for the indemnification of directors to the fullest extent permissible under
Delaware law.
Article VI of our Amended and Restated Bylaws provides for the
indemnification of officers, directors and third parties acting on behalf of
us if such person acted in good faith and in a manner reasonably believed to
be in and not opposed to our best interest, and, with respect to any criminal
action or proceeding, the indemnified party had no reason to believe his or
her conduct was unlawful.
We have entered into indemnification agreements with our directors and
executive officers, in addition to indemnification provided for in our Amended
and Restated Bylaws, and intend to enter into indemnification agreements with
any new directors and executive officers in the future. The indemnification
agreements may require us, among other things, to indemnify our directors and
officers against certain liability that may arise by reason of their status or
service as directors and officers (other than liabilities arising from willful
misconduct of a culpable nature), to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified,
and to obtain directors and officers' insurance, if available on reasonable
terms.
Item 15. Recent Sales Of Unregistered Securities
Since inception, we have issued unregistered securities to a limited number
of persons, as described below. None of these transactions involved any
underwriters, underwriting discounts or commissions, or any public offering,
and we believe that each transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof,
Regulation D promulgated thereunder or Rule 701 pursuant to compensatory
benefit plans and contracts relating to compensation as provided under such
Rule 701. The recipients of securities in each such transaction represented
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates and instruments
issued in such transactions. All recipients had adequate access, through their
relationships with us, to information about us.
II-1
<PAGE>
(1) Since inception through March 31, 2000, (the most recent practicable
date) we granted stock options and restricted stock purchase rights to acquire
an aggregate of 25,689,019 shares of our common stock at prices ranging from
$0.00024 to $13.07 to employees, consultants and directors pursuant to our
1998 Stock Plan, as amended. These shares were issued in reliance on Section
4(2) and Rule 701 of the Securities Act solely to employees, consultants and
directors.
(2) From inception through March 31, 2000, we issued an aggregate of
12,450,704 shares of our common stock to employees, consultants and directors
pursuant to the exercise of options and restricted stock purchase rights
granted under our 1998 Stock Plan, as amended, for an aggregate consideration
of $3,075,919. These shares were issued in reliance on Section 4(2) and Rule
701 of the Securities Act solely to employees, consultants and directors.
(3) On March 23, 1998, we sold 7,636,669 shares of common stock to Michael
Bowles, Robert Wilmot and Navin Chaddha in exchange for $0.00024 per share for
an aggregate purchase price of $1,848.63. These shares were issued in reliance
on Section 4(2) of the Securities Act.
(4) On April 16, 1998, we sold 1,333,333 shares of Series A Preferred Stock
for $1.20 per share to Crosspoint Venture Partners 1997 and the Annabel J.
Montgomery Revocable Trust for an aggregate purchase price of $1,599,999.60.
These shares were issued in reliance on Section 4(2) of the Securities Act.
(5) On June 8, 1998 and July 21, 1998, we sold 3,248,904 shares of Series B
Preferred Stock for $1.65 per share to Accel VI L.P., Accel Internet Fund II
L.P., Accel Keiretsu VI L.P., Accel Investors '98 L.P., Crosspoint Venture
Partners 1997, Media Technology Ventures L.P., Media Technology Entrepreneurs
Fund, L.P., Annabel J. Montgomery Revocable Trust, G&H Partners and Stanford
University, for an aggregate purchase price of $5,360,500. These shares were
issued in reliance on Section 4(2) of the Securities Act.
(6) On November 24, 1998, we issued warrants to purchase 92,208 shares of
our Series B Preferred Stock to Comdisco, Inc., of which 27,273 have an
exercise price of $1.65 and 64,935 have an exercise price of $2.31. These
warrants were issued in reliance on Section 4(2) of the Securities Act.
(7) On February 3, 1999, we sold 3,591,816 shares of Series C Preferred
Stock for $3.42 per share to Accel VI L.P., Accel Internet Fund II L.P., Accel
Keiretsu VI L.P., Accel Investors '98 L.P., Crosspoint Venture Partners 1997,
Media Technology Ventures L.P., Media Technology Ventures Entrepreneurs Fund,
L.P., Intel Corporation, Comdisco, Inc., Annabel J. Montgomery Revocable
Trust, Montgomery & Associates LP, G&H Partners, Stanford University, Peter
Desnoes, Liberty IB, Michael Bowles, Robert Hawk, Chris Dier, Jeffrey and
Janna Rodgers Revocable Trust, Larry Goldstein, Allen Freener, Bruce Lawler,
Annabel J. Montgomery Trust, Crescendo World Fund, LLC and Eagle Ventures
World Fund, LLC for an aggregate purchase price of $12,284,010. These shares
were issued in reliance on Section 4(2) of the Securities Act.
(8) On September 1, 1999, we issued a warrant to purchase 6,396 shares of
Series C Preferred Stock at an exercise price of $3.42 to Comdisco, Inc. This
warrant was issued in reliance on Section 4(2) of the Securities Act.
(9) On October 14, 1999, we sold 7,072,732 shares of Series D Preferred
Stock for $5.96 per share to Crosspoint Venture Partners 1997, Accel VI L.P.,
Accel Internet Fund II L.P., Accel Keiretsu VI, L.P., Accel Investors '98
L.P., Media Technology Ventures L.P., Media Technology Ventures Entrepreneurs
Fund, L.P., Intel Corporation, Microsoft Corporation, Covad Communications
Investment Corp., Comdisco, Inc., Sony Corporation of America, Annabel J.
Montgomery Revocable Trust Dated, J.P. Morgan Direct Venture Capital
Institutional Investors LLC, J.P. Morgan Direct Venture Capital Private
Investors LLC, Crescendo World Fund, LLC, Eagle Ventures WF, LLC, Lunn-iBEAM,
LLC, Peter Desnoes, IRA, Robert C. Hawk, Len Grossi, Fred Seegal, WS
Investment Company 99B, Chris L. Dier, Bruce D. Lawler, Tom Gillis, Nils Lahr,
David Strehlow, Robert Davis and Philip Rosendale for an aggregate purchase
price of $42,153,482. These shares were issued in reliance on Section 4(2) of
the Securities Act and Regulation D promulgated thereunder.
(10) On October 14, 1999, we issued a warrant to purchase 218,120 shares of
Series D Preferred Stock at an exercise price of $5.96 to Microsoft
Corporation. This warrant was issued in reliance on Section 4(2) of the
Securities Act.
II-2
<PAGE>
(11) On December 3, 1999, we issued a warrant to purchase 25,268 shares of
Series D Preferred Stock at an exercise price of $5.96 to Comdisco, Inc. This
warrant was issued in reliance on Section 4(2) of the Securities Act.
(12) On January 25, 2000, we issued 908,820 shares of common stock to
Frederic Seegal for a purchase price of $4.84 per share for an aggregate
purchase price of $4,395,600. These shares were issued in reliance on Section
4(2) of the Securities Act.
(13) On February 15, 2000, we issued 2,181,818 shares of our Series E
Preferred Stock to Pacific Century CyberWorks Limited at a per share purchase
price of $13.75 for an aggregate consideration of $29,999,997. These shares
were issued in reliance on Section 4(2) of the Securities Act.
(14) On February 25, 2000, we issued a warrant to purchase 537,634 shares
of common stock at an exercise price of $9.30 (assuming an initial public
offering price of $10.00 per share) to America Online, Inc. This warrant was
issued in reliance on Section 4(2) of the Securities Act.
(15) On February 28, we issued 363,636 shares of our Series E Preferred
Stock to America Online, Inc. at a per share purchase price of $13.75 for an
aggregate consideration of $5,000,000. These shares were issued in reliance on
Section 4(2) of the Securities Act.
(16) On March 21, 2000 we entered into an Agreement and Plan of Merger
pursuant to which we will acquire webcasts.com. In connection with the closing
of the acquisition on April 28, 2000, we issued 8,233,173 shares of our Series
F Preferred Stock in exchange for outstanding shares of webcasts.com capital
stock. The issuance of these shares was completed in reliance of Section 4(2)
of the Securities Act and Regulation D promulgated thereunder. In connection
with this acquisition, we also assumed webcasts.com options, which are
exercisable to purchase 706,285 shares of our Series F Preferred Stock. These
options were granted in reliance upon Rule 701 of the Securities Act.
(17) On March 16, 2000 we entered into an agreement with The Walt Disney
Company pursuant to which The Walt Disney Company has agreed to purchase
$10,000,000 of our Series G Preferred Stock prior to the closing of this
offering at a price to the public in the offering. Based on an assumed public
offering price of $10.00 per share, The Walt Disney Company will purchase
1,000,000 shares of our Series G Preferred Stock. These shares will be issued
in reliance on Section 4(2) of the Securities Act.
(18) On April 10, 2000 we entered into an agreement with Excite@Home
pursuant to which Excite@Home has agreed to purchase $5,000,000 of our Series
H Preferred Stock prior to the closing of this offering at a price to the
public in the offering less underwriting discounts and commissions. Based on
an assumed public offering price of $10.00 per share, Excite@Home will
purchase 537,634 shares of our Series H Preferred Stock. These shares will be
issued in reliance on Section 4(2) of the Securities Act.
We relied upon the securities exemptions for the issuances listed under
footnotes (3)-(15), (17) and (18) above based on the fact that there was no
general solicitation or advertising for these issuances. These issuances were
made to a limited number of purchasers, each of whom we believe was an
accredited investor or, if not, had sufficient financial experience and
resources to evaluate the merits and risks of the investment. We believe each
investor possessed sufficient financial sophistication to participate in such
private financings.
We are relying upon the securities exemption for the issuance listed under
footnote (16) above based on the fact that there was no general solicitation
or advertising for the issuance. There was less than 35 non-accredited
webcasts.com shareholders, each of whom we believe alone or with his purchaser
representative possessed sufficient financial sophistication to participate in
this issuance. In addition, we provided all webcasts.com shareholders with
information regarding our company as required by Rule 506 of Regulation D.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Relationships and Related Transactions" in the form of prospectus included
herein.
II-3
<PAGE>
Item 16. Exhibits And Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<S> <C>
1.1* Form of Underwriting Agreement.
2.1** Agreement and Plan of Merger, dated March 21, 2000, by and among
the Registrant, WAC Acquisition Corporation, and Webcasts.com, Inc.
3.1 Restated Certificate of Incorporation of the Registrant.
3.2** Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed prior to the closing of this offering.
3.3** By-Laws of the Registrant.
3.4** Form of Amended and Restated By-Laws of the Registrant, to be
effective upon the closing of this offering.
4.1 Specimen of common stock certificate.
4.2 Third Amended and Restated Investors' Rights Agreement dated April
28, 2000.
4.3** Series D Stock Purchase Warrant dated October 14, 1999 held by
Microsoft Corporation.
4.4** Amended and Restated Voting Agreement dated February 15, 2000.
4.5** Voting Agreement with Liberty IB, Inc. dated February 12, 1999.
4.6** Stock Subscription Warrant dated February 25, 2000 held by America
Online, Inc.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati Professional
Corporation.
10.1** Form of Indemnification Agreement entered into by the Registrant
with each of its directors and executive officers.
10.2** Employment Agreement dated January 12, 1999 between the Registrant
and Peter Desnoes.
10.3** 1998 Stock Plan and forms of agreement thereunder.
10.4** 2000 Stock Plan and forms of agreement thereunder.
10.5** 2000 Employee Stock Purchase Plan.
10.6** 2000 Director Option Plan.
10.7** Sublease Agreement dated July 6, 1998 between Netscape
Communications, Inc. and the Registrant with respect to
Registrant's facilities in Sunnyvale, California.
10.8+ iBEAM and Microsoft Broadband Streaming Initiative Agreement dated
September 20, 1999.
10.9**+ iBEAM Network Membership Agreement by and between the Registrant
and Covad Communications Group dated October 5, 1999.
10.10+ Teleport Services Agreement dated December 13, 1999 between
Williams Vyvx Services, a business unit of Williams Communications,
Inc., and the Registrant.
10.11+ System Services Agreement dated January 27, 2000 between America
Online, Inc. and the Registrant.
10.12**+ iBEAM Network Membership Agreement by and between the Registrant
and NorthPoint Communications, Inc. dated September 30, 1999.
10.13** Employment Letter between the Registrant and Chris Dier dated
November 18, 1998.
10.14** Employment Letter between the Registrant and Jeremy Zullo dated
July 9, 1999.
10.15** Employment Letter between the Registrant and Nils Lahr dated July
9, 1999.
10.16** Consulting Agreement between the Registrant and Frederic Seegal
dated January 25, 2000.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<S> <C>
10.17** Restricted Stock Purchase Agreement between the Registrant and
Frederic Seegal dated January 25, 2000.
10.18**+ Excite@Home - iBEAM Internet Services Agreement by and between the
Registrant and At Home Corporation dated April 5, 2000.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of KPMG LLP, Independent Auditor.
23.3 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been requested with respect to certain non-
public information contained in these exhibits. Such information has been
filed with the Securities and Exchange Commission.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
Item 17. Undertakings
We hereby undertake to provide to the underwriters at the closing specified
in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification by us for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of iBEAM pursuant to the provisions referenced in Item 14 of this Registration
Statement or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by a director, officer, or
controlling person of iBEAM in the successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered hereunder, we will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
We hereby undertake that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by iBEAM pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Sunnyvale, State of California, on the 9th day of May, 2000.
iBEAM BROADCASTING CORPORATION
By: /s/ Chris Dier
__________________________________
Chris Dier
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Peter Desnoes* President and Chief May 9, 2000
____________________________________ Executive Officer and
Peter Desnoes Chairman of the Board
(Principal Executive
Officer)
/s/ Chris Dier Vice President and Chief May 9, 2000
____________________________________ Financial Officer
Chris Dier (Principal Financial and
Accounting Officer)
Barry Baker* Director May 9, 2000
____________________________________
Barry Baker
Frederic Seegal* Director May 9, 2000
____________________________________
Frederic Seegal
Richard Shapero* Director May 9, 2000
____________________________________
Richard Shapero
Peter Wagner* Director May 9, 2000
____________________________________
Peter Wagner
Robert Wilmot* Director May 9, 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
------- -----------------------
<S> <C>
1.1* Form of Underwriting Agreement.
2.1** Agreement and Plan of Merger, dated March 21, 2000, by and among the
Registrant, WAC Acquisition Corporation, and Webcasts.com, Inc.
3.1 Restated Certificate of Incorporation of the Registrant.
3.2** Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed prior to the closing of this offering.
3.3** By-Laws of the Registrant.
3.4** Form of Amended and Restated By-Laws of the Registrant, to be
effective upon the closing of this offering.
4.1 Specimen of common stock certificate.
4.2 Third Amended and Restated Investors' Rights Agreement dated April
28, 2000.
4.3** Series D Stock Purchase Warrant dated October 14, 1999 held by
Microsoft Corporation.
4.4** Amended and Restated Voting Agreement dated February 15, 2000.
4.5** Voting Agreement with Liberty IB, Inc. dated February 12, 1999.
4.6** Stock Subscription Warrant dated February 25, 2000 held by America
Online, Inc.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati Professional Corporation.
10.1** Form of Indemnification Agreement entered into by the Registrant with
each of its directors and executive officers.
10.2** Employment Agreement dated January 12, 1999 between the Registrant
and Peter Desnoes.
10.3** 1998 Stock Plan and forms of agreement thereunder.
10.4** 2000 Stock Plan and forms of agreement thereunder.
10.5** 2000 Employee Stock Purchase Plan.
10.6** 2000 Director Option Plan.
10.7** Sublease Agreement dated July 6, 1998 between Netscape
Communications, Inc. and the Registrant with respect to Registrant's
facilities in Sunnyvale, California.
10.8+ iBEAM and Microsoft Broadband Streaming Initiative Agreement dated
September 20, 1999.
10.9**+ iBEAM Network Membership Agreement by and between the Registrant and
Covad Communications Group dated October 5, 1999.
10.10+ Teleport Services Agreement dated December 13, 1999 between Williams
Vyvx Services, a business unit of Williams Communications, Inc., and
the Registrant.
10.11+ System Services Agreement dated January 27, 2000 between America
Online, Inc. and the Registrant.
10.12**+ iBEAM Network Membership Agreement by and between the Registrant and
NorthPoint Communications, Inc. dated September 30, 1999.
10.13** Employment Letter between the Registrant and Chris Dier dated
November 18, 1998.
10.14** Employment Letter between the Registrant and Jeremy Zullo dated July
9, 1999.
10.15** Employment Letter between the Registrant and Nils Lahr dated July 9,
1999.
10.16** Consulting Agreement between the Registrant and Frederic Seegal dated
January 25, 2000.
10.17** Restricted Stock Purchase Agreement between the Registrant and
Frederic Seegal dated January 25, 2000.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.18**+ Excite@Home - iBEAM Internet Services Agreement by and between the
Registrant and At Home Corporation dated April 5, 2000.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of KPMG LLP, Independent Auditor.
23.3 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been requested with respect to certain non-public
information contained in these exhibits. Such information has been filed
with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 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.
<PAGE>
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, 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. On April 11, 2000, a Restated Certificate of
Incorporation was filed pursuant to which each outstanding share of Common Stock
was divided into 1.377 shares of Common Stock. The total number of shares that
this corporation is authorized to issue is One Hundred and Fifty Two Million
(152,000,000) shares. One Hundred and Twenty Million (120,000,000) shares shall
be Common Stock and Thirty Two Million (32,000,000) 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. The
sixth series of Preferred Stock shall be designated "Series F Preferred Stock,"
consisting of Ten Million (10,000,000) shares. The seventh series of Preferred
Stock shall be designated "Series G Preferred Stock," consisting of One Million
Two Hundred and Fifty Thousand (1,250,000) shares. The eighth series of
Preferred Stock shall be designated "Series H Preferred Stock," consisting of
Six Hundred Thousand (600,000) 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, Series E, Series F, Series G and Series H 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, Series E
Preferred Stock, Series F Preferred Stock, Series G or Series H 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
2
<PAGE>
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, Series E, Series F, Series G and Series H 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 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 (as adjusted for any stock splits,
stock dividends, recapitalization or the like) or such greater amount as is paid
on the Common Stock, payable when, as, and if declared by the Board of
Directors, (F) $0.80 per share per annum for each share of Series F Preferred
Stock then held by them (as adjusted for any stock splits, stock dividends,
recapitalizations or the like) or such greater amount as is paid on the Common
Stock, payable when, as, and if declared by the Board of Directors, (G) eight
percent (8.0%) per annum multiplied by the Original Series G Issue Price for
each share of Series G Preferred Stock then held by them (as adjusted for any
stock splits, stock dividends, recapitalizations or the like) or such greater
amount as is paid on the Common Stock, payable when, as, and if declared by the
Board of Directors, and (H) eight percent (8.0%) per annum multiplied by the
Original Series H Issue Price for each share of Series H Preferred Stock then
held by them (as adjusted for any stock splits, stock dividends,
recapitalizations or the like) 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, Series E, Series F, Series G, or Series H
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, Series E, Series F, Series G, or Series
H 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, Series E, Series F, Series G
Preferred and Series H 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
3
<PAGE>
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);
(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); (F) $9.9855 for each
outstanding share of Series F Preferred Stock (the "Original Series F 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); (G) for each outstanding share of
Series G Preferred Stock, the price to the public per share in this
corporation's initial public offering of common stock pursuant to a Registration
Statement on Form S-1 (the "Original Series G Issue Price"); and (H) for each
outstanding share of Series H Preferred Stock, the price to the public per share
(less the underwriter's discount) in this corporation's initial public offering
of common stock pursuant to a Registration Statement on Form S-1 (the "Original
Series H Issue Price"). 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, Series E, Series F, Series G and Series H 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, Series E,
Series F, Series G, and Series H Preferred Stock in proportion to the foregoing
respective liquidation preferences of such holder.
