<PAGE>
As filed with the Securities and Exchange Commission on March 28, 2000
Registration No. 333-95425
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
REPLAYTV, INC.
(Exact Name of Registrant as Specified in Its Charter)
---------------
<TABLE>
<CAPTION>
Delaware 4841 77-0465127
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
1945 Charleston Road
Mountain View, CA 94043-1201
(650) 210-1000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------
Earle H. "Kim" LeMasters, III
Chairman and Chief Executive Officer
ReplayTV, Inc.
1945 Charleston Road
Mountain View, CA 94043-1201
(650) 210-1000
(Name, Address Including Zip Code, and Telephone Number Including Area Code,
of Agent for Service)
---------------
Copies to:
<TABLE>
<S> <C>
Mark A. Medearis Richard J. Sandler
Laura A. Donald DAVIS POLK & WARDWELL
Scott S. Ring 450 Lexington Avenue
VENTURE LAW GROUP New York, NY 10017
A Professional Corporation (212) 450-4000
2800 Sand Hill Road
Menlo Park, CA 94025
(650) 854-4488
</TABLE>
---------------
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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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 this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued March 28, 2000
8,500,000 Shares
[REPLAYTV LOGO]
COMMON STOCK
-----------
We are offering 8,500,000 shares of our common stock. This is our initial
public offering and no public market exists for our shares. We anticipate that
the initial public offering price will be between $13 and $15 per share.
-----------
We have applied to list our common stock on the Nasdaq National Market under
the trading symbol "RPTV."
-----------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 5.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds to
Public and Commissions ReplayTV
-------- ---------------------- -----------
<S> <C> <C> <C>
Per Share............... $ $ $
Total................... $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to an additional
1,275,000 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 to purchasers
on , 2000.
-----------
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
CHASE H&Q
DEUTSCHE BANC ALEX. BROWN
WASSERSTEIN PERELLA SECURITIES, INC.
, 2000
<PAGE>
INSIDE FRONT COVER:
- -------------------
Middle of page:
Four pictures showing buttons from the ReplayTV remote control. Each picture
has a short caption on its left. These pictures are listed below in the order
presented on the page, from top to bottom.
1) Picture of the "pause" button with caption stating "Pause live TV" to the
left of the picture.
2) Picture of the "instant replay" button with caption stating ""Instant Replay"
to the left of the picture.
3) Picture of the "replay zones" button with caption stating "ReplayZones" to
the left of the picture.
4) Picture of the "record" button with caption stating ""Record" to the left of
the picture.
GATEFOLD - First Page:
- ----------------------
Top three-quarters of the page:
An image of a television screen with the following text on the screen in large
letters: "TV now has a brain."
Bottom left corner of page:
A picture of the ReplayTV-enabled personal video recorder, together with a
picture of the ReplayTV remote control.
Starting on the bottom left of the gatefold and running across the gatefold is
text stating the following: "ReplayTV serves content providers, advertisers and
cable and satellite system operators by allowing viewers to find, record and
watch programs on demand."
This text is followed immediately by a small ReplayTV logo.
GATEFOLD - Second Page:
- -----------------------
Right side of page:
Four pictures of screen shots from the ReplayTV Service. These pictures are
listed below in the order presented on the page, from top to bottom.
1) Screen shot showing an example of the "ReplayGuide".
2) Screen shot showing an example of the "Find Shows" feature.
3) Screen shot showing an example of a TV-commerce page. This particular
example shows a Panasonic camcorder and gives the viewer the option to buy,
learn more or exit. Immediately to the upper left of the picture is a "*",
which is keyed to the footnote below these pictures.
4) Screen shot showing an example of the "ReplayZones" screen. This particular
example shows a page listing various ReplayZones and highlights the "Movie
Zone". Immediately to the upper left of the picture is a "*", which is keyed to
the footnote below these pictures.
Below these pictures is a footnote stating "* These features are not currently
available".
INSIDE BACK COVER:
- ------------------
Middle of page: Large ReplayTV Logo
OUTSIDE BACK COVER
- ------------------
Middle of page: small ReplayTV Logo
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary ...................................................... 1
Risk Factors ............................................................ 5
Use of Proceeds ......................................................... 16
Dividend Policy ......................................................... 16
Capitalization .......................................................... 17
Dilution ................................................................ 18
Selected Financial Data ................................................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................... 20
Business ................................................................ 26
Management .............................................................. 43
Related Party Transactions .............................................. 54
Principal Stockholders .................................................. 57
Description of Capital Stock ............................................ 59
Shares Eligible for Future Sale ......................................... 62
Underwriters ............................................................ 64
Legal Matters ........................................................... 66
Experts ................................................................. 66
Additional Information Available to You ................................. 66
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 the
information contained in this prospectus. We are offering to sell, and seeking
offers to buy, the common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only
as of the date of this prospectus, regardless of when this prospectus is
delivered or when any sale of our common stock occurs.