(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, Series E, Series F, Series G and Series H 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, Series E,
Series F, Series G and Series H Preferred Stock) until the value of the assets
distributed to or the consideration received by such holders in the aggregate
equals $300,000,000 (including amounts paid pursuant to subsection (a) of this
Section 2);
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(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, Series E, Series F, Series G and Series H 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 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
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<PAGE>
(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, Series E, Series F, Series G and Series H 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(d)(iv) hereof.
(iv) This corporation shall give each holder of record of Series
A, Series B, Series C, Series D, Series E, Series F, Series G and Series H
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, Series E, Series F, Series G and Series H 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, Series E, Series F, Series G and Series H
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, 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; (vi) in the case of Series F
Preferred Stock, by dividing the Original Series F Issue Price by the Conversion
Price applicable to such share, determined as provided hereafter, in effect on
the date the certificate is surrendered for conversion; (vii) in the case of
Series G Preferred Stock, by dividing the Original Series G Issue Price by the
Conversion Price applicable to such share, determined as provided hereafter, in
effect on the date the certificate is
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<PAGE>
surrendered for conversion; and (viii) in the case of Series H Preferred Stock,
by dividing the Original Series H Issue Price by the Conversion Price applicable
to such share, determined as provided hereafter, 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, Series E, Series F, Series
G and Series H 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, Original Series E Issue Price, Original Series F Issue Price,
Original Series G Issue Price, and Original Series H Issue Price, respectively;
provided, however, that the Conversion Price for the Series A, Series B, Series
C, Series D, Series E, Series F, Series G and Series H Preferred Stock shall be
subject to adjustment from time to time as set forth in subsection 3(d). As of
the filing of this Restated Certificate of Incorporation, the Conversion Prices
for Series A-F Preferred Stock shall be equal to approximately (A) $0.2905 for
each outstanding share of Series A Preferred Stock; (B) $0.3994 for each
outstanding share of Series B Preferred Stock; (C) $0.8279 for each outstanding
share of Series C Preferred Stock; (D) $1.4427 for each outstanding share of
Series D Preferred Stock; (E) $9.9855 for each outstanding share of Series E
Preferred Stock; and (F) $9.9855 for each outstanding share of Series F
Preferred Stock (subject to further adjustment from time to time as set forth in
subsection 3(d)). There shall be no such adjustment to the Conversion Price of
Series G-H Preferred Stock, except as provided in Section 3(d).
(b) Automatic Conversion. Each share of Series A, Series B, Series C,
--------------------
Series D, Series E, Series F, Series G and Series H 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, Series E,
Series F, Series G or Series H 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 $2.88 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, Series E, Series F, Series G and Series H 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, Series E, Series F,
Series G or Series H 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, Series E,
Series F, Series G, or Series H 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, Series E,
Series F, Series G or Series H 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, Series E, Series F, Series G or Series H Preferred Stock to be converted, and
the person or persons entitled to
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<PAGE>
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, Series E, Series F, Series G or Series H 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, Series E, Series F, Series G or Series H Preferred Stock
shall not be deemed to have converted such Series A, Series B, Series C, Series
D, Series E, Series F, Series G, or Series H 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, Series E, Series F, Series G and Series H
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, Series E, Series F,
Series G, or Series H 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. There shall be no adjustment to the Conversion Price
of the Series G Preferred Stock due to the issuance of the Series H Preferred
Stock.
(B) No adjustment of the Conversion Price for the Series A,
Series B, Series C, Series D, Series E, Series F, Series G, or Series H
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.
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<PAGE>
(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, 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, Series E,
the Series F, the Series G and the Series H Preferred Stock, to the extent in
any way affected by or computed using such
9
<PAGE>
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, Series E,
Series F, Series G, or Series H 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 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 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
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<PAGE>
(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 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, less
underwriting discounts and commissions.
(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, Series E, Series F, Series
G, or Series H 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, Series E,
Series F, Series G and Series H 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.
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(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, Series E, Series F, Series G and Series H
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, Series E, Series F, Series G and/or Series H 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, Series E, Series F, Series G and Series
H Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A, Series B, Series C, Series D, Series E, Series F, Series G or Series H
Preferred Stock, the number of shares of stock or other securities or property
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, Series E, Series F, Series G and Series H
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, Series E, Series F Series G and Series H 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, Series E, Series F,
Series G and Series H 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, Series E,
Series F, Series G or Series H 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, Series E, Series F, Series G and/or Series H 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.
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<PAGE>
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series A, Series B, Series C, Series D, Series E, Series
F, Series G or Series H 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, Series E, Series F, Series G
and Series H 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, Series E, Series
F, Series G or Series H 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, Series E, Series F, Series G
or Series H 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 Series A, Series B, Series C, Series D,
Series E, Series F, Series G and Series H 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, Series E, Series F,
Series G and Series H 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, Series E,
Series F, Series G and Series H 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, Series E, Series F, Series G and Series H 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,
Series E, Series F, Series G and/or Series H 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.
13
<PAGE>
4. Voting Rights.
-------------
(a) General Voting Rights. The holder of each share of Series A,
---------------------
Series B, Series C, Series D, Series E, Series F, Series G and Series H
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, Series E, Series F,
Series G or Series H 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, Series E, Series F, Series G and/or Series H
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.
(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, Series E, Series F, Series G and Series
H 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.
14
<PAGE>
5. Protective Provisions. So long as any shares of Series A, Series
---------------------
B, Series C, Series D, Series E, Series F, Series G and/or Series H 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, Series E, Series
F, Series G and Series H 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, Series E, Series F, Series G or Series H
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;
(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.
15
<PAGE>
(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.
(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) 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 F Preferred Stock, voting as a single class:
16
<PAGE>
(i) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series F 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 F Preferred Stock so as to affect adversely the shares.
(h) 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 G 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 G 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 G Preferred Stock so as to affect adversely the shares.
(i) 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 H 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 H 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 H Preferred Stock so as to affect adversely the shares.
(j) The authorization or issuance of any equity security, other than
the Series A, Series B, Series C, Series D, Series E, Series F, Series G or
Series H 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, Series E, Series F, Series G or
Series H 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), 5(f), 5(g),
5(h) or 5(i).
6. Status of Converted Stock. In the event any shares of Series A,
-------------------------
Series B, Series C, Series D, Series E, Series F, Series G or Series H 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).
17
<PAGE>
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.
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
18
<PAGE>
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 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.
19
<PAGE>
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has
been executed by the Vice President - General Counsel of this corporation on
this 27th day of April, 2000.
/s/ Daniel Sroka
-----------------------------------------------
Daniel Sroka, Vice President - General Counsel
<PAGE>
Exhibit 4.1
[LOGO] [LOGO]
- --------------- ---------------
Number Shares
- --------------- ---------------
i B E A M (TM)
COMMON STOCK COMMON STOCK
B R O A D C A S T I N G
THE STREAMING MEDIA NETWORK
THIS CERTIFICATE IS TRANSFERABLE INCORPORATED UNDER THE LAWS OF
IN BOSTON, MA OR NEW YORK, NY THE STATE OF DELAWARE
CUSIP 45073P 10 1
THIS CERTIFIES THAT SEE REVERSE FOR CERTAIN
DEFINITIONS AND A STATEMENT
AS TO THE RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS
OF SHARES
IS THE OWNER OF
Fully paid and non-assessable shares of common stock, $.0001 par value, of
iBEAM Broadcasting Corporation
Transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation
and the facsimile signatures of its duly authorized officers.
Dated:
/s/ [ILLEGIBLE]^^ [SEAL] /s/ [ILLEGIBLE]^^
Secretary CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED
EquiServe Trust Company, N.A.
TRANSFER AGENT
AND REGISTRAR
By /s/ [ILLEGIBLE]^^
AUTHORIZED SIGNATURE
<PAGE>
Exhibit 4.2
iBEAM BROADCASTING CORPORATION
THIRD AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
APRIL 28, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights.............................................................................. 1
1.1 Definitions................................................................................ 1
1.2 Request for Registration................................................................... 3
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.......................................................... 11
1.12 Limitations on Subsequent Registration Rights.............................................. 11
1.13 "Market Stand-Off" Agreement............................................................... 11
1.14 Termination of Registration Rights......................................................... 12
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........................................................ 15
2.6 MTV Observer Rights........................................................................ 15
2.7 Intel Observer Rights...................................................................... 15
2.8 Microsoft Observer Rights.................................................................. 16
2.9 Cyber Commerce Limited Observer Rights..................................................... 17
2.10 America Online Observer Rights............................................................. 18
2.13 Restrictions on Transfer................................................................... 21
3. Confidentiality.................................................................................. 22
3.1 Confidentiality............................................................................ 22
3.2 Amendment.................................................................................. 23
4. Miscellaneous.................................................................................... 23
4.1 Successors and Assigns..................................................................... 23
4.2 Governing Law.............................................................................. 24
4.3 Counterparts............................................................................... 24
4.4 Titles and Subtitles....................................................................... 24
4.5 Notices.................................................................................... 24
4.6 Expenses................................................................................... 24
4.7 Entire Agreement: Amendments and Waivers................................................... 24
</TABLE>
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
4.8 Severability............................................................................... 24
4.9 Aggregation of Stock....................................................................... 24
4.10 Waiver of Right of First Offer............................................................. 25
4.11 Waiver of Registration Rights in an Initial Public Offering................................ 25
</TABLE>
-ii-
<PAGE>
THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the
"Agreement") is made as of the 28th day of April, 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, Series E Preferred Stock, Series F
Preferred Stock and the Series G 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," the "Series D Preferred
Stock," the "Series E Preferred Stock," the "Series F Preferred Stock," and the
"Series G 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 March 31, 2000,
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, At Home Corporation is a party to the Series H Preferred Stock
Purchase Agreement of even date herewith between the Company and At Home
Corporation (the "Series H Agreement"), which provides that as a condition to
the closing of the sale of the Series H Preferred Stock, this Agreement must be
executed and delivered by At Home Corporation, Existing Investors holding at
least a majority of the "Registerable 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
<PAGE>
that permits inclusion or incorporation of substantial information by reference
to other documents filed by the Company with the SEC.
(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 issuable or
issued upon conversion of the Series F Preferred Stock or pursuant to Section
3.1 or 3.7 of the Merger Agreement, (vii) the Common Stock issuable or issued
upon conversion of the Series G Preferred Stock, (viii) the Common Stock
issuable or issued upon conversion of the Series H Preferred Stock, (ix) the
Common Stock purchasable or purchased upon exercise of the warrant issued to
America Online, Inc. dated February 25, 2000, and (x) 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 (ix) 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.
-2-
<PAGE>
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 is received 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
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
-3-
<PAGE>
(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
(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.
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<PAGE>
(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
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
-5-
<PAGE>
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 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;
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<PAGE>
(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 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
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<PAGE>
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
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 1.9(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
-8-
<PAGE>
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.
(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.
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<PAGE>
(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 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.
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<PAGE>
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, holds at least 413,100
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 Stand-Off" Agreement. Each Holder hereby agrees that it
--------------------
will not, without the prior written consent of the managing underwriter and the
Company, 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,
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<PAGE>
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 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 2,478,600 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
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<PAGE>
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.
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 2.12, 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 1,239,300 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.
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<PAGE>
(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 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 $2.88 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.
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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 $2.88 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.
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
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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 (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 Stock Purchase Agreement (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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 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 Webcasts.com Observer Rights. Effective as of the date of
----------------------------
the consummation of the merger contemplated by the Agreement and Plan of Merger,
the Company shall invite a representative of webcasts.com (the "webcasts.com
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 webcasts.com 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. The webcasts.com Observer shall be designated by
Scott Klososky, or, after the date that Mr. Klososky is no longer an officer of
webcasts.com, by his successor. In addition, a majority of the Company's
nonemployee directors shall have the right to exclude the webcasts.com Observer
from portions or entire meetings of the Board of Directors or omit to provide
the webcasts.com Observer with certain information or analysis which would pose
a conflict of interest for webcasts.com. Any disclosures of confidential
information between the Company and the webcasts.com Observer and webcasts.com
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 webcasts.com. The covenants set forth in this
Section 2.11 shall terminate and be of no further force or effect upon the
occurrence of either event specified in Section 2.3 hereof.
2.12 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:
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(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 2.12, the "Capital Stock");
(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 2.12;
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<PAGE>
(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 2.12 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.
2.13 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
conversion of the Series D 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.
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(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 with the Series D Agreement (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.
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<PAGE>
(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.
(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.
-23-
<PAGE>
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.
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 1.13, 2.6, 2.7, 2.8, 2.9, 2.10, 2.11, 2.12,
2.13 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>
4.10 Waiver of Right of First Offer. The rights set forth in
------------------------------
Section 2.4 shall not apply to the following sales by the Company of its Shares:
(a) The sale of up to $10 million of Series G Preferred
Stock to Catalyst Investments LLC; and
(b) The sale of up to $______ million of Series H Preferred
Stock to At Home Corporation.
4.11 Waiver of Registration Rights in an Initial Public Offering.
-----------------------------------------------------------
The rights set forth in Section 1.3 hereof shall not apply to a bona fide,
firmly underwritten initial public offering of the Company, registered under the
Act, at an offering price of at least $2.88 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.
-25-
<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 THIRD 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 THIRD 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 THIRD 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 THIRD 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 THIRD 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 THIRD 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 5/TH/ Avenue.
New York, New York 10036
INTEL CORPORATION
By:_______________________________________
Name:_____________________________________
Title:____________________________________
Address: 2200 Mission College Blvd.
Santa Clara, CA 95052-8119
SIGNATURE PAGE TO THIRD 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 THIRD 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 THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
FRED SEEGAL
___________________________________________
Address: 31 West 52/nd/ Street
27/th/ 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 THIRD 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 THIRD 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 THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Former webcasts.com, Inc. shareholders
See Signature Attachment
CATALYST INVESTMENTS, LLC
By: The Walt Disney Company,
Manager and Sole Member
By: ______________________________
Title: ___________________________
Address: 500 South Buena Vista Street
Burbank, CA 91521
SIGNATURE PAGE TO THIRD 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.
webcasts.com, Inc. former
shareholders
Catalyst Investments, LLC
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
S-1
<PAGE>
J.P. Morgan Direct Venture
Capital Private Investors LLC
Intel Corporation
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
S-2
<PAGE>
Chris L. Dier
Bruce D. Lawler
Tom Gillis
Jeremy Zullo
Nils Lahr
David Strehlow
Bob Davis
Philip Rosedale
Comdisco, Inc.
Sony Corporation of America
Cyber Commerce Limited
America Online, Inc.
Catalyst Investments LLC
[list former webcasts.com
shareholders]
S-3
<PAGE>
SCHEDULE B
CORPORATE NON DISCLOSURE AGREEMENT
<PAGE>
Exhibit 5.1
[Wilson Sonsini Goodrich & Rosati Letterhead]
May 8, 2000
iBEAM Broadcasting Corporation
645 Almanor Avenue, Suite 100
Sunnyvale, California 94086
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1, as amended, filed
by you with the Securities and Exchange Commission on February 1, 2000
(Registration No. 333-95833), as amended (the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as amended,
of up to 12,650,000 shares of your Common Stock, par value $0.0001 (the
"Shares"). The Shares include an over-allotment option granted to the
underwriters of the offering to purchase up to 1,650,000 shares. We understand
that the Shares are to be sold to the underwriters of the offering for resale to
the public as described in the Registration Statement and pursuant to the
Underwriting Agreement filed as an exhibit thereto. As your legal counsel, we
have examined the proceedings proposed to be taken in connection with said sale
and issuance of the Shares.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, including the proceedings being taken in order to permit such
transaction to be carried out in accordance with applicable state securities
laws, the Shares, when issued and sold in the manner described in the
Registration Statement, will be legally issued, fully paid and non-assessable.
We are members of the Bar of the State of California only and express no
opinion as to any matter relating to the laws of any jurisdiction other than the
laws of the State of California and the federal laws of the United States.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati
<PAGE>
EXHIBIT 10.8
Note: Information in this document marked with an "[*]" has been omitted and
filed separately with the Commission. Confidential treatment has been requested
with respect to the omitted portions.
iBEAM and Microsoft
Broadband Streaming Initiative Agreement
This Broadband Streaming Initiative Agreement (the "Agreement") is entered
into and effective as of September 20, 1999 (the "Effective Date") by and
between Microsoft Corporation, a Washington corporation located at One Microsoft
Way, Redmond, WA 98052 ("Microsoft") and iBEAM Broadcasting Corporation, a
Delaware Corporation located at 645 Almanor Avenue, Sunnyvale, CA 94086
("iBEAM").
Recitals
iBEAM is an application service provider capable of delivering Internet-related
broadband multimedia applications and services for independent content providers
and corporate customers (referred to collectively as "ICPs"), including
competitively priced hosting and broadcasting services for live and on-demand
broadband Streaming Media.
Microsoft is a developer of operating system technologies and tools for the
development and serving of broadband multimedia applications and content,
including Streaming Media.
Microsoft has established a "Broadband Streaming Initiative," whereby Microsoft
desires to promote adoption of Windows Media Technologies ("WMT") for broadband
multimedia applications on the Internet.
Microsoft wishes to engage iBEAM as, and iBEAM wishes to become, a supplier and
promoter of broadband multimedia applications and services in connection with
Microsoft's upcoming Broadband Streaming Initiative.
Agreement
This Agreement is entered into with reference to the following information
("Initial Definitions Table") as well as the definitions set forth below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C>
iBEAM Information: Corporate Name: iBEAM Broadcasting Corporation
Place of Incorporation: Delaware
Address for Notices: 645 Almanor Avenue, Suite 100,
Sunnyvale, CA 94086
- -----------------------------------------------------------------------------------------------------
iBEAM Contact: iBEAM Contact/Title: Chris Dier, CFO
Telephone Number: (408) 523-1603
Facsimile Number: (408) 730-8937
Email: [email protected]
- -----------------------------------------------------------------------------------------------------
iBEAM Name and iBEAM Service Name(s) iBEAM Name: iBEAM Broadcasting
(for use in press release): iBEAM Service Name(s): DirectCast
- -----------------------------------------------------------------------------------------------------
</TABLE>
Microsoft Confidential & Proprietary Page 1 of 9
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------
<S> <C>
iBEAM Web Site: www.ibeam.com and any successors and additional and/or
new versions of a web site owned or controlled by iBEAM
during the Term.
- -----------------------------------------------------------------------------------------------------
Term: Beginning as of the Effective Date and continuing
through September 30, 2002 unless earlier terminated in
accordance with Section 9.
- -----------------------------------------------------------------------------------------------------
</TABLE>
1. Definitions
1.1 Above the fold means the placement of Content (including an icon and/or
link) or other material on an iBEAM Web Site Page such that the material
is viewable on a computer screen at a 800 x 600 pixels resolution when the
user first accesses such web page and without having to scroll down to
view more of the web page.
1.2 Broadband Streaming Initiative ICP Participant means an ICP or other
customer designated by Microsoft in its sole discretion (including
without limitation Microsoft or any of its affiliates) to use Network
Credits in support of the Broadband Streaming Initiative as contemplated
by this Agreement.
1.3 Confidential Information means: (i) any source code of software disclosed
by either party to the other party; (ii) any trade secrets and/or other
proprietary non-public information not generally known relating to either
party's product plans, designs, costs, prices or names, finances,
marketing plans, business opportunities, personnel, research, development
or know-how; and (iii) the terms and conditions of this Agreement.
"Confidential Information" does not include information that: (i) is or
becomes generally known or available by publication, commercial use or
otherwise through no fault of the receiving party; (ii) is known and has
been reduced to tangible form by the receiving party prior to the time of
disclosure and is not subject to restriction; (iii) is independently
developed by the receiving party without the use of the other party's
Confidential Information; (iv) is lawfully obtained from a third party
that has the right to make such disclosure; or (v) is made generally
available by the disclosing party without restriction on disclosure.
1.4 Content means data, text, audio, video, graphics, photographs, artwork
and other technology and materials.
1.5 iBEAM Services means the provision of hosting, serving, broadcasting,
and/or other applications and services involving "live" and "on-demand"
broadband Streaming Media for third parties.
1.6 iBEAM Services Guidelines means the guidelines and procedures related to
this Agreement with respect to how iBEAM will be engaged by Broadband
Streaming Initiative ICP Participants to provide iBEAM Services to such
customers and will apply Network Credits against such provision of
services, as more fully described in Exhibit A.
1.7 Microsoft Software means Windows NT Server (including Windows Media
Streaming Media and Site Server 3.0) and direct successors thereto.
1.8 Network Credits means credits available to pay for iBEAM Services which
credits are equal in value to the Network Credits Fee Amount having been
paid by Microsoft from time to time during the Term, less amounts having
been applied pursuant to this
Microsoft Confidential & Proprietary Page 2
<PAGE>
Agreement to reflect the provision of iBEAM Services to Broadband
Streaming Initiative Participants, as further set forth in Section 2.1
and Exhibit A.
1.9 Streaming Media means multimedia Content that is transmitted live or held
in archive on servers and played or displayed via the Web incrementally,
or in semi-real time, such that it can be heard, viewed or received by an
end user with minimal download delays, if any.
1.10 Updates means, as to any Microsoft software, all subsequent public
releases thereof during the Term, including public maintenance releases,
error corrections, upgrades, enhancements, additions, improvements,
extensions, modifications and successor versions.
1.11 Windows Media Format means (a) the Windows Media Audio format which
encodes files with the Microsoft Audio codec (.wma extension), (b) the
proposed industry standard format referred to as the "Advanced Streaming
Format" (.asf extension), which as of the Effective Date is in
comment/revision processes within industry standards bodies, and (c) any
successors or replacements for such formats that may be designated by
Microsoft, regardless of the brand or trademark under which they are made
available from time to time.
1.12 Windows Media Player means the North American English version of the
upgrade to the Windows 95 and Windows 98 Microsoft Windows Media Player
client technology that displays Streaming Media in Windows Media Format,
other formats of Streaming Media, and other multimedia data-types, and
all successors and Updates to such technology which are commercially
released during the Term.
1.13 Windows Media Technologies or "WMT" means, collectively and
interchangeably, Windows Media Player and Windows Media Streaming Media
services for the Windows NT operating system.
All other initially capitalized terms shall have the meanings assigned to them
in this Agreement.
2. Microsoft Obligations
2.1 Network Credits Fee. Microsoft agrees to pay to iBEAM a Network Credits
Fee Amount of Five Hundred Thousand Dollars ($500,000.00), which fee will
pre-pay for iBEAM web hosting services and other iBEAM Services which
Microsoft may then use in accordance with this Agreement either for
Microsoft's internal operations or for the benefit of Broadband Streaming
Initiative ICP Participants or iBEAM customers. Microsoft will pay the
Network Credits Fee Amount of Five Hundred Thousand Dollars ($500,000.00)
in accordance with the following schedule: (a) Three Hundred Thousand
Dollars ($300,000.00) after iBEAM delivers an invoice for such amount to
Microsoft, which invoice iBEAM may deliver on or after the Effective
Date; (b) One Hundred Thousand Dollars ($100,000.00) on January 15, 2000,
and (c) One Hundred Thousand Dollars ($100,000.00) on April 15, 2000. All
amounts payable under this Agreement shall be due on a net thirty (30)
day basis. Such fees shall be refundable by iBEAM to Microsoft only to
the extent set forth in Section 9.
2.2 Deployment Support. During the Term, and at no charge to iBEAM, Microsoft
shall provide high-level technical support in the United States from
Microsoft's developer relations group or product support group in order
to assist iBEAM with carrying out its obligations under this Agreement
(with Microsoft selecting in its discretion which of these groups will
provide support). Such support shall include providing reasonable on-site
deployment support services to iBEAM, provided that Microsoft shall be
entitled to charge iBEAM at its then-current rates for any such on-site
Microsoft Confidential & Proprietary Page 3
<PAGE>
deployment support services which exceed a cumulative total of [*]
person-weeks (i.e., a total of [*] hours).
2.3 Promotion of iBEAM's Services. In conjunction with its Broadband
Streaming Initiative, Microsoft agrees to publicly announce that iBEAM is
a Microsoft recommended solution provider for ICPs who are using WMT to
run high bandwidth Streaming Media applications in a manner commercially
similar to the level of promotion provided to the other application
service providers who are Broadband Streaming Initiative Participants.
Thereafter, during the Term, Microsoft will use commercially reasonable,
good faith efforts to include and promote iBEAM as a provider of hosting
and other applications and services related to Streaming Media, including
without limitation as part of Microsoft's applicable marketing efforts
and materials, sales training, Web sites, and other promotions,
consistent with Microsoft's promotion of other Broadband Streaming
Initiative application service providers which have entered into
agreements with Microsoft on similar terms to this Agreement.
2.4 Early Releases. During the Term, Microsoft will provide to iBEAM, at no
charge, successive pre-commercial releases (beta, and where practical as
determined by Microsoft in its sole discretion, pre-beta) of Microsoft
Software in object code form; provided, however, that nothing herein
shall be deemed to require that Microsoft release any additional versions
of the Microsoft Software during the Term. Any Microsoft Software
provided hereunder may be used by iBEAM only in accordance with the
confidentiality and license agreements accompanying such Microsoft
Software and, in addition, may be used solely in connection with
supporting the provision of iBEAM Services that use Windows Media
Technologies. iBEAM understands that pre-release software is not intended
for full scale commercial use.
2.5 Preconditions for Microsoft Sponsorship and Support Obligations. Each of
Microsoft's obligations under this Section 2 is expressly conditioned
upon iBEAM's performance of its obligations under Sections 3.1 through
3.5 throughout the Term. In addition, because iBEAM has not fully
formulated and shared with Microsoft its plans for the iBEAM Services as
of the Effective Date, iBEAM agrees to confer in good faith with
Microsoft promptly after the Effective Date in order to develop and set
forth in writing, no later than ninety (90) days after the Effective
Date, mutually approved performance objectives (the "Performance
Criteria") for iBEAM's participation in the Broadband Streaming
Initiative during the first two (2) years of the Term. If Microsoft
reasonably believes that iBEAM has not met or exceeded such Performance
Criteria during the first fifteen (15) months of the Term, then Microsoft
may notify iBEAM of such determination by providing a written notice
identifying the specific Performance Criteria which iBEAM has not met,
provided that Microsoft must issue any such notice within ninety (90)
days after the fifteen (15) month anniversary of the Effective Date. If,
after receiving such a notice, iBEAM does not improve its performance
such that it meets the Performance Criteria within sixty (60) days after
receiving Microsoft's written notice hereunder, then Microsoft may in its
discretion terminate this Agreement effective thirty (30) days after
Microsoft provides written notice to iBEAM of such termination.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Microsoft Confidential & Proprietary Page 4
<PAGE>
2.6 Digital Rights Management Application. To assist iBEAM in conducting an
evaluation of Microsoft's Digital Rights Management applications ("DRM")
in connection with iBEAM's services and applications related to Streaming
Media, Microsoft agrees to provide iBEAM with reasonable access to
applicable beta programs and other information on applicable new
technologies and technical support offerings, subject to Microsoft's
applicable confidentiality and license agreements.
2.7 Account Introductions. Microsoft agrees to use commercially reasonable
efforts during the first ninety (90) days after the Effective Date to
provide, on a non-exclusive basis, introductions to existing Microsoft
account contacts in order to assist iBEAM's efforts to make initial
presentations to selected Broadband Streaming Initiative ICP Participants
and appropriate ISPs with respect to participation in the Broadband
Streaming Initiative. The following is a preliminary list of anticipated
accounts as to which Microsoft agrees, if and only to the extent it has
appropriate existing contacts at such accounts as of the Effective Date,
to use commercially reasonable efforts to introduce iBEAM to, in
accordance with the foregoing sentence: [*].
2.8 International Marketing. Microsoft agrees to use commercially reasonable
efforts to provide senior iBEAM managers with reasonable access (subject
to availability) to Microsoft's applicable senior international managers
in order to provide advice on entering international markets in
connection with the Broadband Streaming Initiative. Microsoft agrees to
make commercially reasonable efforts to help iBEAM identify and make
initial executive level presentations to a mutually agreed list of tier
one international accounts.
2.9 Reservation of Rights. Except as expressly licensed pursuant to this
Agreement, iBEAM shall have no other rights in the Microsoft Software,
the Windows Media Player or any other Microsoft software, technology or
service provided to iBEAM hereunder. Microsoft retains all right, title
and interest in and to the Microsoft Software, the Windows Media Player
and any other Microsoft software, technologies and services. Nothing in
this Agreement shall be construed, by implication, estoppel or otherwise,
as granting iBEAM any rights to any Microsoft software, technology,
service or other intellectual property rights.
3 iBEAM Obligations
3.1 Use and Promotion of Windows Media Technologies. Subject to Window Media
Technologies being a competitively comparable solution to other Streaming
Media technologies (as reasonably determined by iBEAM in good faith based
on technology, price, quality and delivery timetables), throughout the
Term, including without limitation as part of iBEAM's full services
product launch, iBEAM will deploy, describe and promote Microsoft's WMT
platform and formats to prospective and actual customers [*] iBEAM may
also deploy, describe and promote other Streaming Media platforms or
formats. iBEAM agrees to hold its full services platform launch within
fifteen (15) days after Microsoft's initial public announcement of its
Broadband Streaming Initiative.
iBEAM's use and promotion of Windows Media Technologies shall further
include, without limitation:
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Microsoft Confidential & Proprietary Page 5
<PAGE>
(a) Content Format. Within thirty (30) days after the Effective Date, and
continuing thereafter throughout the Term, all Streaming Media available
on the iBEAM Web Site shall be made available in Windows Media Format;
provided, however, that nothing herein shall be deemed to prevent iBEAM
from making Streaming Media available on such Web site in other formats.
(b) Deployment of New Applications and Services. Throughout the Term, iBEAM
will promote and make available to its customers all new applications and
services related to Streaming Media on WMT platforms and in Windows Media
Format concurrently with or sooner than iBEAM makes such new applications
and services available based on or in conjunction with other Streaming
Media technologies or formats, subject to the limitation that iBEAM's
obligations hereunder with respect to release schedule parity are subject
to Microsoft's providing comparable competitive offerings to other
commercially available offerings in the area of Streaming Media
technology or formats (as applicable) during the Term.
(c) Sponsorship. Beginning on the Effective Date and continuing thereafter
throughout the Term, iBEAM shall include on all pages of the iBEAM Web
Site pages that relate to or contain Streaming Media or applications
therefor a prominent "Get Windows Media Player" link logo (the "Windows
Media Sponsorship Notice") which links to a Microsoft-authorized Windows
Media Player download site, in accordance with the following terms:
(i) The Windows Media Sponsorship Notice shall appear prominently and
Above the fold on each iBEAM Web Site page that contains or
provides access to Streaming Media or that materially focuses on
any iBEAM Service.
(ii) On all pages of the iBEAM Web Site, including without limitation
those described in Section 3.1(c)(i), in the event iBEAM includes
any information or notices concerning Streaming Media
technologies or formats other than Windows Media Technologies and
Windows Media Format, the Windows Media Sponsorship Notice shall
appear on such page in a position at least as favorable in
prominence, size and positioning as any other such notice.
(iii) In all cases, the Windows Media Sponsorship Notice shall be a
minimum of 65 by 57 pixels (width by height), and shall conform
to all trademark usage standards provided by Microsoft to iBEAM
from time to time.
(iv) Microsoft shall be entitled to substitute a different hypertext
link and/or link logo as the Windows Media Sponsorship Notice,
subject to the same pixel size restrictions as are set forth in
Section 3.1(c)(iii), in place of the "Get Windows Media Player"
link logo for purposes of this Agreement, including without
limitation iBEAM's responsibilities under this Section 3.1(c),
upon Microsoft's reasonable advance written notice to iBEAM.
(d) Additional Promotions. Microsoft and iBEAM will cooperate in good faith
to identify and pursue additional opportunities for promotion of Windows
Media Technologies in conjunction with the iBEAM Services to U.S.- based
ICPs in the
Microsoft Confidential & Proprietary Page 6
<PAGE>
[*].
(e) Uses of the Get Windows Media Player Logo. All use by iBEAM of the "Get
Windows Media Player" link logo (or any successor logo(s)) in connection
with this Agreement is subject to compliance with Microsoft's guidelines
relating to the use of such logo(s). The current version of such
guidelines as of the Effective Date is set forth in Exhibit B hereto.
3.2 Provision of iBEAM Services to Broadband Streaming Initiative ICP
Participants.
(a) iBEAM agrees to provide six (6) months of iBEAM Services, to be comprised
of broadband Streaming Media hosting, distribution and broadcasting
services, at no charge (either to Microsoft or the ICP, and without
applying Network Credits against the value of such services) to each
Broadband Streaming Initiative ICP Participant that Microsoft designates
in its discretion as a participant in the Broadband Streaming Initiative;
provided, however, that such obligation shall not extend beyond the Term
of this Agreement, and the value of such no-charge services in the
aggregate for Broadband Streaming Initiative ICPs will not exceed Two
Hundred Thousand Dollars ($200,000.00) as calculated using the rates
described in Exhibit A. iBEAM will use commercially reasonable efforts to
notify Microsoft in writing at least sixty (60) days before it
anticipates exceeding the foregoing maximum value of the relevant iBEAM
Services.
(b) At Microsoft's request and at no charge to Microsoft or the applicable
Internet Service Providers ("ISPs") and without applying Network Credits
against the value of such services. iBEAM will install copies of the
Microsoft Software and provide its standard level of customer service for
such software during the Term in order to support ISPs which Microsoft
has designated in its discretion to participate in the Broadband
Streaming Initiative. In performing the foregoing obligations, iBeam
shall maintain and comply with separate written agreements with Microsoft
and/or its licensees with respect to installation and support of the
Microsoft Software, and nothing in this Agreement shall be deemed to
authorize iBeam to install and/or support such copies of the Microsoft
Software.
(c) In addition to the obligations of iBEAM under Sections 3.2(a) and (b),
Microsoft shall be entitled to apply its prepaid Network Credits and
thereby obtain iBEAM Services for the benefit of designated ICP
Participants in accordance with this Agreement (including without
limitation Exhibit A). In the event that Microsoft authorizes iBEAM to
provide iBEAM Services that exceed in value (as calculated pursuant to
the terms set forth in Exhibit A) the value of then-existing pre-paid
balance of Network Credits, Microsoft agrees to pay iBEAM for such iBEAM
Services in accordance with iBEAM's then-current pricing to third parties
which are purchasing iBEAM Services in aggregate volumes comparable to
those being purchased by Microsoft in connection with the use of Network
Credits under this Agreement.
3.3 Promotion of Internet Radio Networks. iBEAM agrees to provide highly
------------------------------------
competitive fixed rate pricing for iBEAM Services to radio networks or
stations that iBEAM and Microsoft in
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Microsoft Confidential & Proprietary Page 7
<PAGE>
their reasonable discretion mutually designate to participate in such
manner in the Broadband Streaming Initiative. [*] iBEAM shall provide such
fixed rate pricing [*] that each designated radio network or station
participates in this program, provided that such customers enter agreements
with terms equal to or greater than [*] and agree to make commercially
reasonable efforts to promote their use of iBEAM's services.
3.4 Publicity. iBEAM will work with Microsoft to develop a mutually agreeable
---------
press release to be released as soon as possible after the Effective Date,
provided that the text of such release must have been approved in writing
by each party before its release. In such release, iBEAM shall endorse
Windows Media Technologies, and Windows Media Format as being recommended
by iBEAM as its recommended platform and formats for its services and
applications. Further, subject to the limitations set forth in the next
sentence hereof, iBEAM agrees that (a) it will not release or approve any
press releases using its name or descriptions of the iBEAM Services, other
than in conjunction with promotions of Windows Media Technologies as
described above, for [*] before the initial announcement contemplated by
the previous sentence, nor for [*] following such initial announcement, and
(b) at all times during the Term, iBEAM shall not issue or approve press
releases from third parties that are inconsistent with the spirit of this
Section 3.4. Notwithstanding the restrictions set forth in the previous
sentence, iBEAM shall be entitled to perform under any contractual
obligation existing as of the Effective Date which requires iBEAM to
release or approve press releases or making other announcements during the
Term; provided, however, that to the extent iBEAM can comply with such
contractual obligations and also comply with the time limitations set forth
in the previous sentence, it shall do so. During the Term, iBEAM will also
work with Microsoft to develop and release joint press announcements,
provided that the details of each such announcement must have been approved
in writing by each party before it occurs, and iBEAM agrees to provide
Microsoft with reasonably detailed information on iBEAM's use of Microsoft
technology in its iBEAM Web Site for inclusion in a case study which iBEAM
shall be entitled to review and approve. With respect to all approvals
contemplated by this Section 3.4, the parties agree not to unreasonably
withhold or delay such approvals.
3.5 Reporting and Audits. By the tenth (10/th/) day of each calendar month
--------------------
during the Term (other than the month in which the Effective Date falls),
iBEAM shall provide a report to Microsoft setting forth the following
information concerning the previous calendar month, to the extent iBEAM's
provision of such information to Microsoft does not conflict with any
obligation of iBEAM to a customer and is reasonably available from iBEAM's
reporting systems (and provided further that if iBEAM's reporting systems
do not enable it to provide any element of such reports, iBEAM will
promptly confer in good faith with Microsoft to pursue possible ways to
enable such reporting systems to provide the requested information):
(a) The URL and number of page views for pages on the iBEAM Web Site or
third party web sites hosted by iBEAM which contain Streaming Media;
(b) The number of referrals of end users from the iBEAM Web Site or third
party web sites hosted by iBEAM to Microsoft's Windows Media Player
download site(s);
(c) Web browsing software share and Streaming Media player share
information for the iBEAM Web Site and third party web sites hosted by
iBEAM; include version information;
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Microsoft Confidential & Proprietary Page 8
<PAGE>
(d) The number of streams served, including the total number of .wma, .asx
and .asf format files served, by bit rate;
(e) The average length of a user stream for a single connection to the
iBEAM Web Site and third party web sites hosted by iBEAM;
(f) The number of streams of pages with feature/streaming technology; and
(g) The average number of .wma, .wmx, and .asx files on site.
iBEAM shall provide all reports hereunder to Microsoft via Microsoft's web
reporting system located at [*], or any successor thereto.