Until , 2000, all dealers that buy, sell or trade shares of
common stock, whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information in this prospectus, but it may
not contain all of the information that is important to you. To better
understand this offering, and for a more complete description of this offering,
you should read this entire prospectus carefully, including the "Risk Factors"
section and the financial statements and the notes to those statements, which
are included elsewhere in this prospectus. Information contained in our web
site, located at www.replaytv.com, does not constitute part of this prospectus.
REPLAYTV
ReplayTV is a media company that empowers television viewers to watch what
they want when they want. Our ReplayTV Service is delivered through a personal
video recorder that connects to a viewer's television set and provides a living
room portal through which viewers can easily access, navigate, control and
store television programming. We believe the ReplayTV Service will transform
the way consumers access television programming, advertising and, ultimately,
commerce services. We also believe our portal creates a new, more effective
medium for advertisers, content providers and cable and satellite system
operators to target consumers. Based on ReplayTV-sponsored survey data, viewers
using the ReplayTV Service watch and record more hours of television per week
and find television viewing more appealing than before using the ReplayTV
Service. We believe this is because the ReplayTV Service gives viewers greater
choice and more control over their television viewing.
The ReplayTV Service has been developed to offer a variety of benefits:
. Benefits to Viewers. Through our combination of proprietary software,
hardware and media relationships, the ReplayTV Service personalizes
television viewing by enabling viewers to: never miss their favorite
shows; locate, capture and record the best in television from thousands
of weekly programming choices; control live TV; and enjoy personal
television services with no monthly fees.
. Benefits to Content Providers. The ReplayTV Service allows content
providers to reach an audience that may not have watched particular shows
due to constraints including conflicts between broadcast times and their
own personal schedules. In addition, the ReplayTV Service enables
television programmers and broadcasters to pro-actively compile and
promote their content as part of their efforts to achieve greater
audience growth, loyalty, recognition and measurement.
. Benefits to Advertisers. We believe that our ReplayTV Service provides
advertisers a more effective way to deliver information to consumers, a
more efficient way to spend advertising budgets and a better way to
target audiences and identify, monitor and respond to consumers'
programming and purchasing preferences. For example, advertisers
currently are able to target advertising to viewers through theme-based
or branded content areas called ReplayZones. Our business plan is to
provide a wide range of future innovative advertising services, such as
graphic and full-motion video advertisements on the Replay Guide and
other viewer interfaces, transitional advertisements when the pause or
other features are activated, and lead-in or lead-out advertisements
inserted at the beginning or end of recorded programs.
. Benefits to Cable and Satellite System Operators. The ReplayTV Service
enables cable and satellite system operators to enhance the
attractiveness of their existing and anticipated services to consumers.
Key benefits include opportunities to reduce churn and grow subscriber
bases, enhanced appeal of premium offerings, enhanced appeal of pay-per-
view offerings, and a platform for new services to better utilize
broadcast capacity.
We announced our ReplayTV Service in January 1999, began shipment of our
personal video recorders in April 1999 and intend to commence distribution in
major U.S. markets through leading consumer electronics
1
<PAGE>
retailers this year. By relying on third-party consumer electronics companies
to manufacture, market and sell ReplayTV-enabled products, we intend to focus
our creative resources on promoting and enhancing the ReplayTV Service.
We anticipate generating revenues from the sale of advertisements, media
sponsorships, premium subscription services, near video-on-demand services and
TV-commerce. We continue to pursue strategic relationships with television
programmers, advertising agencies and other potential media partners to expand
our advertising and sponsorship opportunities, offer unique programming
content, differentiate the ReplayTV Service and enhance the ReplayTV brand. The
ReplayTV Service currently features NBC, Showtime and Turner ReplayZones.