In the event that iBEAM has failed to provide a report as described in this
Section 3.5 on or before the tenth (10/th/) day of the relevant calendar
month, then Microsoft will be entitled to suspend its performance under
this Agreement (including without limitation its payment obligations under
Section 2.1) until such report has been received. All information provided
pursuant to this Section will be deemed to be Confidential Information of
iBEAM.
3.6 Additional Trademark Use. iBEAM further agrees to use all Windows Media
------------------------
Technologies-related logos in accordance with the applicable logo program
requirements established by Microsoft in its sole discretion from time to
time. In the event that iBEAM fails to comply with Microsoft's then-current
logo requirements for participation in the Streaming Media Initiative at
any time during the Term, then Microsoft will be entitled, after providing
iBEAM with notice of breach and an opportunity to cure such breach within
thirty (30) days, to suspend its performance under this Agreement and
terminate this Agreement (including without limitation Microsoft's payment
obligations under Section 2.1) upon further written notice to iBEAM.
3.7 Technology Development and Testing Discussions. iBEAM agrees that upon
----------------------------------------------
request and subject to the parties' prior mutual written agreement with
respect to applicable intellectual property ownership and licenses, iBEAM
will make its appropriate senior technical personnel available to discuss
architecture and beta release testing matters with Microsoft in relation to
the following areas of mutual interest concerning technology development:
[*]. Microsoft agrees to provide pre-commercial releases of Microsoft
Software as specified under Section 2.4.
3.8 Digital Rights Management Applications. iBEAM intends to implement and
--------------------------------------
license Microsoft Digital Rights Management "DRM" technologies and services
in connection with the iBEAM Services, provided, however, that Microsoft
technologies and services can be rejected by iBEAM if it evaluates and in
good faith reasonably deems them not to be commercially competitive with
respect to alternatives in the areas of technology, price, quality, and
delivery timetables, taken as a whole. In the event that any such
technology or service is reasonably deemed not to be competitive, iBEAM
agrees to provide Microsoft a written notice describing in reasonable
detail the reason(s) why the Microsoft offering has been deemed not to be
competitive and the opportunity to discuss and address such shortfalls.
Upon iBEAM's final selection (if any) of Microsoft's DRM technologies and
services, the parties further agree to negotiate in good faith for a
commercially reasonable period concerning the applicable license and
support terms and concerning joint promotional efforts the parties may
engage in with respect to iBEAM's implementation of
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Microsoft Confidential & Proprietary Page 9
<PAGE>
DRM, and upon entering into any such agreement iBEAM agrees that it will
deploy, describe and promote Microsoft's DRM technologies and services to
prospective and actual customers as its recommended digital rights
management solutions for iBEAM services; provided, however, that iBEAM may
also deploy, describe and promote other digital rights management solutions.
4. Additional Understandings
4.1 Corporate Solutions. Subject to Window Media Technologies being a
-------------------
competitively comparable solution to other Streaming Media technologies (as
reasonably determined by iBEAM in good faith based on technology, price,
quality and delivery timetables) iBEAM agrees to promote Microsoft Software
and Windows Media Technologies as its recommended platform and solutions
with respect to all Streaming Media-related services and solutions that
iBEAM may offer to corporate customers (e.g., to support intranets) during
the Term. iBEAM agrees to make good faith efforts to share its product and
sales plans for such marketplace with Microsoft promptly upon their
development. Microsoft acknowledges that all such prospective plans shall be
deemed to be Confidential Information of iBEAM.
4.2 International Service Rollout. iBEAM agrees to use commercially reasonable
-----------------------------
efforts to provide Microsoft [*], subject to the provisions of this Section
4.2, to [*] on then-standard commercial terms to support iBEAM's rollout of
its network and services internationally as part of joint ventures and other
affiliations in which iBEAM does not independently control technology
deployment. In all applicable iBEAM international efforts, iBEAM will
endeavor in good faith to provide Microsoft a [*] in order to implement and
license Microsoft technologies and services as referenced herein, provided,
however, that [*]. iBEAM and its international affiliates may make the final
selection based on its sole discretion in accordance with this paragraph.
4.3 Other Opportunities. iBEAM agrees to notify and offer Microsoft [*], on the
-------------------
same basis as described in Section 4.2, with respect to any and all
Streaming Media-related initiatives, applications, services and other
offerings that iBEAM may develop or offer during the Term of this Agreement.
[*]
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Microsoft Confidential & Proprietary Page 10
<PAGE>
5. Non-Exclusive
Nothing in this Agreement shall be deemed to restrict either party's ability to
license, develop, sub-license, manufacture, deploy, support, promote, or
distribute software, Content, Streaming Media or any other format or technology,
whether or not similar to Windows Media Technologies or any iBEAM Services.
6. Confidentiality
6.1 Each party shall protect the other's Confidential Information from
unauthorized dissemination and use with the same degree of care that such
party uses to protect its own like information and in no event using less
than a reasonable degree of care. Neither party will use the other's
Confidential Information for purposes other than those necessary to
directly further the purposes of this Agreement. Neither party will
disclose to third parties the other's Confidential Information without the
prior written consent of the other party. Except as expressly provided in
this Agreement, no ownership or license rights are granted in any
Confidential Information. The other provisions of this Agreement
notwithstanding, either party will be permitted to disclose the
Confidential Information to their outside legal and financial advisors; and
to the extent required by applicable law, provided however that before
making any such required filing or disclosure, the disclosing party shall
first give written notice of the intended disclosure to the other party,
within a reasonable time from the time disclosure is requested and in any
event prior to the time when disclosure is to be made, and the disclosing
party will exercise best efforts, in cooperation with and at the expense of
the other party, consistent with reasonable time constraints, to obtain
confidential treatment for all non-public and sensitive provisions of this
Agreement, including without limitation dollar amounts and other numerical
information.
6.2 The parties' obligations of confidentiality under this Agreement shall not
be construed to limit either party's right to independently develop or
acquire products without use of the other party's Confidential Information.
Further, either party shall be free to use for any purpose the residuals
resulting from access to or work with such Confidential Information,
provided that such party shall maintain the confidentiality of the
Confidential Information as provided herein. The term "residuals" means
information in non-tangible form, which may be retained by persons who have
had rightful and good faith access to the Confidential Information,
including ideas, concepts, know-how or techniques contained therein.
Neither party shall have any obligation to limit or restrict the assignment
of such persons or to pay royalties for any work resulting from the use of
residuals. However, the foregoing shall not be deemed to grant to either
party a license under the other party's copyrights or patents.
7. Warranties and Disclaimers
7.1 Warranties. Each party warrants and covenants that it has the full power
----------
and authority to enter into and perform according to the terms of this
Agreement.
7.2 DISCLAIMERS. ANY AND ALL SOFTWARE, TECHNOLOGY, SERVICES, CONTENT, OR
-----------
INFORMATION PROVIDED BY EITHER PARTY TO THE OTHER
Microsoft Confidential & Proprietary Page 11
<PAGE>
HEREUNDER IS PROVIDED "AS IS," WITHOUT WARRANTY OF ANY KIND. EACH PARTY
DISCLAIMS ALL WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, TITLE AND NONINFRINGEMENT, WITH RESPECT TO ANY
SOFTWARE, TECHNOLOGY, SERVICES, CONTENT, OR INFORMATION PROVIDED HEREUNDER.
8. Indemnity
8.1 Indemnity. iBEAM shall, at its expense and Microsoft's request, defend
---------
any claim or action brought by a third party against Microsoft, or
Microsoft's affiliates, directors, or officers, to the extent it is based
upon a claim involving the iBEAM Services and/or the iBEAM Web Site,
including without limitation any claim that any iBEAM Services or any
Content included in or uploaded to the iBEAM Web Site infringes or violates
any copyright, patent, trademark, trade secret, right of publicity, or
other intellectual property, proprietary or contractual right of a third
party (all such claims or actions being referred to hereinafter as "iBEAM
Claims"), and iBEAM will indemnify and hold Microsoft harmless from and
against any costs, damages and fees reasonably incurred by Microsoft,
including but not limited to fees of outside attorneys and other
professionals, that are attributable to such iBEAM Claims. Microsoft shall:
(a) provide iBEAM reasonably prompt notice in writing of any such iBEAM
Claims and permit iBEAM, through counsel chosen by iBEAM, to answer and
defend such iBEAM Claims; and (b) provide the entity defending such claim
information, assistance and authority, at such entity's expense, to help
defend such iBEAM Claims. iBEAM will not be responsible for any settlement
made by Microsoft without iBEAM's written permission, which permission will
not be unreasonably withheld or delayed. Reasonable withholding of
permission may be based upon, among other factors, editorial and business
concerns. iBEAM will consult with Microsoft on the choice of any counsel
under this Section 8.1. In the event Microsoft receives any iBEAM Claim or
Microsoft has reason to believe it may be subject to any iBEAM Claim,
Microsoft shall be entitled, upon written notice to iBEAM, to suspend
performance under this Agreement (other than Microsoft's obligations under
Section 2.1) with respect to the applicable iBEAM Services, iBEAM Web Site
or Content thereon until iBEAM has taken steps to Microsoft's satisfaction
in order to address the alleged infringement. If iBEAM does not take
satisfactory steps to address the alleged infringement within fifteen (15)
days after receiving a notice from Microsoft under the foregoing sentence,
then Microsoft in its discretion may terminate this Agreement upon written
notice to iBEAM and such termination shall be deemed to be a termination
for cause for purposes of Section 9.
8.2 Settlement by iBEAM. Unless iBEAM obtains for Microsoft a complete release
-------------------
of all iBEAM Claims thereunder, iBEAM may not settle any iBEAM Claim under
this Section 8 on Microsoft's behalf without first obtaining Microsoft's
written permission, which permission will not be unreasonably withheld or
delayed. Reasonable withholding of permission may be based upon, among
other factors, the ability for Microsoft to ship any product. In the event
iBEAM and Microsoft agree to settle an iBEAM Claim, iBEAM agrees not to
disclose terms of the settlement without first obtaining Microsoft's
written permission, which will not be unreasonably withheld or delayed.
Microsoft Confidential & Proprietary Page 12
<PAGE>
9. Termination
9.1 Termination By Either Party. Either party may suspend performance and/or
---------------------------
terminate this Agreement as expressly provided elsewhere in this Agreement
or:
(a) Immediately upon written notice at any time, if the other party is in
material breach of any material warranty, term, condition or covenant
of this Agreement, other than those contained in Section 6, and fails
to cure that breach within [*] after written notice thereof; or
(b) Immediately upon written notice at any time, if the other party is in
material breach of Section 6.
9.2 Effect of Termination.
---------------------
(a) Neither party shall be liable to the other for damages of any sort
resulting solely from terminating this Agreement in accordance with its
terms.
(b) Termination of this Agreement shall not affect any other agreement
between the parties.
(c) Should either iBEAM or Microsoft terminate for cause pursuant to
Section 8.1, 9.1(a), or 9.1(b), neither party shall have any further
obligations to the other under Sections 2.1-2.9, Section 3.1-3.8, or
Section 4.1-4.3, with the exception that Microsoft shall be entitled in
its discretion either (i) to use, within [*] of such termination, any
Network Credits representing amounts previously paid by Microsoft
under this Agreement which have not been recouped via use of Network
Credits as of the termination of this Agreement; or (ii) to require
iBEAM to refund the portion of the Network Credit Fee Amount then
having been paid by Microsoft and not (as of the termination date)
used to provide iBEAM Services for the parties and purposes specified
in Section 2.1 and Exhibit A, provided that in no event shall iBEAM
be obligated to refund more than [*] of the total Network Credit Fee
Amount paid to iBEAM by Microsoft during the twelve (12) months prior
to Termination. Without limiting the generality of the foregoing,
Microsoft will have no obligation following termination of this
Agreement to make any additional payments or provide any further
services to iBEAM under Section 2 of this Agreement.
9.3 Survival. In the event of termination or expiration of this Agreement for
--------
any reason, Sections 1, 2.9, and 5-11 shall survive termination and
continue in effect in accordance with their terms.
10. Limitation Of Liabilities
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL, INDIRECT,
INCIDENTAL, PUNITIVE OR SPECIAL DAMAGES WHATSOEVER, INCLUDING, WITHOUT
LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF
BUSINESS INFORMATION, AND THE LIKE,
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Microsoft Confidential & Proprietary Page 13
<PAGE>
ARISING OUT OF THIS AGREEMENT OR THE USE OF OR INABILITY TO USE THE MICROSOFT
SOFTWARE OR EITHER PARTY'S CONFIDENTIAL INFORMATION, CONTENT, OR SERVICES, EVEN
IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
THIS SECTION SHALL NOT APPLY TO SECTION 6 (REGARDING CONFIDENTIALITY), NOR TO
iBEAM'S INDEMNITY OBLIGATIONS WITH RESPECT TO THIRD PARTY CLAIMS AS PROVIDED IN
SECTION 8 OF THIS AGREEMENT.
11. General Provisions
11.1 Notices. All notices and requests in connection with this Agreement shall
-------
be deemed given as of the day they are received either by messenger,
delivery service, or in the United States of America mails, postage
prepaid, certified or registered, return receipt requested. Any such
notices to iBEAM should be sent to the address set forth in the Initial
Definitions Table on the first page of this Agreement, and sent to the
attention of the iBEAM Contact named in such Initial Definitions Table. Any
such notices to Microsoft should be addressed as follows:
--------------------------------------------------
Address:
--------------------------------------------------
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: Patty Jackson
--------------------------------------------------
Phone: (425)882-8080
--------------------------------------------------
Fax: (425)936-7329
--------------------------------------------------
Copy to: Law and Corporate Affairs
--------------------------------------------------
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: Law & Corporate Affairs
--------------------------------------------------
Phone: (425)882-8080
--------------------------------------------------
Fax: (425)936-7409
--------------------------------------------------
or to such other address as a party may designate pursuant to this notice
provision.
11.2 Independent Parties. Nothing in this Agreement shall be construed as
-------------------
creating an employer-employee relationship, an agency relationship, a
partnership, or a joint venture between the parties.
11.3 Governing Law. This Agreement will be governed by the laws of the State of
-------------
Washington, without reference to the conflict of law principles thereof.
Any action or litigation concerning this Agreement will take place
exclusively in the federal or state courts in King County, Washington, and
the parties expressly consent to jurisdiction of and venue in such courts
and waive all defenses of lack of personal jurisdiction and forum non
conveniens
Microsoft Confidential & Proprietary Page 14
<PAGE>
with respect to such courts. iBEAM hereby agrees to service of process by
mail or other method acceptable under the laws of the State of Washington.
11.4 Attorneys' Fees. In any action or suit to enforce any right or remedy
---------------
under this Agreement or to interpret any provision of this Agreement, the
prevailing party shall be entitled to recover its costs, including
reasonable attorneys' fees.
11.5 Assignment. This Agreement and any rights or obligations hereunder may not
----------
be assigned by iBEAM (including without limitation via merger, stock
purchase, a sale of substantially all assets, or otherwise by operation of
law) without Microsoft's prior written approval which shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, iBEAM may
assign this Agreement in its entirety as part of a change in control of
iBEAM, provided that the assignee is not a software platform provider
(e.g., and without limitation, [*]) and does not develop and license
Streaming Media technologies or platforms (e.g., and without limitation
[*]); the parties further agree that it shall be deemed reasonable for
Microsoft to elect in its discretion not to approve a proposed assignment
to a software platform provider or a developer/licensor of Streaming Media
technologies or platforms. Any attempted assignment, sub-license, transfer,
encumbrance or other disposal by iBEAM which requires Microsoft's approval
and which has not been so approved will be void and will constitute a
material default and breach of this Agreement for which Microsoft may
terminate this Agreement in accordance with Section 9.1. Except as
otherwise provided, this Agreement will be binding upon and inure to the
benefit of the parties' successors and lawful assigns.
11.6 Force Majeure. Neither party shall be liable to the other under this
-------------
Agreement for any delay or failure to perform its obligations under this
Agreement if such delay or failure arises from any cause(s) beyond such
party's reasonable control, including by way of example labor disputes,
strikes, acts of God, floods, fire, lightning, utility or communications
failures, earthquakes, vandalism, war, acts of terrorism, riots,
insurrections, embargoes, or laws, regulations or orders of any
governmental entity.
11.7 Construction. If for any reason a court of competent jurisdiction finds
------------
any provision of this Agreement, or portion thereof, to be unenforceable,
that provision of the Agreement will be enforced to the maximum extent
permissible so as to effect the intent of the parties, and the remainder of
this Agreement will continue in full force and effect. Failure by either
party to enforce any provision of this Agreement will not be deemed a
waiver of future enforcement of that or any other provision. This Agreement
has been negotiated by the parties and their respective counsel and will be
interpreted fairly in accordance with its terms and without any strict
construction in favor of or against either party.
11.8 Entire Agreement. This Agreement does not constitute an offer by Microsoft
----------------
and it shall not be effective until signed by both parties. This Agreement
constitutes the entire agreement between the parties with respect to the
subject matter hereof and merges all prior and contemporaneous
communications. It shall not be modified except by a written agreement
dated subsequent to the date of this Agreement and signed on behalf of
iBEAM and Microsoft by their respective duly authorized representatives.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
Effective Date written above.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Microsoft Confidential & Proprietary Page 15
<PAGE>
- ------------------------------------------------------------------------------
MICROSOFT CORPORATION IBEAM BROADCASTING
CORPORATION
- ------------------------------------------------------------------------------
By: /s/ William Poole By: /s/ Chris Dier
- ------------------------------------------------------------------------------
Name (print): William Poole Name (print): Chris Dier
- ------------------------------------------------------------------------------
Title: General Manager Title: C.F.O.
- ------------------------------------------------------------------------------
Date: 9/22/99 Date: 9/20/99
- ------------------------------------------------------------------------------
Microsoft Confidential & Proprietary Page 16
<PAGE>
EXHIBIT A
IBEAM SERVICES GUIDELINES
1. Approval of Program Participants
--------------------------------
Microsoft shall have sole discretion regarding the designation of Broadband
Streaming Initiative ICP Participants and allocation of Network Credits for use
by such entities and/or Microsoft's internal use under this Agreement.
Microsoft shall make reasonable efforts to provide Network Credits to customers
and programs that iBEAM recommends for the Broadband Streaming Initiative. In
no event shall iBEAM provide any Microsoft Confidential Information to any
customer or prospective customer except with Microsoft's express written
approval. Microsoft shall notify iBEAM from time to time in writing of approved
Broadband Streaming Initiative ICP Participants, the particular iBEAM Services
to be used by each such entity pursuant to this Agreement, and the approved
allocation of Network Credits among such entities and Microsoft (if applicable).
Microsoft and iBEAM will cooperate in good faith following the Effective Date to
develop and implement operational procedures, including prior approvals for
sales programs, to coordinate the use of Network Credits in accordance with this
Agreement.
2. Terms of Service
----------------
Notwithstanding anything to the contrary in the foregoing paragraph, the
relationship between iBEAM and any Broadband Streaming Initiative ICP
Participant shall be separate from iBEAM's relationship with Microsoft and iBEAM
shall have the right to choose, in its sole discretion, not to do business with
any Broadband Streaming Initiative ICP Participant. iBEAM shall enter into a
separate agreement, in a timely manner, with each Broadband Streaming Initiative
ICP Participant to which iBEAM intends to provide iBEAM Services pursuant to
this Agreement, and iBEAM shall perform all such iBEAM Services in a manner as
mutually agreed upon by iBEAM and each such Broadband Streaming Initiative ICP
Participant. iBEAM shall be solely responsible for all services it provides to
Broadband Streaming Initiative ICP Participants, including without limitation
the iBEAM Services, and for enforcing the terms of any services or other
agreements it enters into with Broadband Streaming Initiative ICP Participants.
At Microsoft's sole discretion, iBEAM may perform iBEAM Services for
Microsoft acting on behalf of a Broadband Streaming Initiative ICP Participant,
in which event such provision of iBEAM Services shall be subject to the terms of
this Agreement and any further services agreement that Microsoft and iBEAM may
mutually agree upon.
3. Rate Schedule
-------------
[*] Net Credits consumed by iBEAM customers shall be in accordance with
terms mutually approved by Microsoft and iBEAM and included in the operational
procedures specified in paragraph 1 above.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Microsoft Confidential & Proprietary Page 17
<PAGE>
EXHIBIT B
Get Windows Media(TM) player
Link Logo Guidelines
Get Windows Media(TM) Player logo usage instructions
- ----------------------------------------------------
To put the logo and link on your Web site, follow these easy steps:
1. Read our policy below on using the Get Windows Media Player logo.
2. Copy the Get Windows Media Player logo.gif file image to your desktop.
[ICON APPEARS HERE]
3. Move the Get Windows Media Player logo .gif file from your desktop to your
Web server.
4. Insert the following HTML code on your Web page. Be sure to point the (IMG
SRC) to the location of the Get Windows Media Player logo .gif file on your
server:
(BR)(CENTER)
(A HREF="http://www.microsoft.com/windows/mediaplayer/download/default.
asp")
(IMG SRC="type path to logo image here" WIDTH="65"
HEIGHT="57" BORDER="0"
ALT="Get Windows Media Player" VSPACE="7")(/A)
(/CENTER)(BR)
5. You can modify this HTML code to fit your formatting as long as you follow
the guidelines outlined below.
Get Windows Media(TM) Player logo usage guidelines
--------------------------------------------------
1. Except as Microsoft may authorize elsewhere, non-Microsoft Web sites may
display only the Get Windows Media(YM) Player logo provided above ("Logo").
By downloading the Logo to your Web site, you agree to be bound by these
Policies.
2. You may only display the Logo on your Web site, and not in any other manner.
It must always be an active link to the download page for the Windows Media
Player at http://www.microsoft.com/windows/mediaplayer/download/default.asp.
3. The Logo GIF image includes the words "Get Windows Media Player" describing
the significance of the Logo on your site (that the Logo is a link to the
download page for the Microsoft Windows Media Player, not an endorsement of
your site). You may not remove or alter any element of the Logo.
4. The Logo may be displayed only on Web pages that make accurate references to
Microsoft or its products or services or as otherwise authorized by
Microsoft. Your Web page title and other trademarks and logos must appear at
least as prominently as the Logo. You may not display the Logo in any manner
that implies sponsorship, endorsement, or license by Microsoft except as
expressly authorized by Microsoft.
5. The Logo must appear by itself, with a minimum spacing (30 pixels) between
each side of the Logo and other distinctive graphic or textual elements on
your page. The Logo may not be displayed as a feature or design element of
any other logo.
6. You may not alter the Logo in any manner, including size, proportions,
colors, elements, or animate, morph, or otherwise distort its perspective or
appearance, except in the event expressly authorized by Microsoft.
Microsoft Confidential & Proprietary Page 18
<PAGE>
7. You may not display the Logo on any site that infringes any Microsoft
intellectual property or other rights, or violates any state, federal, or
international law.
8. These Policies do not grant a license or any other right to Microsoft's
logos or trademarks. Microsoft reserves the right at its sole discretion to
terminate or modify permission to display the Logo at any time. Microsoft
reserves the right to take action against any use that does not conform to
these Policies, infringes any Microsoft intellectual property or other
right, or violates other applicable law.
9. MICROSOFT DISCLAIMS ANY WARRANTIES THAT MAY BE EXPRESS OR IMPLIED BY LAW
REGARDING THE LOGO, INCLUDING WARRANTIES AGAINST INFRINGEMENT.
(C)1999 Microsoft Corporation. All rights reserved. Terms of Use.
Microsoft Confidential & Proprietary Page 19
<PAGE>
EXHIBIT 10.10
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.
Agreement No.___________
[LOGO OF WILLIAMS]
Teleport Services Agreement
This is an agreement between Williams Vyvx Services, a business unit of Williams
Communications, Inc., ("Williams") and iBEAM Broadcasting Corporation
("Customer"), dated as of December 13, 1999, in connection with teleport
services to be provided by Williams from Williams Vyvx Teleport New York as its
primary signal path and Williams Vyvx Teleport Los Angeles as its redundant
signal path (the "Teleport(s)") to Customer (the "Agreement"). The terms of
this Agreement are as follows:
1. SERVICES. Williams shall provide Customer with the Teleport services as
--------
further described on Exhibit A-1 attached hereto and made a part hereof
(collectively referred to herein as the "Services"). From time to time and
subject to availability, changes may be made in the Services which will be
reflected in amendments to the applicable Exhibit A or the addition of
additional Exhibit As. Each amendment shall be executed by authorized
individuals of both parties. Each Exhibit A shall be part of this Agreement
and incorporated herein. All Exhibit As shall be sequentially numbered for
ease of identification, e.g., Exhibits A-1, A-2, A-3 and so forth.
2. TERM. Upon signature by both parties this Agreement shall become effective
----
on the date first set forth above and shall continue in effect until the
expiration of any Exhibit A attached hereto (the "Term").
3. LATE PAYMENT. If any payment is not received by Williams within 30 days
------------
after the date of invoice (the "Due Date"), then such overdue amount shall
be subject to late payment charges at the lower of 18% per annum or the
highest legally permissible rate of interest until the date payment is
actually received. If Customer in good faith disputes any portion of an
invoice it must pay the undisputed amount of the invoice on or before its
Due Date and provide written notice to Seller of the billing dispute at or
before the time of payment. Such notice must include documentation
substantiating the dispute. Customer's failure to notify Seller of a
dispute within one hundred-twenty (120) days after the Due Date shall be
deemed to be Customer's acceptance of such charges. The parties will make a
good faith effort to resolve billing disputes as expeditiously as possible.
If a dispute is resolved in favor of Customer, Customer shall receive an
adjustment on its next bill.
4. SUSPENSION RIGHT. In the event that Customer has failed to pay any
----------------
undisputed amount when due, Williams shall have the right to suspend
Services. Williams shall only exercise this Suspension Right by first
providing Customer with ten business days' written notice by facsimile. If
Williams receives payment from Customer of all amounts due within the ten-
day notice period, then Customer's Services shall not be suspended.
Suspension of Services does not affect Customer's obligation to pay the
Service Charges through the Term of this Agreement unless Customer
exercises its termination right as described in this Section 4. In the
event Williams suspends Customer's Services, Customer shall have the right
but not the obligation to terminate this Agreement at its sole discretion.
Customer's liability with respect to such termination shall be an amount
equal to twelve (12) months of Service from the date of termination
multiplied by the then current monthly Total Service Charge or an amount
equal to the number of months remaining in the Term multiplied by the then
current monthly Total Service Charge, whichever is less.
Page 1 of 26
<PAGE>
5. TERMINATION.
-----------
5.1 Customer shall have the right to terminate this Agreement upon a minimum of
thirty (30) days' written notice. This right to terminate may only be
exercised due to one of the following two circumstances:
a. Monthly Interruptions exceed 43 minutes in three (3) consecutive
calendar months; or
b. A second Daily Interruption in excess of 24 consecutive hours (after
the first Daily Interruption in excess of 24 consecutive hours).
Customer must exercise its right to terminate pursuant to this Section 5.1
within thirty (30) days of the circumstance giving rise to Customer's right
to terminate. This right to terminate is Customer's only right to terminate
due to excessive Interruptions, and Customer may not invoke the general
termination right as set forth in Section 5.2 due to Interruptions.
5.2 Either party may terminate this Agreement due to a material breach of this
Agreement by the other party. The non-breaching party shall provide written
notice to the breaching party of the alleged breach, and the breaching party
shall have sixty (60) days to cure the breach. If the breach has not been cured
within this sixty-day period, then the non-breaching party may terminate upon
thirty (30) days' written notice. Customer shall pay Williams in accordance with
this Agreement for all Services performed up to and including the effective date
of termination.
6. TAXES. Customer acknowledges and understands that all charges are computed
-----
exclusive of any applicable federal, state or local use, excise, gross
receipts, sales and privilege taxes, duties, fees or similar liabilities
(other than general income or property taxes), including without limitation,
any tax or charge levied to support the Universal Service Fund contemplated
by the Telecommunications Act of 1996, whether charged to or against
Williams, its suppliers or affiliates or Customer for the Service provided to
Customer ("Taxes"). Such Taxes shall be paid by Customer in addition to all
other charges provided for herein.
7. OUTAGE ALLOWANCE.
----------------
7.1 Calculation of Outage Allowance. If applicable, Williams shall grant
-------------------------------
Customer an Outage Allowance for Services as follows:
(a) For purposes of this Agreement an interruption to Services
("Interruption") will be deemed to have occurred when Services are
either not provided at all or fail to meet the requirements of the
Agreement for a period of ten aggregate minutes on any given
calendar day (the "Daily Interruption") or forty-three (43)
aggregate minutes in any given calendar month (the "Monthly
Interruption"). An Interruption begins the earlier of when Customer
notifies Williams of the Interruption or when Williams is actually
aware of the Interruption or constructively aware through
recordation of the Interruption in Williams' log files. An
Interruption will be considered to have ended when Services in
accordance with this Agreement have been restored.
(b) In the event that Williams has a Daily Interruption as set forth in
Section 7.1(a) herein, Customer shall receive a credit for the day
the Daily Interruption occurred. Such credit shall include all fees
for the day containing the Daily Interruption related to the
Primary uplink (the "Uplink Outage Allowance"), which represents
62.5% of the total daily uplink fee.
(c) In addition to the Uplink Outage Allowance, a credit will be
provided to Customer by Williams based on the outage formula below
for the actual outage minutes related to the Space Segment (the
"Space Segment Outage Allowance").
Page 2 of 26
<PAGE>
43,200 (deemed number of minutes per month)
(d) In the event Williams has a Monthly Interruption as set forth in
Section 7.1(a) herein, Customer shall receive a credit for the month
in which the Monthly Interruption took place. Such credit will include
an Uplink Outage Allowance as defined herein for the month containing
the Monthly Interruption. If Customer receives a credit for a Monthly
Interruption, Customer shall not receive credits for any Daily
Interruptions which occurred during the month in which the Monthly
Interruption occurred.
7.2 Audio/Video. Intentionally Left Blank.
------------
7.3 Exceptions to Outage Allowance. In no case shall an Outage Allowance be
-------------------------------
made for any Interruption that is a result of, or attributable in whole
or in part to:
(a) Any failure on the part of Customer to perform its material or
operational obligations pursuant to this Agreement;
(b) The failure of Customer's Signal provided by Customer or by carriers
other than Williams;
(c) The failure of transmission lines, equipment, or other facilities
provided by the Customer;
(d) The failure or nonperformance of any earth station not provided by
Williams;
(e) Reasonable periodic maintenance as approved in advance by Customer,
provided Williams provides Customer with 72 hours advance notice of
such maintenance and cumulative maintenance time does not exceed two
(2) hours per calendar month;
(f) Interference from third party transmission or usage;
(g) Cooperative testing;
(h) Sun transit outage or rain fade; or
(i) Any other act or failure to act by Customer.
7.4 Credit Memoranda. Interruptions and Outage Allowances shall be
-----------------
acknowledged by Williams through the issuance of credit memoranda. Such
memoranda shall be issued within fifteen (15) days of the close of each
calendar month and shall reflect all credit allowances accumulated by
Customer during such month. Customer may deduct from its next monthly
payment the amount specified in the credit memorandum received in the
preceding month.
7.5 Time Limitation. In no event shall Williams be liable for allowances for
---------------
interruption unless the claim for such allowance is made within fifteen
(15) days after the date of the interruption.
8. WILLIAMS' RIGHT TO RE-CONFIGURE TELEPORT. Williams shall have the right to
----------------------------------------
re-configure or relocate the Teleport. Notwithstanding the above, any re-
configuration must have minimal impact on any Customer performance
requirement, and any relocation will be within the continental United States
and will require that the two Teleports used by Customer must be at a
minimum 1000 miles apart and neither shall be located in Florida or southern
Texas.
Page 3 of 26
<PAGE>
9. RISK OF LOSS; INSURANCE.
-----------------------
9.1 Insurance Coverage. For Customer's Equipment (as defined in Exhibit A-1)
------------------
and Customer's employees on the Teleport premises, Customer will carry or cause
to be carried and maintained in force throughout the entire Term of this
Agreement insurance coverages as described in paragraphs (a) through (c) below
with insurance companies acceptable to Williams. The limits set forth below are
minimum limits and will not be construed to limit Customer's liability. All
costs and deductible amounts will be for the sole account of the Customer.
(a) Worker's Compensation insurance complying with the laws of the State
or States having jurisdiction over each employee, whether or not
Customer is required by such laws to maintain such insurance, and
Employer's Liability with limits of $500,000 each accident, $500,000
disease each employee, and $500,000 disease policy limit. If work is
to be performed in Nevada, North Dakota, Ohio, Washington, Wyoming
or West Virginia, Customer will participate in the appropriate state
fund(s) to cover all eligible employees and provide a stop gap
endorsement.
(b) Commercial or Comprehensive General Liability insurance on an
occurrence form with a combined single limit of $1,000,000 each
occurrence, and annual aggregates of $1,000,000, for bodily injury
and property damage, including coverage for blanket contractual
liability, broad form property damage, personal injury liability,
independent contractors, products/completed operations, and when
applicable the explosion, collapse and underground exclusion will be
deleted.
(c) Automobile Liability insurance with a combined single limit of
$1,000,000 each occurrence for bodily injury and property damage to
include coverage for all owned, non-owned, and hired vehicles.
9.2 Waiver of Subrogation. In each of the above described policies, 9.1(a)
---------------------
and 9.1(c), Customer agrees to waive and will require its insurers to
waive any rights of subrogation or recovery they may have against
Williams, its parent, subsidiary, or affiliated companies. Customer does
not waive and its insurers will not waive any rights of subrogation or
recovery they may have against Williams, its parent, subsidiary, or
affiliated companies under 9.1(b).
9.3 Additional Insureds. Under the policies described in Sections 9.1(b) and
-------------------
9.1(c) above, Williams, its parent, subsidiary and affiliated companies
will be named as additional insureds as respects Customer's operations
and as respects any work performed under this Agreement. Any costs
associated with naming these additional insureds will be the
responsibility of Customer. These policies will be primary insurance as
respects Williams.
9.4 Certificates of Insurance. Non-renewal or cancellation of policies
-------------------------
described above will be effective only after written notice is received
by Williams from the insurance company thirty (30) days in advance of any
such non-renewal or cancellation. Prior to commencing the Collocation
Service hereunder, Customer will deliver to Williams certificates of
insurance on an ACORD 25 or 25S form evidencing the existence of the
insurance coverages required above. In the event of a loss or claim
arising out of or in connection with the work performed under this
contract, Customer agrees, upon request of Williams, to submit the
original or a certified copy of its insurance policies for inspection by
Williams.
9.5 Risk of Loss. Williams will not insure nor be responsible for any loss or
------------
damage, regardless of cause, to property of any kind, including loss of
use thereof, owned, leased or borrowed by the Customer, or its employees,
servants or agents.
9.6 Insurance Requirement for Contractors. If Customer utilizes contractor(s)
-------------------------------------
per this Agreement, then Customer shall require such contractor(s) to
comply with these insurance requirements and supply certificates of
insurance before any work commences.
Page 4 of 26
<PAGE>
10. CONTRACT NOTICES. Any required notices pursuant to this Agreement shall be
----------------
sent by facsimile, with confirmation by overnight courier to the parties at
the following addresses:
Williams Vyvx Services, a business unit of iBEAM Broadcasting Corporation
Williams Communications, Inc. 645 Almanor Ave., Suite 100
One Williams Center, MD 26-3 Sunnyvale, CA 94086
Tulsa, OK 74172 Tel: (408)523-1600
Telephone: 918.573.5602 Fax: (408)730-8937
Fax: 918.574.6042 Attn: CFO
Attention: Contract Administration
11. OPERATIONAL NOTICES. If Customer has any technical problems with
-------------------
Customer's Equipment, Customer's signal(s) or the Services, Customer may
call the Primary Teleport at 732-969-3191 or 732-969-3610 or the Secondary
Teleport at 800-922-4424 or 909-943-5399 on a 24 x 7 basis. Williams will
communicate with Customer as promptly as possible regarding any technical
problems with Customer's Equipment, Customer's signal(s) or the Services.
For purposes of these communications from Williams, Customer agrees that
Williams should contact the operational contacts of Customer, in the order
listed in Exhibit B hereto.
Customer shall update its list of Operational Contacts with Williams as
needed. Williams shall not be responsible for any Interruptions or other
technical problems with Customer's Equipment, Customer's signal(s) or the
Services in the event that Williams has attempted to communicate with
Customer's Operational Contacts according to the information provided by
Customer to Williams and Williams is unable to establish communications
with them.
12. LIMITATION OF LIABILITY
12.1 EXCEPTING ONLY LIABILITY FOR WILLIAMS' RECKLESS OR WILLFUL
MISCONDUCT, WILLIAMS' LIABILITY ARISING OUT OF ITS PROVISION OF
SERVICES HEREUNDER, INCLUDING BUT NOT LIMITED TO LIABILITIES
ARISING OUT OF WILLIAMS' NEGLIGENCE, MISTAKES AND OMISSIONS,
INTERRUPTIONS, DELAYS, ERRORS, OR OTHER DEFECTS IN THE SERVICES OR
BREACH OF CONTRACT OR ARISING OUT OF THE FAILURE TO FURNISH
SERVICES, WHETHER CAUSED BY ACTS OF COMMISSION OR OMISSION, SHALL
BE LIMITED TO THE EXTENSION OF ALLOWANCES FOR INTERRUPTIONS AS SET
FORTH IN THIS AGREEMENT. SUCH ALLOWANCES FOR INTERRUPTION SHALL BE
THE SOLE REMEDY OF CUSTOMER, INCLUDING ANY END USER OF CUSTOMER,
AND THE SOLE LIABILITY OF WILLIAMS HEREUNDER. WILLIAMS' LIABILITY
FOR DAMAGES OR LOSSES OF ANY KIND ARISING OUT OF ITS FURNISHING
SERVICES SHALL IN NO EVENT EXCEED AN AMOUNT EQUAL TO ITS FIXED
MONTHLY OR OTHER CHARGE ALLOCABLE TO THE FAULTY OR DEFECTIVE
SERVICE.
12.2 NOTWITHSTANDING THE PROVISIONS OF THE PRECEDING SUBPARAGRAPH,
WILLIAMS SHALL NOT BE LIABLE TO CUSTOMER OR ANY END USER FOR ANY
LOSS OF, DEFECTS IN OR ANY INABILITY TO FURNISH SERVICE DUE TO
ACTS OF GOD, ACTS OF GOVERNMENT, WARS, RIOTS, STRIKES, FAILURE OF
A TRANSPONDER, FAILURE OF A SATELLITE, FAILURE OF ANY OTHER
TRANSMISSION EQUIPMENT OR OTHER CAUSES BEYOND WILLIAMS' CONTROL.