Our success depends upon entering into strategic manufacturing and
distribution relationships to drive market penetration of ReplayTV-enabled
products and grow our installed base of viewers. For example, we have entered
into an agreement with Matsushita-Kotobuki Electronics Industries, Ltd., or
MKE, a subsidiary of Matsushita Electric Industrial Co., Ltd., the largest
manufacturer of VCRs sold in North America. MKE will initially market and sell
personal video recorders under the Panasonic brand featuring the ReplayTV logo.
MKE is also working to develop new consumer electronics devices that
incorporate ReplayTV technology. We are also in discussions with a number of
other consumer electronics companies, cable and satellite system operators and
manufacturers of cable and satellite set-top boxes, including EchoStar
Communications and Sharp Electronics, with whom we have non-binding letters of
intent.
----------------
We are a development stage company, had shipped only about 6,000 ReplayTV-
enabled personal video recorders as of December 31, 1999, and have recognized
no operating revenues to date from any sources. We have incurred significant
losses to date and expect to incur significant losses and negative cash flow
for the foreseeable future.
We were incorporated in California in August 1997 and changed our name to
Replay Networks, Inc. in June 1998. We changed our name to ReplayTV, Inc. in
January 2000 and intend to reincorporate in Delaware prior to the completion of
this offering. Our principal executive offices are located at 1945 Charleston
Road, Mountain View, California 94043. Our telephone number at that location is
(650) 210-1000.
2
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common stock offered................................ 8,500,000 shares
Common stock to be outstanding after this offering.. 51,543,823 shares
Use of proceeds..................................... We intend to use the net
proceeds of this offering
for working capital and
general corporate
purposes, including:
advertising to promote
the ReplayTV Service and
the ReplayTV brand;
subsidies related to the
distribution of ReplayTV-
enabled products; product
development; and
expansion of our sales,
marketing and service
capabilities. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.............. RPTV
</TABLE>
The number of shares of common stock to be outstanding after this offering
is estimated based on the number of shares outstanding on December 31, 1999 on
a pro forma basis to reflect the issuance of 5,627,267 shares of Series F
preferred stock in January 2000, the issuance of 2,090,907 shares of Series G
preferred stock in March 2000 and the automatic conversion of all shares of
preferred stock, including the shares of Series F preferred stock issued in
January 2000 and the shares of Series G preferred stock issued in March 2000,
outstanding as of the date of this prospectus into shares of common stock. It
excludes 18,218,561 shares subject to outstanding options or reserved for
future grants or purchases pursuant to our stock option and purchase plans and
6,666 shares of common stock subject to an outstanding warrant. See
"Management--Stock Plans" and "Description of Capital Stock."
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
. The conversion of all outstanding shares of preferred stock, including
the shares of Series F preferred stock issued in January 2000 and the
shares of Series G preferred stock issued in March 2000, into shares of
common stock on a one-for-one basis upon the closing of this offering;
. No exercise of the underwriters' over-allotment option;
. Our reincorporation into Delaware at or before the closing of this
offering; and
. The filing of our amended and restated certificate of incorporation upon
the closing of this offering.
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth a summary of our statement of operations data
for the periods presented. The statement of operations data does not give
effect to the issuance of 5,627,267 shares of Series F preferred stock in
January 2000, the issuance of 2,090,907 shares of Series G preferred stock in
March 2000 or the issuance of shares in this offering.
<TABLE>
<CAPTION>
Period from Period from
August 27, 1997 Year Ended August 27, 1997
(Inception) December 31, (Inception)
to December 31, ----------------- to December 31,
1997 1998 1999 1999
--------------- ------- -------- ----------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Total costs and expenses... $ 155 $ 3,256 $ 37,527 $ 40,938
Interest income (expense),
net....................... -- (28) 960 932
Net loss................... (155) (3,284) (36,567) (40,006)
Basic and diluted net loss
per share................. $(0.08) $ (0.48) $ (4.83) $ (5.59)
Basic and diluted weighted
average shares used in
computation of net loss
per share................. 2,026 6,889 7,565 7,157
Pro forma basic and diluted
net loss per share........ $ (1.38)
Pro forma basic and diluted
weighted average shares... 26,476
</TABLE>
Pro forma net loss per share is computed using the weighted average number of
common shares outstanding, including the conversion of convertible preferred
stock into shares of common stock effective upon the closing of this offering,
as if the conversion had occurred on January 1, 1999 or on the date of original
issuance, if later.