12.3 ANY AND ALL EXPRESS AND IMPLIED WARRANTIES RELATING TO THE
SERVICES, INCLUDING BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A SPECIFIC PURPOSE OR USE, ARE
EXPRESSLY DISCLAIMED. CUSTOMER SHALL DEFEND, INDEMNIFY AND HOLD
HARMLESS WILLIAMS FROM
Page 5 of 26
<PAGE>
ANY CLAIMS MADE UNDER A WARRANTY OR REPRESENTATION MADE BY
CUSTOMER TO ANY THIRD PARTY WITH RESPECT TO THE SERVICES.
12.4 EXCEPT FOR CUSTOMER'S PAYMENT OBLIGATIONS HEREUNDER, IN NO EVENT
SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT LIMITED TO, LOST
PROFITS), REGARDLESS OF THE FORESEEABILITY THEREOF, OCCASIONED BY
THE TERMINATION OF CUSTOMER'S RIGHTS TO USE, OR THE PREEMPTION OF
OR THE FAILURE OF, OR LOSS OF TECHNICAL QUALITY OF, THE SERVICES
OR BY ANY DELAY IN COMMENCEMENT OF THIS AGREEMENT OR BY ANY OTHER
CAUSE OR MATTER WHATSOEVER.
12.5 EXCEPT FOR CUSTOMER'S PAYMENT OBLIGATIONS HEREUNDER, IN NO EVENT
SHALL CUSTOMER BE LIABLE TO WILLIAMS FOR DIRECT DAMAGES IN EXCESS
OF ONE MILLION DOLLARS.
13. CUSTOMER'S CONTENT
------------------
13.1 Responsibility for Content. Customer shall be solely responsible
--------------------------
for all content transmitted by Williams as part of the Services.
Further, Customer shall make all arrangements with other common
carriers, Customer shall make all arrangements with other common
carriers, stations, networks, sponsors, music licensing
organizations, performers, representatives or other parties for the
authorizations necessary to avail itself of the Services. Customer
shall indemnify, defend, and save harmless Williams from any
liability arising out of failure to make such arrangements.
13.2 Content Indemnity. Customer shall indemnify, defend, and save
-----------------
harmless Williams from and against all loss, liability, damage and
expense, including reasonable attorneys' fees, due to claims arising
out of the content of any programming transmitted over Williams'
facilities pursuant to this Agreement including without limitation,
any claim for libel, slander, or infringement of copyright and any
other claim resulting from any act or omission of Customer arising
from the use of Williams' facilities or the Services provided that
Customer be given immediate written notice of any such claims and of
any suits brought or threatened against Williams and authority to
assume the sole defense thereof through its own counsel and to
compromise or settle any suits so far as this may be without
prejudice to Williams' rights.
13.3 No Violation of Law. Customer shall not use the Services for an
-------------------
unlawful purpose, including (without limitation) any use which
constitutes a violation of any local, state, federal, national or
international laws. Williams shall have the right to terminate this
Agreement and the Services provided hereunder without liability to
Customer in the event that Williams, its officers, employees or
agents, becomes the subject of any investigation, or is threatened
with or made a party to any administrative proceeding or litigation,
related to the alleged illegal use of the Services by Customer.
Notwithstanding the foregoing, Williams will not terminate this
Agreement pursuant to this Section 13.3 if, immediately upon
notification by Williams of such alleged illegal use, Customer is
able to satisfy Williams subject to Williams' sole and reasonable
discretion within forty-eight (48) hours that Customer has ceased
the aforementioned alleged illegal use.
14. NO THIRD-PARTY BENEFICIARY. The provisions of this Agreement are for the
---------------------------
benefit only of the parties hereto, and no third party may seek to enforce, or
benefit from these provisions.
15. LEGAL EXPENSES. If any proceeding is brought for the enforcement of this
---------------
Agreement, or because of an alleged or actual dispute, breach, default or
misrepresentation in connection with any of the provisions of this
Page 6 of 26
<PAGE>
Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs and expenses incurred in such action or
proceeding in addition to any other relief to which such party may be entitled.
16. FORCE MAJEURE. Notwithstanding any other provision of this Agreement,
-------------
neither Williams nor Customer shall be held liable for any delay or failure to
perform any part of this Agreement (other than non-payment of amounts due
hereunder) for any cause beyond its control and without its fault or negligence,
including but not limited to acts or omissions of civil or military authorities,
national or local emergencies, government regulations, embargoes, epidemics,
wars, terrorist acts, sabotage, riots, insurrections, fires, lightning, sun,
hail, high winds or other adverse weather conditions , explosions, nuclear
accidents, strikes, extended power blackouts, natural disasters including but
not limited to earthquakes, floods or volcanic action, failure of satellite
transponder or failure of any third party facilities, equipment or services
(outside of the control of Williams and its subcontractors) or any law,
regulation or order of any government agency or court of competent jurisdiction
affecting either of the parties hereto in the performance of their obligations
hereunder.
17. INDEPENDENT CONTRACTORS. The parties to this Agreement are independent
-----------------------
contractors, and none of the provisions of this Agreement shall be interpreted
or deemed to create any relationship between Williams and Customer other than
that of independent contractors. Without limiting the generality of the
foregoing, Williams and Customer shall have sole responsibilities for the
withholding of all federal and state income taxes, unemployment insurance tax,
social security tax and other withholding with respect to payments made by it to
its employees performing services for it under this Agreement. Neither party's
directors, officers, employees, contractors or agents shall be deemed employees
of the other party or shall be entitled to compensation or any employment
benefits of any kind provided by the other party to its employees.
18. WAIVER. No delay or failure of Williams or Customer to insist on
------
performance of any of the terms or conditions herein or to exercise any right or
privilege, or either party's waiver of any breach hereunder, shall be construed
to be a waiver thereof or a waiver of any other terms, conditions or privileges,
whether of the same or similar type.
19. GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York without regard to its choice
of law provisions.
20. SEVERABILITY. If any term or provision of this Agreement shall, to any
------------
extent, be determined to be invalid or unenforceable by a court or body of
competent jurisdiction, then (a) both parties shall be relieved of all
obligations arising under such provision and this Agreement shall be deemed
amended by modifying such provision to the extent necessary to make it valid and
enforceable while preserving its intent, and (b) the remainder of this Agreement
shall be valid and enforceable.
21. SURVIVAL OF TERMS AND CONDITIONS. The terms and conditions of this
--------------------------------
Agreement which by their nature extend beyond termination of this Agreement
shall survive the expiration or termination of this Agreement to the full extent
necessary for their enforcement and for the protection of the party in whose
favor they operate.
22. COUNTERPARTS. This Agreement may be executed in counterparts, each of which
------------
shall constitute an original and all of which, when taken together, shall
constitute one agreement.
23. PARTIES BOUND BY AGREEMENT; ASSIGNMENT. This Agreement is binding upon and
--------------------------------------
shall inure to the benefit of the parties hereto and upon their respective
successors and permitted assigns. Customer may not assign this Agreement without
the prior written consent of Williams, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, upon written notice, either party may
assign to a parent, affiliate, subsidiary company and/or any entity that
acquires, substantially all the shares or assets of a Party, without the consent
of the other.
24. OUTSOURCING OF NETWORK MANAGEMENT. Should Customer establish an outsourcing
---------------------------------
relationship with a third party to manage its network, Williams agrees to work
with such third party as designated by Customer in order to facilitate optimum
performance of Customer's network.
Page 7 of 26
<PAGE>
25. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire agreement
----------------------------
of the parties with respect to the subject matter hereof and supersedes any
prior understandings, oral agreements and/or writings between the parties
regarding the subjects within this Agreement. This Agreement may only be amended
or modified in writing signed by Customer and Williams.
Page 8 of 26
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement by the hand of their
respective duly authorised officers.
WILLIAMS VYVX SERVICES, A BUSINESS UNIT iBEAM BROADCASTING CORPORATION
OF WILLIAMS COMMUNICATIONS, INC.
/s/ Laura Kenny /s/ Chris Dier
- ---------------------------------------- ----------------------------------
SIGNATURE SIGNATURE
Laura Kenny Chris L. Dier
- ---------------------------------------- ----------------------------------
PRINT NAME PRINT NAME
Sr. VP & General Manager CFO
- ---------------------------------------- ----------------------------------
TITLE TITLE
12-14-99 12/18/99
- ---------------------------------------- ----------------------------------
DATE DATE
Page 10 of 26
<PAGE>
Agreement No.______________
[LOGO OF WILLIAMS]
VYVX SERVICES
Teleport Services Agreement - Exhibit A-1
1. SERVICE DESCRIPTION. Williams shall provide to Customer the use of the
-------------------
Teleport for a dedicated use transmission, based on the terms contained herein,
to uplink Customer's signal(s) from the Teleport to Williams-provided space
segment on TelStar 7, transponder 15.
2. SERVICE INITIATION. Williams shall initiate the Services described herein
------------------
on January 4, 2000 (the "Service Initiation Date"), provided, however that
Customer has signed this Agreement no later than December 14, 1999. Customer's
obligation to pay for the Services shall begin on the Service Initiation Date.
Loral has agreed to provide a transponder for testing purposes up to a maximum
of 15 MHz, and Williams will provide the Services during a Testing Period, which
shall begin as early as possible during the week of December 13, 1999 and
continue until January 2, 2000. Loral has informed Williams that Telstar 7,
Transponder 3 has been designated for such Testing Period and service will
switch to Telstar 7, Transponder 15 on January 4, 2000.
3. TERM. The term of this Exhibit A-1 shall begin on the Service Initiation
----
Date and shall continue for a period of thirty-six (36) months, or until
December 31, 2002 (the "Original Term").
4. DEMARCATION POINT FOR SERVICES. The Demarcation Point for Services
------------------------------
described herein shall be defined as either
4.1 RF Chain Demarcation
a) X Customer provided equipment ("CPE") demarcation - the
___
DVB/ASI data stream from Customer Provided encapsulator to the
input of Williams provided modulator for all uplink services
from the Teleport.;
b) Williams provided equipment demarcation - the Telco
___
demarcation point as defined by the local loop provider (RBOC,
CAP, etc.), with Williams responsible for connectivity between
RF Chain and local loop demarcation;
4.2 Local Loop Demarcation
a) Williams provided local loop demarcation - Customer
___
premise - Williams provisions the local loop between the
Customer premise and the respective local facility, whether
that facility is a Williams POP or 3/rd/ party POP, with the
demarcation point being the Customer end of the local loop;
b) Williams provided local loop demarcation - Teleport
___
premise - For the Primary uplink out of New York, Williams
provisions the local loop between the Teleport and the
respective local facility, whether that facility is a Williams
POP or 3/rd/ party POP, with the demarcation point being the
local facility end of the local loop. Williams is responsible
for provisioning and continued operation of the local loop for
the Primary signal path as defined herein;
c) Customer provided local loop demarcation - Customer
___
premise - Customer provisions the local loop between the
Customer Premise and respective local facility, whether that
facility is a Williams POP or 3/rd/ party POP with the
demarcation point being the local facility end of the local
loop;
d) X Customer provided local loop demarcation - Teleport
___
premise - For the Redundant uplink out of Los Angeles,
Customer provisions the local loop between the Teleport and
the respective local facility, whether that facility is a
Williams POP or 3/rd/ party POP, with the demarcation point
being the Teleport end of the local loop. Customer is
responsible for provisioning, payment and continued operation
of the local loop for the Redundant signal path as defined
herein.
4.3 IXC Demarcation. Intentionally Left Blank.
4.4 "Other." Intentionally Left Blank.
Page 10 of 26
<PAGE>
5. WILLIAMS RESPONSIBILITIES. (collectively, the Service[s])
-------------------------
[CHART APPEARS HERE]
Generic Signal Path diagram
5.1 Terrestrial Fiber Connectivity:
a) Local Access. Customer Premise (City A) Intentionally Left Blank.
b) Interexchange Fiber. Intentionally Left Blank.
c) Local Access - Teleport (City Z)
City Z Customer Premise: IXC POP, 12/th/ Flr, 60 Hudson St
City Z NPA / NXX: T.B.D.
Williams Teleport: Primary - Williams Vyvx Teleport New
York, 27 Randolph Street, Carteret, NJ
07008
Circuit Type: _________ Analog X Digital
--------
Circuit Capacity: DS-3(45 Mbps)
Transmission Type: _________ Simplex X Duplex
--------
5.2 Space Segment (the "Transponders")
a) Williams shall provide two Ku-band transponders (the "Transponders") on
Telstar 7 at the 129 West orbital slot. The Transponders shall be provided
on a "ramp-up" schedule by which Customer commits to pay for increasing
amounts of the space segment on the Transponders. The ramp-up schedule is
depicted on the Ramp-Up and Pricing Schedule attached hereto as Exhibit D.
Customer's commitment for the space segment depicted on Exhibit D begins on
the first day of the first month of the respective quarter identified. With
appropriate notice, Customer may accelerate the ramp-up of space segment,
together with the corresponding charges. Once an increased level of space
segment has been activated, however, the level may not be decreased. The
full use of both Transponders as depicted on Exhibit D beginning no later
than [*] shall continue through the end of the Term of the Agreement. The
second transponder is subject to the Right of First Refusal described below
in subparagraph (c).
b) Additional bandwidth is available under the Bursting provision in Section
6.6 (b) herein.
c) Williams shall provide Customer with a Right of First Refusal on a Fully-
Protected Ku-band transponder on Telstar 7. The Right of First Refusal shall
be activated at the time Loral Skynet receives a bona fide offer for Loral's
last Fully Protected Ku-band transponder on Telstar 7. In order to implement
such Right-of-First Refusal, Williams shall provide Customer with written
notice that Loral has received such bona fide offer. If Customer chooses to
lease the transponder in question, Customer must respond, in writing, to
Williams within twenty (20) calendar days of Customer's receipt of Williams'
written notice and must begin full service on the second transponder no
later than forty-five (45) days following receipt of Williams' written
notice. The monthly rate for the second transponder shall
[*] 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.
- --------------------------------------------------------------------------------
Standard Form Page 11 of 26
- --------------------------------------------------------------------------------
<PAGE>
immediately be [*] without any ramp-up schedule as depicted on Exhibit D
hereto. Customer's failure to respond to Williams' notification shall be
deemed a refusal of the second transponder. This Right of First Refusal
terminates when service on the second transponder begins on [*] or when
Customer declines service under the Right of First Refusal.
(d) Williams' Standard Satellite Terms and Conditions are attached as Exhibit C
and are considered an integral part of the Agreement. In the event of
conflict, the terms of this Agreement shall supersede the terms and
conditions in Exhibit C.
5.3 Uplinking/Downlinking. Williams shall modulate Customer's DVB/ASI data
stream to 70 MHz, upconvert the signal to 14 GHz and then transmit the
signal from the Teleport to the Transponder in accordance with the
predicted performance parameters which have been established based on the
technical specifications calculated in the New York link budget attached as
Exhibit A-1(a). Customer acknowledges and agrees that any equipment
substitutions or technical changes made by Customer or Williams may affect
the attached link budget calculations and could result in corresponding
changes to the following predicted performance specifications:
Williams will provide a Primary signal path via its New York Teleport. The
Customer's signal will be transmitted from New York at a calculated power
level of 73.11 dBW to TelStar 7's Ku-band transponder 15, resulting in a
predicted downlink EIRP of 47 dBW per carrier to CONUS. Williams
understands that this signal will be received by Customer's downlink
equipment utilizing a minimum 1.0 meter antenna in CONUS providing
approximately 40 dBi gain at 12 GHz. Calculations are based on Loral Skynet
provided specifications for TelStar 7. These values assume 6 dB of rain
fade margin and 99.7% equipment availability. Additionally, these values
predict an approximate data rate capacity of 39 MBps.
Williams will provide a Redundant signal path via its Los Angeles Teleport.
The Customer's signal will be transmitted from Los Angeles at a calculated
power level of 70.34 dBW to TelStar 7's Ku-band transponder 15, resulting
in a predicted downlink EIRP of 47 dBW per carrier to CONUS. Williams
understands that this signal will be received by Customer's downlink
equipment utilizing a minimum 1.0 meter antenna in CONUS providing
approximately 40 dBi gain at 12 GHz. Calculations are based on Loral Skynet
provided specifications for TelStar 7. These values assume 6 dB of rain
fade margin and 99.7% equipment availability. Additionally, these values
predict an approximate data rate capacity of 39 MBps.
When Williams has actual knowledge that there is an outage to Customer's
Service, Williams must switch signal delivery from the Primary uplink to
the Redundant uplink as described herein. Williams will switch the signal
within five (5) minutes upon Williams' actual knowledge of the outage. To
accommodate Williams' switch of signal delivery, Customer shall maintain
the delivery of the data signal to the Redundant uplink on a continuous
basis.
It is understood and agreed to by both parties that while these initial
uplink systems do not support iBEAM's long term growth requirements,
approximately [*] MBps for a CONUS service, but they do provide sufficient
capacity for iBEAM to develop their service offering. At such time that
both parties deem this current capacity to be insufficient to meet iBEAM's
market requirements, both parties will work together to expand these
systems to support iBEAM's long term growth requirements of [*] MBps. Such
expansion of Services shall be reflected in an amendment to this Agreement.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Uplink Uplink Downlink Downlink
Direction Data Rate Freq. Polarity Freq. Polarity Modulation FEC
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Simplex Uplink-NY 39 MBps 14300 Horizontal 12000 Vertical QPSK 3/4
MHz MHz
- ---------------------------------------------------------------------------------------------------------
Simplex Uplink-LA 39 MBps 14300 Horizontal 12000 Vertical QPSK 3/4
MHz MHz
- ---------------------------------------------------------------------------------------------------------
</TABLE>
[*] 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.
- --------------------------------------------------------------------------------
Standard Form Page 12 of 26
- --------------------------------------------------------------------------------
<PAGE>
5.4 Equipment. Williams shall provide the necessary equipment to uplink
Customer's signal(s) to/from the customer provided modem in accordance with
this Agreement. Uplink system will operate with data modulators, frequency
upconverters and High Power Amplifiers in a 1:N automatic redundancy mode
where N=4. Williams will supply an environmentally controlled facility,
including 2 19" racks for Customer's equipment and 2 POTS lines for remote
monitoring of the Customer Provided equipment at each teleport facility.
Facility power will be supplied at 120vac or 208vac. In the event of
facility power failure, all critical equipment will have power supplied by
an uninterruptable power supply with sufficient battery capacity to allow
time for William's supplied diesel generator to be automatically switched
on-line. All equipment provided by Williams shall remain the property of
Williams.
5.5 Monitor. Williams will monitor the Service, and Williams will communicate
with Customer as promptly as possible regarding any technical problems with
Customer's Equipment, Customer's signal(s) or the Services. Williams will
provide Customer with a monthly monitoring report in a form or format which
is mutually agreed to by the parties.
5.6 Basic Maintenance. Williams may provide basic maintenance to Customer based
on procedures mutually agreed upon by the parties.
6. CUSTOMER RESPONSIBILITIES.
6.1 Space Segment. Intentionally Left Blank.
6.2 Signal Delivery. Customer shall be solely responsible for delivery of its
signal(s) to/from the Demarcation Point, as defined in Section 4 above.
6.3 Uplinking/Downlinking. Intentionally Left Blank.
6.4 Customer's Equipment.
(a) For the Services described above, Customer shall provide equipment
("Customer's Equipment") to both the New York and Los Angeles Teleports
to be used in connection with Williams provision of the Services to
Customer which will perform the following functions:
2 Cisco 7206VXR Routers - The first router is for terminating ATM DS3
local loop for the purpose of passing multicast and unicast data from
Customer's broadcasting head ends into Customer's DVB encapsulators.
The second router is for redundancy.
2 Cisco 2924 Switches - The first switch is to terminate Customer's
server, router, encapsulator and terminal server equipment LAN ports,
and allows for layer 2 communication between Customer's equipment. The
second switch is for redundancy.
2 Skystream Encapsulators - The first encapsulator encapsulates
Customer's data into a DVB compliant format for delivery to Williams'
multiplexing equipment. The second encapsulator is for redundancy.
Cisco 2511 Terminal Server - Provides out of band management and remote
capability for controlling and configuring Customer owned equipment.
Customer shall provide Williams with a list of equipment as well as a
corresponding diagram(s) to be updated as required.
(b) Customer's Equipment shall remain the property of Customer, and
maintenance, repair, or replacement of Customer's Equipment shall be
the sole responsibility of Customer. In the event that Customer's needs
change with regard to rack space, the parties shall re-evaluate charges
associated with such additional rack space. Upon
- --------------------------------------------------------------------------------
Standard Form Page 13 of 26
- --------------------------------------------------------------------------------
<PAGE>
expiration or termination of this Agreement, Customer agrees to
promptly remove Customer's Equipment. Customer's failure to do so, or
failure to provide Williams with instructions regarding the disposition
of Customer's Equipment within thirty (30) days of the expiration or
termination of the Agreement shall be deemed to be an abandonment of
Customer's Equipment, and Williams may remove Customer's Equipment and
place it in storage for Customer. Upon payment to Williams of the total
cost of removal, storage and shipping, Williams will ship Customer's
Equipment to Customer.
(c) The Teleport is staffed on a 24 x 7 basis. For security of the Teleport
and in the best interests of Williams and its customers, access to the
Teleport is restricted. Customer shall have access to Customer's
Equipment for normal maintenance purposes from 08:00 to 17:00 local
time, weekends and holidays excluded, and Customer shall give the
Teleport a minimum of 24 hours advance notice. Customer shall have
access to Customer's Equipment for emergency servicing purposes at any
time, and Customer shall give a minimum of one hour advance notice.
Customer shall provide the Teleport with a written list of all of
Customer's employees (or contractors) who are authorized to have access
to Customer's Equipment, and Customer shall update this list as needed.
The Teleport may deny access to any person whose name is not on
Customer's list of authorized persons.
(d) The Teleport will supply adequate rack space for Customer's Equipment
as listed above at no charge in addition to the Service Charge. Any
additional rack space required or requested by Customer shall be
subject to availability and to additional charge.
6.5 Uplinking/Downlinking Equipment. Customer shall be solely responsible for
transmitting/receiving satellite signals, including all uplink/downlink
equipment necessary for transmission/reception of satellite signals at
locations other than the Teleport.
6.6 Data Rates and Service Charges.
(a) Monthly Recurring Charges. The Monthly Recurring Charge ("MRC") for the
Service shall be as described in the Ramp-Up and Pricing Schedule
attached hereto as Exhibit D. Customer is committing to the following
data rate ramp-up schedule for Services:
Data Rate Timeframe
_______________________________
[*] Qtr 1, '00
[*] Qtr 2, '00
[*] Qtr 3, '00
[*] Qtr 4, '00
[*] Qtr 1, '01
[*] Qtr 2, '01
[*] Qtr 3, '01
[*] Qtr 4, '01
[*] Qtr 1, '02
[*] Qtr 2, '02
[*] Qtr 3, '02
[*] Qtr 4, '02
(b) Non-Recurring Expense. The Non-Recurring Expense ("NRE") for the
Services shall be as described in the Ramp-Up and Pricing Schedule
attached hereto as Exhibit D. Customer shall be charged the NRE, or
one-time fee of $[*], which sum represents $[*] installation fee for
the two teleports ($[*] x 2 teleports) plus $[*] rack fees for two
racks per each teleport ($[*] x 2 racks x 2 teleports).
(c) Rack Space Charges. The Rack Space Charges for the Service shall be as
described in the Ramp-Up and Pricing Schedule attached hereto as
Exhibit D. Customer will not be charged any MRC for the initial two
racks deployed at each teleport, or 4 total racks. However, as Customer
adds racks, Customer will not incur any NRE, but Customer will incur
MRC charges for every additional rack beyond the first four. The rates
for these racks will vary with the number of transponders required to
provide the service, or as the number of transponders required
increases, the per rack rate will decrease. The Rack rates will be $[*]
per rack, above the initial four, while the Customer requires
[*] 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.
- --------------------------------------------------------------------------------
Standard Form Page 14 of 26
- --------------------------------------------------------------------------------
<PAGE>
one transponder. Once the Customer adds a second transponder, the
per rack rate will drop to $[*] per rack. If Customer adds a third
transponder, the rate would drop to $[*] per rack.
(d) Bursting. The Bursting Charge for the Service shall be as
described in the Ramp-Up and Pricing Schedule attached hereto as
Exhibit D. Each single Bursting event is limited to a duration of
seven (7) days, with a limitation of nine (9) days for multiple
bursting events during any thirty-one (31) calendar day rolling
period. If the bursting event exceeds either the seven (7) day
limitation for a single event or any period of time during the
nine (9) days for any thirty-one (31) calendar day period,
Customer will be required to ramp-up its Service to the data rate
level for the highest bandwidth actually used during the bursting
event. For example, if Customer is at 10 MBps, and wants to burst
to 15 MBps for nine (9) days, then Customer is required to ramp-up
its fixed data rate to 15 MBps from 10 MBps and begin paying the
15 MBps rate with no One-Time bursting fee associated with this
ramp-up. Additionally, any Bursting is limited to 10 MBps above
the current fixed data rate. If the Bursting requires bandwidth
greater than 10 MBps higher than the current data rate, Customer
will be required to raise its current data rate to a level
supporting the desired bursted bandwidth. All Bursting is limited
to the bandwidth available within a single transponder. No
bursting capability is available if bandwidth requires an
additional transponder.
(e) The Service Charge shall be invoiced thirty (30) days in arrears
and shall be paid by Customer in U.S. Dollars within thirty (30)
days of the date of invoice. Additionally, at the time of signing
this Agreement, Customer shall remit to Williams the sum of
$[*] which sum represents advance payment of one month's
Service Charge for Transponder 1, to be held by Williams as a
deposit (the "Deposit") throughout the Term of this Agreement.
Further, prior to initiation of Service on Transponder 2, Customer
shall remit to Williams the additional sum of $[*] which sum
represents advance payment of one month's Service Charge for
Transponder 2, to be held by Williams as a deposit throughout the
Term of this Agreement. Such deposits, as are set forth above,
shall be returned to Customer thirty (30) days from termination of
this Agreement, provided however that Customer has made payment
for all services rendered hereunder.
(f) Customer agrees that this is a take-or-pay commitment and that
failure to use the Services throughout the Term does not affect
Customer's obligation to pay the Service Charge throughout the
Term. The parties agree that Customer's total commitment pursuant
to this Agreement through the Term is approximately $8,850,840.
The parties agree that this take-or-pay commitment is a portion of
the consideration for this Agreement, and that it is not a
penalty.
6.7 Labor. If Williams performs labor for Customer beyond Basic Maintenance
as described in Section 5.6 herein, at Customer's request, other than in
connection with the Services, then Customer agrees to pay Williams for
that labor at the rate of $100 per hour. An example of when a labor
charge would be charged is if Williams agreed to switch out an item of
Customer's Equipment with a replacement part provided by Customer.
6.8 Compliance with Teleport Policies. Customer agrees that it shall comply
with all policies and procedures of the Teleport.
7. AUTOMATIC RENEWAL. After the expiration of the Original Term, this Exhibit
-----------------
A-1 shall automatically renew for one-year renewal terms (a "Renewal Term").
Either party may elect not to renew the Agreement by providing the other party
with written notice a minimum of one hundred twenty (120) days prior to the end
of the Original Term or any Renewal Term.
8. ANNUAL SERVICE CHARGE ADJUSTMENT. Upon expiration of the Original Term, and
--------------------------------
continuing thereafter annually on each anniversary of the Renewal Term of
this Agreement, unless otherwise agreed to by the parties, the Service Charge
shall be increased by an amount equal to the Consumer Price Index for All
Urban Consumers (CPI-U), as originally published by the Bureau of Labor
Statistics, for all items less food and energy, unadjusted for the twelve
month period ending the previous December 31.
[*] 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.
- --------------------------------------------------------------------------------
Standard Form Page 15 of 26
- --------------------------------------------------------------------------------
<PAGE>
Exhibit A-1(a) Primary Service - New York Link Budget
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Service Name iBEAM
Coverage CONUS
Uplink earth station Newark
Downlink earth station CONUS EIRP
Satellite name Telstar 7
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------
Link Input Parameters Uplink Downlink Units
---------------------------------------------------------------------------------------------------------------------
Site latitude 40.73N 48.93N degrees
Site longitude 74.17W 119.43W degrees
Magnetic variation 13.3W 19.0E degrees
Site altitude 0.1 0.2 km
Frequency 14 12 GHz
Polarization Vertical Horizontal
Rain-climatic zone (* prefix Crane) K D
Availability (average year) 99.7 99.7 %
Water vapour density 15 10 gm/m3
Surface temperature 20 15 /degrees/C
Antenna aperture 7 1 metres
Antenna efficiency / gain 65 65 % (* prefix dBi)
Coupling loss 4 0.1 dB
Antenna tracking / mispoint error 0.1 0.1 dB
LNB noise figure / temp 0.8 dB (* prefix K)
Antenna noise 50 K
Adjacent carrier interference 28 28 dB
Adjacent satellite interference 28 28 dB
Cross polarization interference 28 28 dB
Uplink station HPA output back-off 1 dB
Number of carriers / HPA 1
HPA C/IM (up) 30 dB
Uplink power control 6 dB
Uplink filter truncation loss 0 dB
---------------------------------------------------------------------------------------------------------------------
Satellite Input Parameters Value Units
---------------------------------------------------------------------------------------------------------------------
Satellite longitude 129W degrees
Transponder type TWTA
Receive G/T 1.4 dB/K
Saturation flux density -96 dBW/m2
Satellite attenuator pad 6 dB
Transmit EIRP at saturation 47 dBW
Transponder bandwidth 36 MHz
Input back off total 1 dB
Output back off total 2.49 dB
Intermodulation interference 12.5 dB
---------------------------------------------------------------------------------------------------------------------
Carrier/Link Input Parameters Value Units
---------------------------------------------------------------------------------------------------------------------
Modulation 4-PSK
Required bit error rate performance 10-7
Required Eb/No without FEC coding 11.31 dB
Required Eb/No with FEC coding 5.5 dB
</TABLE>
- --------------------------------------------------------------------------------
Standard Form Page 16 of 26
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C> <C> <C>
Information rate 39 Mbps
Overhead 5 %
FEC code rate 0.75
Spread factor 1.2
Carrier spacing factor 1.3
Bandwidth allocation step size 0.1 MHz
System margin 1 dB
---------------------------------------------------------------------------------------------------------------------
Calculations at Saturation Value Units
---------------------------------------------------------------------------------------------------------------------
Gain 1m2 44.38 dB/m2
Uplink C/No 95.52 dB.Hz
Downlink C/No 88.78 dB.Hz
Total C/No 87.94 dB.Hz
Uplink EIRP for saturation 74.11 dBW
---------------------------------------------------------------------------------------------------------------------
General Calculations Uplink Downlink Units
---------------------------------------------------------------------------------------------------------------------
Elevation 17.59 33.1 degrees
True azimuth 245.31 192.61 degrees
Compass bearing 258.61 173.61 degrees
Path distance to satellite 39794.08 38339.27 km
Propagation time delay 0.13 0.13 seconds
Antenna efficiency 65 65 %
Antenna gain 58.36 40.12 dBi
Availability (average year) 99.7 99.7 %
Link downtime (average year) 26.298 26.298 hours
Availability (worst month) 99 99 %
Link downtime (worst month) 7.305 7.305 hours
Spectral power density -24.38 5.38 dBW/4kHz
---------------------------------------------------------------------------------------------------------------------
Uplink Calculation Clear Rain Up Rain Dn Units
---------------------------------------------------------------------------------------------------------------------
Uplink transmit EIRP 73.11 73.11 73.11 dBW
Transponder input back-off (total) 1 1 1 dB
Input back-off per carrier -1 -1 -1 dB
Mispoint loss 0.1 0.1 0.1 dB
Free space loss 207.37 207.37 207.37 dB
Atmospheric absorption 0.43 0.43 0.43 dB
Tropospheric scintillation fading 0.69 0.69 0.69 dB
Atmospheric losses total 1.13 1.13 1.13 dB
Total path loss (excluding rain) 208.59 208.59 208.59 dB
Rain attenuation 0 3.6 0 dB
Uplink Power Control 0 6 0 dB
Uncompensated Rain Fade 0 0 0 dB
C/No (thermal) 94.52 94.52 94.52 dB.Hz
C/N (thermal) 19.37 19.37 19.37 dB
C/ACI 28 28 28 dB
C/ASI 28 28 28 dB
C/XPI 28 28 28 dB
C/IM 30 30 30 dB
Eb/(No*Io) 16.64 16.64 16.64 dB
</TABLE>
- --------------------------------------------------------------------------------
Standard Form Page 17 of 26
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Downlink Calculation Clear Rain Up Rain Dn Units
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Satellite EIRP total 47 47 47 dBW
Transponder output back-off (total) 2.49 2.49 2.49 dB
Output back-off per carrier -2.49 -2.49 -2.49 dB
Satellite EIRP per carrier 44.51 44.51 44.51 dBW
Mispoint loss 0.1 0.1 0.1 dB
Free space loss 205.7 205.7 205.7 dB
Atmospheric absorption 0.14 0.14 0.14 dB
Tropospheric scintillation fading 0.32 0.32 0.32 dB
Atmospheric losses total 0.46 0.46 0.46 dB
Total path loss (excluding rain) 206.27 206.27 206.27 dB
Rain attenuation 0 0 0.64 dB
Noise increase due to precipitation 0 0 1.15 dB
Downlink degradation (DND) 0 0 1.79 dB
Total system noise 114.12 114.12 148.8 K
Figure of merit (G/T) 19.45 19.45 18.29 dB/K
C/No (thermal) 86.29 86.29 84.5 dB.Hz
C/N (thermal) 11.13 11.13 9.35 dB
C/ACI 28 28 28 dB
C/ASI 28 28 28 dB
C/XPI 28 28 28 dB
C/IM 12.5 12.5 12.5 dB
Eb/(No*Io) 7.63 7.63 6.54 dB
------------------------------------------------------------------------------------------------------------------
Totals per Carrier (End-to-End) Clear Rain Up Rain Dn Units
------------------------------------------------------------------------------------------------------------------
C/No (thermal) 85.68 85.68 84.09 dB.Hz
C/N (thermal) 10.53 10.53 8.93 dB
C/ACI 24.99 24.99 24.99 dB
C/ASI 24.99 24.99 24.99 dB
C/XPI 24.99 24.99 24.99 dB
C/IM 12.42 12.42 12.42 dB
C/(No*Io) 83.24 83.24 82.26 dB.Hz
C/(N*I) 8.09 8.09 7.11 dB
Eb/(No*Io) 7.12 7.12 6.14 dB
System margin 1 1 1 dB
Net Eb/(No*Io) 6.12 6.12 5.14 dB
Required Eb/(No*Io) 5.5 5.5 5.5 dB
Excess margin 0.62 0.62 -0.36 dB
------------------------------------------------------------------------------------------------------------------
Earth Station Power Requirements Value Units
------------------------------------------------------------------------------------------------------------------
EIRP per carrier 73.11 dBW
HPA power per carrier 14.75 dBW
Uplink power control 6 dB
HPA output back off 1 dB
Waveguide loss 4 dB
Filter truncation loss 0 dB
Number of HPA carriers 1
Total HPA power required 25.75 dBW
Required HPA power capability 376.24 W
Spectral power density -24.38 dBW/4kHz
------------------------------------------------------------------------------------------------------------------
</TABLE>
Standard Form Page 18 of 26
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Space Segment Utilization Value Units
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Information rate (inc overhead) 40.95 Mbps
Transmit rate 54.6 Mbps
Symbol rate 27.3 MBaud
Occupied bandwidth 32.76 MHz
Noise bandwidth 75.15 dB.Hz
Minimum allocated bandwidth required 35.49 MHz
Allocated transponder bandwidth 35.5 MHz
Allocated transponder bandwidth 98.61 %
Carriers per transponder by bandwidth usage 1.01
Used transponder power 44.51 dBW
Used transponder power 100 %
---------------------------------------------------------------------------------------------------------------------
</TABLE>
Standard Form Page 19 of 26
<PAGE>
Exhibit A-1(b) Redundant Service - Los Angeles Link Budget
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Service Name iBEAM
Coverage CONUS
Uplink earth station Steele Valley
Downlink earth station CONUS EIRP
Satellite name Telstar 7
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Link Input Parameters Uplink Downlink Units
------------------------------------------------------------------------------------------------------------------
Site latitude 33.95N 48.93N degrees
Site longitude 117.40W 119.43W degrees
Magnetic variation 13.7E 19.0E degrees
Site altitude 0.2 0.2 km
Frequency 14 12 GHz
Polarization Vertical Horizontal
Rain-climatic zone (* prefix Crane) D D
Availability (average year) 99.7 99.7 %
Water vapour density 10 5 gm/m3
Surface temperature 20 15 (degrees)C
Antenna aperture 3.5 1 metres
Antenna efficiency / gain 65 65 % (* prefix dBi)
Coupling loss 3 0.1 dB
Antenna tracking / mispoint error 0.1 0.1 dB
LNB noise figure / temp *35 dB (* prefix K)
Antenna noise 50 K
Adjacent carrier interference 28 28 dB
Adjacent satellite interference 28 28 dB
Cross polarization interference 28 28 dB
Uplink station HPA output back-off 1 dB
Number of carriers / HPA 1
HPA C/IM (up) 30 dB
Uplink power control 6 dB
Uplink filter truncation loss 0 dB
---------------------------------------------------------------------------------------------------------------
Satellite Input Parameters Value Units
---------------------------------------------------------------------------------------------------------------
Satellite longitude 129W degrees
Transponder type TWTA
Receive G/T 1.4 dB/K
Saturation flux density -96 dBW/m2
Satellite attenuator pad 6 dB
Transmit EIRP at saturation 47 dBW
Transponder bandwidth 36 MHz
Input back off total 1 dB
Output back off total 2.49 dB
Intermodulation interference 12.5 dB
---------------------------------------------------------------------------------------------------------------
Carrier/Link Input Parameters Value Units
---------------------------------------------------------------------------------------------------------------
Modulation 4-PSK
Required bit error rate performance 10-7
---------------------------------------------------------------------------------------------------------------
</TABLE>
Standard Form Page 20 of 26
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Required Eb/No without FEC coding 11.31 dB
Required Eb/No with FEC coding 5.5 dB
Information rate 30 Mbps
Overhead 5 %
FEC code rate 0.75
Spread factor 1.2
Carrier spacing factor 1.3
Bandwidth allocation step size 0.1 MHz
System margin 1 dB
------------------------------------------------------------------------------------------------------------------------
Calculations at Saturation Value Units
------------------------------------------------------------------------------------------------------------------------
Gain 1m2 44.38 dB/m2
Uplink C/No 95.52 dB.Hz
Downlink C/No 89.92 dB.Hz
Total C/No 88.86 dB.Hz
Uplink EIRP for saturation 72.72 dBW
------------------------------------------------------------------------------------------------------------------------
General Calculations Uplink Downlink Units
------------------------------------------------------------------------------------------------------------------------
Elevation 48.61 33.1 degrees
True azimuth 200.18 192.61 degrees
Compass bearing 186.48 173.61 degrees
Path distance to satellite 37165.77 38339.27 km
Propagation time delay 0.12 0.13 seconds
Antenna efficiency 65 65 %
Antenna gain 52.34 40.12 dBi
Availability (average year) 99.7 99.7 %
Link downtime (average year) 26.298 26.298 hours
Availability (worst month) 99 99 %
Link downtime (worst month) 7.305 7.305 hours
Spectral power density -19.99 5.14 dBW/4kHz