The following table summarizes our balance sheet data as of December 31,
1999:
. on an actual basis;
. on a pro forma basis to reflect the issuance of 5,627,267 shares of
Series F preferred stock in January 2000 at $11.00 per share resulting in
net cash proceeds of about $61.4 million, the issuance of 2,090,907
shares of Series G preferred stock in March 2000 at $11.00 per share
resulting in net cash proceeds of about $23.0 million and the automatic
conversion of 33,459,759 shares of preferred stock, including the shares
of Series F preferred stock issued in January 2000 and the shares of
Series G preferred stock issued in March 2000, outstanding as of the date
of this prospectus into 33,459,759 shares of common stock; and
. on a pro forma basis as further adjusted to reflect the sale of 8,500,000
shares of common stock in this offering at an assumed initial public
offering price of $14.00 per share after deducting estimated underwriting
discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments.................................... $36,150 $120,550 $230,120
Working capital................................. 33,606 118,006 227,576
Total assets.................................... 43,449 127,849 237,419
Total stockholders' equity...................... 36,698 121,098 230,668
</TABLE>
4
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to invest in shares of our common stock.
Risks Related to Our Business
We have recognized no operating revenues, and we will need to build an
installed base and enhance the features of our ReplayTV Service before we
can generate significant advertising revenues or achieve profitability.
As a media company, we will need to generate our revenues primarily from
sales of advertising and other media services. To date, we have recognized no
operating revenues, have incurred significant losses and have had substantial
negative cash flow, and we may never achieve profitability. As of December 31,
1999, we had an accumulated deficit of $40.0 million. We expect to incur
significant operating expenses over the next several years in connection with
the continued development and expansion of our business, including substantial
expenses related to advertising and subsidies to encourage purchases of
ReplayTV-enabled products. Although we have received limited proceeds from
shipments of our personal video recorders, these proceeds are considered
incidental to our business and therefore are not recognized as revenues. We do
not expect to generate significant revenues from advertising or other services
in 2000, and we may not be able to generate significant revenues thereafter.
As a result, we expect to continue to incur significant losses and negative
cash flow for the foreseeable future. With increased expenses, we will need to
generate significant revenues to achieve profitability. Consequently, we may
never achieve profitability, and even if we do, we may not sustain or increase
profitability on a quarterly or annual basis in the future.
We cannot be sure that the ReplayTV Service will generate a broad enough
viewer base to sustain our business.
Personal television services are a new and untested media format. The
ReplayTV Service is in an early stage of development, and many viewers,
retailers and potential media, advertising, consumer electronics and
distribution partners are not aware of its benefits. As a result, it is
uncertain whether the market will accept and demand the ReplayTV Service and
ReplayTV-enabled products. We believe that establishing the ReplayTV brand is
critical to attracting and retaining viewers and to enabling us to develop key
strategic relationships and advertising revenue opportunities. Our ability to
promote broad acceptance of the ReplayTV Service depends upon:
. successful marketing and distribution of ReplayTV-enabled products;
. continued development of new ReplayTV services and ReplayTV-enabled
products; and
. high quality customer support.
In addition, the introduction of new consumer electronics products is often
characterized by high rates of return following a product roll-out, as the
result of either product defects or lack of customer satisfaction with the
product category. ReplayTV-enabled products have been and in the future may be
subject to high return rates, which would impair our ability to establish
broad consumer acceptance of the ReplayTV Service.
If our retail launch is not successful, viewers and consumer electronics
manufacturers, distributors and other potential partners may not accept the
ReplayTV Service and ReplayTV-enabled products.
Our success depends on, among other things, our ability to expand
distribution of ReplayTV-enabled personal video recorders through multiple
relationships with consumer electronics companies and distributors. Our only
such relationship entered into to date is with Matsushita-Kotobuki Electronics
Industries, Ltd., or MKE, a subsidiary of Matsushita Electric Industrial Co.,
Ltd. We plan to commence distribution with MKE in major U.S. markets through
consumer electronics retailers in mid-2000.
5
<PAGE>
The launch requires, among other things, that:
. we educate consumers on the benefits of the ReplayTV Service and
ReplayTV-enabled personal video recorder, which will require an extensive
marketing campaign;
. MKE enter into distribution and promotional arrangements with major
national and regional retail chains;
. we commit a substantial amount of human and financial resources to
achieve successful retail distribution; and
. we coordinate our own sales, marketing and support activities with those
of MKE and other distributors and retailers.
We or our strategic partners may not achieve any or all of these objectives.
In addition, the launch may be delayed, consumers may perceive the ReplayTV-
enabled personal video recorder as too expensive or complex or the ReplayTV
Service as not sufficiently appealing, and our marketing campaign may not
effectively attract new viewers. Additionally, since we will rely on MKE and
other distributors and retailers to assist us with sales, marketing and
support activities, the success of the marketing process is not entirely
within our control. We do not control the time and resources that these third
parties devote to our business, and we cannot be sure that these parties will
perform as expected. Any of these events may reduce consumer demand and market
acceptance, diminish our brand and impair our ability to attract and retain
viewers to the ReplayTV Service.
We have established only a limited number of strategic relationships with
media partners, and we must rely on strategic relationships to enhance the
ReplayTV Service and execute our business plan.
To be successful, we must establish and maintain strategic relationships
with leaders in the television media industry, including advertisers,
television programmers and broadcast companies. To date, we have established
only a limited number of strategic relationships with media partners, and
these relationships are in the early stages of development. We cannot be
certain that relationships with other media partners will be available to us
in the future or on terms favorable to us. Our failure to establish and
maintain these relationships would:
. limit the acceptance and use of the ReplayTV Service;
. impair our ability to obtain rights to content;
. impair our ability to deploy certain forms of advertising;
. impair our ability to generate revenues from multiple sources; and
. impair our ability to further enhance the ReplayTV brand.
Entering into strategic relationships is complicated because some of our
current and future media partners may decide to compete with us or to enter
into relationships with our competitors. In addition, we may not be able to
establish relationships with key participants in the media industry if we have
established relationships with competitors of these key participants.
Moreover, many potential partners may resist working with us unless and until
the ReplayTV Service and ReplayTV-enabled personal video recorder have been
introduced on a larger scale and have achieved market acceptance. In order to
induce media companies to partner with us, we may have to share substantial
portions of our revenues with them or provide other incentives to them, which
may include equity incentives, and this could limit our ability to achieve
profitability or result in dilution to existing investors. If we fail to
establish additional relationships with media partners, or if our media
partners fail to actively pursue additional business relationships with us, we
would not be able to execute our business plan and our business would suffer
significantly.
If we are unable to create multiple revenue streams we will not be able to
execute our business plan and achieve profitability.
Our future growth and long-term success are dependent upon our ability to
generate multiple revenue streams. Our business model is particularly
dependent upon generating revenues from advertisers, who may not readily adopt
the personal television medium. If advertisers do not perceive personal
television as an effective advertising medium or are otherwise opposed to
personal television, they may be reluctant to devote a significant portion of
their advertising and marketing budgets to promotions on the ReplayTV Service.
Version 2.0 of the
6
<PAGE>
ReplayTV Service enables advertising and sponsorship capabilities solely on
theme-based or branded content areas called ReplayZones. In order to generate
significant advertising revenues, we need to expand the capabilities of the
ReplayTV Service to permit full motion video advertisements on multiple viewer
interfaces.
Our long-term success will also depend in part upon our ability to generate
revenues from premium subscription and personalized pay-per-view services such
as near video-on-demand, sponsorships from content providers and other media
partners and television-commerce. We will need to work closely with media
partners, cable and satellite system operators, electronic commerce companies
and consumer electronics manufacturers to develop services in these areas. We
may not be able to effectively work with these parties to develop services
that are sufficient to justify their costs. In addition, we must expand the
capabilities of the ReplayTV Service to permit these services, none of which
are currently available in version 2.0 of the ReplayTV Service software. If we
are unable to add these features to the ReplayTV Service, or if we delay the
introduction of these capabilities, our ability to attract and retain viewers
and generate revenues will suffer.
Furthermore, current versions of ReplayTV-enabled products may not be
capable of accommodating new services and capabilities we introduce in the
future. For example, current versions of ReplayTV-enabled products may not
have sufficient memory to handle software upgrades required to provide full-
motion video advertisements and near video-on-demand capabilities, which are
services that we will need to introduce in order to generate significant
revenues from multiple sources. If current versions of ReplayTV-enabled
products cannot be upgraded to support new services we introduce, our ability
to generate revenues from these new services will suffer.
We rely on third parties to manufacture, distribute and market our
products, and these parties may not perform as expected.
Our manufacturing, distribution and marketing strategies are significantly
dependent on the efforts of third parties. We currently rely on a single third
party contract manufacturer, Flextronics International, to manufacture
ReplayTV-enabled personal video recorders. We have entered into an agreement
with MKE to manufacture, distribute and market ReplayTV-enabled products, and
we intend to enter into similar relationships with other consumer electronics
companies in the future. In addition, we will rely significantly on our
relationship with MKE to establish our retail distribution channel.