------------------------------------------------------------------------------------------------------------------------
Uplink Calculation Clear Rain Up Rain Dn Units
------------------------------------------------------------------------------------------------------------------------
Uplink transmit EIRP 70.34 70.34 70.34 dBW
Transponder input back-off (total) 1 1 1 dB
Input back-off per carrier -2.38 -2.38 -2.38 dB
Mispoint loss 0.1 0.1 0.1 dB
Free space loss 206.77 206.77 206.77 dB
Atmospheric absorption 0.13 0.13 0.13 dB
Tropospheric scintillation fading 0.19 0.19 0.19 dB
Atmospheric losses total 0.32 0.32 0.32 dB
Total path loss (excluding rain) 207.2 207.2 207.2 dB
Rain attenuation 0 0.85 0 dB
Uplink Power Control 0 6 0 dB
Uncompensated Rain Fade 0 0 0 dB
C/No (thermal) 93.15 93.15 93.15 dB.Hz
C/N (thermal) 19.13 19.13 19.13 dB
C/ACI 28 28 28 dB
C/ASI 28 28 28 dB
C/XPI 28 28 28 dB
------------------------------------------------------------------------------------------------------------------------
</TABLE>
Standard Form Page 21 of 26
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
C/IM 30 30 30 dB
Eb/(No*Io) 16.49 16.49 16.49 dB
------------------------------------------------------------------------------------------------------------------------
Downlink Calculation Clear Rain Up Rain Dn Units
------------------------------------------------------------------------------------------------------------------------
Satellite EIRP total 47 47 47 dBW
Transponder output back-off (total) 2.49 2.49 2.49 dB
Output back-off per carrier -3.87 -3.87 -3.87 dB
Satellite EIRP per carrier 43.13 43.13 43.13 dBW
Mispoint loss 0.1 0.1 0.1 dB
Free space loss 205.7 205.7 205.7 dB
Atmospheric absorption 0.11 0.11 0.11 dB
Tropospheric scintillation fading 0.22 0.22 0.22 dB
Atmospheric losses total 0.33 0.33 0.33 dB
Total path loss (excluding rain) 206.13 206.13 206.13 dB
Rain attenuation 0 0 0.64 dB
Noise increase due to precipitation 0 0 1.41 dB
Downlink degradation (DND) 0 0 2.05 dB
Total system noise 90.46 90.46 125.14 K
Figure of merit (G/T) 20.45 20.45 19.05 dB/K
C/No (thermal) 86.05 86.05 84.01 dB.Hz
C/N (thermal) 12.04 12.04 9.99 dB
C/ACI 28 28 28 dB
C/ASI 28 28 28 dB
C/XPI 28 28 28 dB
C/IM 12.5 12.5 12.5 dB
Eb/(No*Io) 8.11 8.11 6.96 dB
------------------------------------------------------------------------------------------------------------------------
Totals per Carrier (End-to-End) Clear Rain Up Rain Dn Units
------------------------------------------------------------------------------------------------------------------------
C/No (thermal) 85.28 85.28 83.51 dB.Hz
C/N (thermal) 11.27 11.27 9.49 dB
C/ACI 24.99 24.99 24.99 dB
C/ASI 24.99 24.99 24.99 dB
C/XPI 24.99 24.99 24.99 dB
C/IM 12.42 12.42 12.42 dB
C/(No*Io) 82.51 82.51 81.48 dB.Hz
C/(N*I) 8.49 8.49 7.47 dB
Eb/(No*Io) 7.52 7.52 6.5 dB
System margin 1 1 1 dB
Net Eb/(No*Io) 6.52 6.52 5.5 dB
Required Eb/(No*Io) 5.5 5.5 5.5 dB
Excess margin 1.02 1.02 0 dB
------------------------------------------------------------------------------------------------------------------------
Earth Station Power Requirements Value Units
------------------------------------------------------------------------------------------------------------------------
EIRP per carrier 70.34 dBW
HPA power per carrier 18 dBW
Uplink power control 6 dB
HPA output back off 1 dB
Waveguide loss 3 dB
------------------------------------------------------------------------------------------------------------------------
</TABLE>
Standard Form Page 22 of 26
<PAGE>
<TABLE>
<S> <C> <C>
Filter truncation loss 0 dB
Number of HPA carriers 1
Total HPA power required 28 dBW
Required HPA power capability 631.6 W
Spectral power density -19.99 dBW/4kHz
------------------------------------------------------------------------------------------------------------------------
Space Segment Utilization Value Units
------------------------------------------------------------------------------------------------------------------------
Information rate (inc overhead) 31.5 Mbps
Transmit rate 42 Mbps
Symbol rate 21 MBaud
Occupied bandwidth 25.2 MHz
Noise bandwidth 74.01 dB.Hz
Minimum allocated bandwidth required 27.3 MHz
Allocated transponder bandwidth 27.3 MHz
Allocated transponder bandwidth 75.83 %
Carriers per transponder by bandwidth usage 1.32
Used transponder power 43.13 dBW
Used transponder power 72.85 %
Carriers per transponder by power usage 1.37
Carriers per transponder limited by:- Transponder bandwidth [1.32 carriers]
------------------------------------------------------------------------------------------------------------------------
</TABLE>
Standard Form Page 23 of 26
<PAGE>
EXHIBIT B
CUSTOMER'S CONTACTS FOR OPERATIONAL NOTICES
Customer Contact No. 1
Name: iBEAM Network Operations
Telephone: 877-523-1700 or 408-523-1700
Customer Contact No. 2
Name: Pet Kumler
Title: Director, Network Operations
Telephone: 408-523-1710
Customer Contact No. 3
Name: Joseph Thurman
Title: Executive Director Operations
Telephone: 408-523-1683
Standard Form Page 24 of 26
<PAGE>
Exhibit C
Satellite Terms & Conditions
1. Application of Terms and Conditions; Exclusion of Other or Additional Terms
---------------------------------------------------------------------------
These Standard Terms and Conditions are applicable to all Communications
Services provided by Williams to the Customer ("Customer") pursuant to this
Service Agreement ("Agreement"). COMMUNICATIONS SERVICES WILL BE PROVIDED ON
THE FOLLOWING TERMS AND CONDITIONS AND THE TERMS AND CONDITIONS OF THE
AGREEMENT AND IN THE EVENT OF ANY CONFLICTS BETWEEN THE TERMS AND CONDITIONS
OF THIS EXHIBIT C AND THE TERMS AND CONDITIONS OF THE AGREEMENT, THE TERMS
AND CONDITIONS OF THIS EXHIBIT C SHALL CONTROL.
2. Definitions For purposes of this Agreement, the following terms shall have
-----------
the definitions set forth in this Section 2, as follows:
"Applicable Carrier" shall mean the person, corporation, partnership, firm
------------------
or other entity in control of the satellite, satellite transponder,
microwave link, uplink, downlink, analog copper and/or fiber optic
facilities being used to provide the Communications Services.
"Applicable Carrier's Tariff" shall mean the Applicable Carrier's Tariff for
---------------------------
Allowances for Interruptions, setting forth the policies of the Applicable
Carrier with regard to credits, allowances, refunds or payments in the event
of an interruption of Communications Services caused by the Applicable
Carrier or the Applicable Carrier's equipment, as well as the policies of
the Applicable Carrier with regard to payments, penalties and charges for
cancellation of Communications Services by the Customer.
"Communications Services" shall include (without limitation) satellite
-----------------------
transponder, transponder uplink/downlink, fiber optic, telephone line and/or
microwave capacity, as applicable to the services requested by Customer.
"Customer Agent" shall mean any person, corporation, partnership, firm or
--------------
other entity transmitting signals to, from or via a satellite transponder or
using other Communications Services with the permission of or on behalf of a
Customer.
"Exchange Rates" shall mean the rates at which US dollars are exchanged for
--------------
the relevant foreign currency as published in The Wall Street Journal, U.S.
Edition.
"Uplink/Downlink Agent" shall mean the person, corporation, partnership,
---------------------
firm or other entity engaged by Customer to transmit or receive Customer's
signal to the satellite transponder being used to provide the Communications
Services.
3. Provision of Communications Services Williams shall provide Customer, and
------------------------------------
Customer shall accept from Williams as specified by Customer on the terms
and conditions set forth herein.
4. International Service Rates for international Communications Services are
---------------------
priced to Customer based on the Exchange Rate at the time service is
contracted for, subject to monthly adjustments to reflect changes in the
applicable published Exchange Rate on the first day of each month. Should
the carrier of non-U.S. Communications Services modify its tariff or the
technical parameters for Communications Services during the term of this
Agreement, Williams shall have the right correspondingly to modify the
tariff or rate or technical parameters of its Communications Services to
Customer.
5. Obligations of the Customer Customer shall make all arrangements with other
---------------------------
common carriers, stations, networks, sponsors, music licensing
organizations, performers, representatives or other parties for the
authorizations necessary to avail itself of the Communications Services.
Williams shall be indemnified, defended and saved harmless by Customer from
any liability arising out of failure to make such arrangements. Customer
shall not use Communications Services for an unlawful purpose, including
(without limitation) any use which constitutes a violation of any state or
federal obscenity laws. Williams shall have the right to terminate
Communications Services provided hereunder without liability to Customer in
the event that Williams, its officers, employees or agents, or the
Applicable Carrier, its officers, employees or agents, becomes the subject
of any investigation, or is threatened with or made a party to any
administrative proceeding or litigation, related to the alleged illegal use
of the Communications Services by the Customer.
6. Non-Interference for Satellite Transmissions and Use of Other Communications
----------------------------------------------------------------------------
Services
--------
(a) All transmissions to and from the satellite transponder or other use of
Communications Services made by Customer and/or a Customer Agent in
connection with use of Communications Services pursuant to this
Agreement shall comply with all of the rules and regulations of the
Federal Communications Commission ("FCC"), other governmental agencies,
carriers or other authorities applicable to Customer and/or each
Customer Agent with respect to the Satellite Transponder or the
Communications Services. Customer and each Customer Agent will follow
the established practices and procedures of the Applicable Carrier for
frequency coordination and will not utilize the Communications Services
in a manner which, under standard engineering practice, would or might
interfere with the use of or cause physical harm to any satellite
transponder, the satellite or any other communications facility. If, in
Williams, the Applicable Carrier's or other carrier's judgment,
Customer's or any Customer Agent's transmissions to or from or
utilization of the satellite transponder or other Communications
Services (whether directly or through a Customer Agent), interferes with
or causes physical harm to any satellite transponder, the satellite or
any other communications facility, Customer agrees to cease or cause to
be ceased immediately all transmissions to and utilization of the
satellite transponder or other Communications Services upon notice
thereof by Williams or the carrier until such time as such transmission
or utilization shall not, in Williams' or the carrier's
Standard Form Page 25 of 26
<PAGE>
judgment, interfere with and shall not cause physical harm to any
satellite transponder, the satellite or any other communications
facility. In such event and in addition to Williams' other rights and
remedies hereunder, Customer agrees that its rights to use a portion
of the satellite transponder or other Communications Services in
accordance with this Agreement shall be subject to Williams' right to
terminate Communications Services and all of Customer's rights
hereunder without liability to Customer and to take such action as may
be necessary, appropriate or desirable to terminate any such
interference or physical harm by Customer and each Customer Agent.
(b) To ensure that Customer and each Uplink/Downlink Agent's
transmissions to and from the satellite transponder and
Customer's utilization of the Communications Services
(whether directly or through an Uplink/Downlink Agent) does
not so interfere with or cause physical harm to any
transponder or satellite, Customer and each Uplink/Downlink
Agent, prior to any transmission to the satellite
transponder, must satisfy the uplink access requirements set
forth by the Applicable Carrier. Further, without limiting
the generality of the foregoing, if Customer's use involves
video broadcasting, Customer agrees to comply in all
respects with Section 25.308 of the FCC rules regarding the
Automatic Transmitter Identification System.
7. Pre-emptible Nature of Communications Services The satellite transponder
----------------------------------------------
and other Communications Services provided herein are not normally
protected, other than as provided in Section 8 herein, and may be preempted
and Customer acknowledges and agrees that it sometimes may be necessary or
advisable for the Applicable Carrier or other carrier deliberately to
preempt or interrupt Customer's use of the Communications Services in order
to protect the overall performance of each satellite, fiber optic network
or other communications facility, or other technical reasons. Such
decisions shall be made by the owners or operators of the satellite, fiber
optic network or other communications facility at their sole discretion and
Williams shall have no liability to Customer as a result of such decisions.
9. Fully Protected Transponder. "Fully-Protected" transponders, in the event
---------------------------
of failure, shall be restored by the Applicable Carrier using spare
equipment that may be available on the satellite at the time of failure, or
on a comparable transponder on the same satellite, or on another Applicable
Carrier satellite then in orbit, except when the failure is caused by
Customer. Fully Protected transponders are not preemptible.
9. Allowances for Interruption
---------------------------
(a) Allowances for interruption of Communications Service will be in
accordance with the Applicable Carrier's Tariff. In the absence of an
Applicable Carrier's Tariff, Williams' policy shall apply as follows:
(i) When an interruption of a Communications Service occurs for a
period of 60 seconds or more, credit is allowed on the basis of 5
minutes for each 5 consecutive minutes or fraction thereof of
interruption; (ii) Two or more interruptions occurring during any
period of 5 consecutive minutes shall be considered one interruption;
and (iii) An interruption of either the audio or visual portion of the
television channel shall be considered an interruption of both.
(b) An allowance will not be made where Customer fails to transmit or
receive a television, data or voice channel as a result of, or
attributable in whole or in part to: (i) Customer's negligence or
willful acts, or the negligence or willful acts of its officers,
directors, agents, employees, subsidiaries, parents, affiliates,
customers, authorized users and viewing subscribers, or any of them;
(ii) The failure of local channels, transmission lines or equipment
provided by Customer, its subsidiaries, parents, affiliates,
authorized users, viewing subscribers, Customer Agents or any of them;
(iii) Sun outages, heavy precipitation or heavy cloud cover; or (iv)
Customer's failure to use the channel ordered.
(c) In no event shall Williams be liable for allowances for interruption
unless the claim for such allowance is made within fifteen (15) days
after the date of the interruption.
10. Denial of Service For any violation of the Communications Act of 1934, as
-----------------
amended, or any Rules, Regulations or Orders of the FCC or of the terms of
this Agreement by Customer, or the imposition by the FCC or any
governmental authority having jurisdiction of conditions on the provision
of Communications Services which are unacceptable to Williams or the
Applicable Carrier, Williams may either temporarily deny service or
terminate the service without incurring liability to Customer.
11. Cancellation by Customer Except as specifically provided herein,
-------------------------
Communications Service may only be canceled upon the occurrence of all the
following: written notice to Williams; payment of total hourly, monthly or
annual charges due for service previously provided and for scheduled
service that has not been provided as of the date of cancellation; and
payment of all other sums otherwise due through the term of the Fixed-Term
Service to be provided pursuant to this Agreement.
12. Title to Communications Facilities This Agreement shall not, and shall not
----------------------------------
be deemed to, convey to Customer title of any kind to any of the satellite
transponders, transponder uplinks/downlinks, fiber optic links, telephone
lines, microwave facilities or other facilities utilized in connection with
the Communications Services.
Standard Form Page 26 of 26
<PAGE>
EXHIBIT D Ramp-Up and Pricing Schedule
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CONUS Solution QTR 1 QTR 2 QTR 3 QTR 4 QTR 1 QTR 2 QTR 3 QTR 4 QTR 1 QTR 2 QTR 3 QTR
`00 `00 `00 `00 `01 `01 `01 '01 `02 `02 `02 '02
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service Parameters [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
Aggregate Data Rate [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
XP #1 Data Rate [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
XP #1 Power Required in MHz [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
XP #2 Data Rate [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
XP #2 Power Required in MHz [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
- ------------------------------------------------------------------------------------------------------------------------------------
Service Fees NRE Monthly Recurring Charges
- ------------------------------------------------------------------------------------------------------------------------------------
Uplink with Redundancy
Total Uplink [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
Rack Charges [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
Space Segment
XP #1 - TelStar 7 Ku - 36 MHz [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
XP #2 First Right of Refusal [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
XP #2 - TelStar 7 Ku - 36 MHz [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
- ------------------------------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
Approximate Term Value $8,850,840
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Bursting - 24 hour notice is required to burst with a One-Time fee of [*] per event.
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Transponder Assumptions Additional Charges Not Included Above...
XP Protection = Fully Protected Rack Space
Full Transponder - Full Power & Bandwidth 2 Racks Per Teleport Included in Monthly Uplink Charges
Data rate assumes Proportional Power & Bandwidth $[*] per rack, per month, per location for the 1/st/ XP
Data rate can only ramp-up $[*] per rack, per month, per location for 2/nd/ XP
Term is 3 Years $[*] per rack, per month, per location for the 3/rd/ XP
Pricing does not include local loop charges
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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.
<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
[*] 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>
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 Three million Dollars (US$3,000,000), as
follows: (i) One Million Five Hundred Thousand Dollars (US$1,500,000) upon
execution of this Agreement and (ii) One Million Five Hundred Thousand Dollars
(US$1,500,000) 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 Five Million Dollars (US$5,000,000)
of iBEAM common stock at a price per share to be mutually agreed upon by the
Parties pursuant to the terms of a warrant agreement to be entered into by the
Parties within thirty (30) days following the Effective Date hereof
(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 a public offering of iBEAM common stock
after the Effective Date that results in proceeds to iBEAM of not less than
twenty million dollars ($20,000,000). 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
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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
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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
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such Extraordinary Distribution Arrangement shall not be subject to the revenue
share provisions described in paragraph 2 of this Agreement; provided, further,
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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
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[*] 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
[*] 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>
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 Two Hundred Fifty Thousand Dollars
(US$250,000) 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 Two Million Dollars
(US$2,000,000).
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>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated January 28, 2000, except as to the third paragraph of Note 2,
which is as of April 11, 2000, relating to the financial statements of iBEAM
Broadcasting Corporation (a development stage company), which appear in such
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
San Jose, California
May 5, 2000
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
webcasts.com, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG LLP
Oklahoma City, Oklahoma
May 8, 2000