We do not control the time and resources that third party manufacturers and
distributors devote to our business, and we cannot ensure that these parties
will perform as expected. The use of equipment manufacturers, particularly the
transition to new equipment manufacturers, subjects us to the risk of delays
and unforeseen problems such as defects, shortages of critical components and
cost overruns. In addition, we expect that these manufacturers will require
substantial lead times to manufacture sufficient quantities of ReplayTV-
enabled personal video recorders to satisfy demand. Any delays or unforeseen
problems could impair our full-scale retail launch and brand image and make it
difficult for us to attract and retain viewers. Furthermore, since our
relationships with some of these manufacturers are not based on exclusive
agreements, they may also support services that compete with us or offer
similar or greater support to our competitors. In addition, MKE may terminate
our agreements with them upon written notice to us. The loss of Flextronics,
MKE or any of our other manufacturers or distributors would require us to
identify and contract with alternative sources of manufacturing and
distribution, which may not be available to us when needed or on acceptable
terms. This outcome could harm our ability to compete effectively and achieve
market acceptance and brand recognition.
We are dependent on single suppliers for several key components and
services. If these suppliers fail to provide us with the products necessary
to manufacture our products and provide our services, we may be unable to
find alternative suppliers or deliver our services or ReplayTV-enabled
products to our customers on time.
We currently rely on sole suppliers for a number of the key components and
services used in ReplayTV-enabled personal video recorders. For example:
. Philips is the sole supplier of a number of semiconductors used in the
ReplayTV-enabled personal video recorder;
7
<PAGE>
. Sony is the sole supplier of our MPEG2 encoder semiconductor device;
. Tribune is the sole supplier of our program guide data; and
. Universal Electronics, Inc. is the sole supplier of our universal remote
controls and cable set-top box compatibility information.
Philips, Sony and Tribune each have relationships with TiVo Inc., one of
our primary competitors in the market for personal television services. We
cannot be sure that these and other key components and services used in
ReplayTV-enabled personal video recorders will be available from these
suppliers when needed or, if available, that these components and services
will be available on favorable terms. In addition, we rely on the quality of
the products supplied to us and the program guide data and cable set-top box
compatibility information supplied to us. The number of alternative suppliers
available for these products and services may be very limited. If we or other
manufacturers of ReplayTV-enabled personal video recorders were unable to
obtain sufficient quantities of these components or accurate program guide
data, the search for and/or transition to alternate suppliers could result in
extensive delays, added expense or disruption in services or product
availability. In addition, we could have to re-engineer the ReplayTV-enabled
personal video recorder in order to incorporate alternative products or
services, which could render our products and services unavailable for
extended periods.
We have agreed to subsidize the cost of our personal video recorders, and
we may be unable to generate enough revenues to cover these subsidies and
other obligations.
We have agreed to subsidize the cost of our personal video recorders to
maintain attractive retail prices for ReplayTV-enabled products and to
encourage the manufacture of ReplayTV-enabled personal television products.
For example, we have agreed to subsidize MKE and expect to subsidize other
equipment manufacturers in the future. We expect these subsidies to be one of
our largest expense items for the foreseeable future. If our competitors lower
the retail prices of their products, we may have to increase the amount of our
subsidies. Our decision to subsidize the manufacturing cost of ReplayTV-
enabled products is based upon our belief that increasing our installed base
as rapidly as possible will help us obtain viewers, broaden market acceptance
for personal television and increase our future revenues. If these
expectations are not met, we may be unable to generate sufficient revenues to
cover our expenses and other obligations.
Intellectual property claims against us could be costly and could result in
the loss of significant rights.
The television industry is characterized by the existence of a large number
of patents and frequent litigation. We have been contacted by various parties
that have asserted that our personal television service violates patents,
copyrights or other rights of these parties. In some cases, we have been
contacted by patent owners offering us the opportunity to license their
patents, which we have concluded is unnecessary in each case to date. If any
of these parties, or other parties that may assert similar claims in the
future, were to successfully litigate these claims against us, the outcome of
the litigation could:
. prevent us from manufacturing or licensing products or providing the
ReplayTV Service which would eliminate our ability to generate revenues;
. cause the cancellation of new services;
. cause delays in product delivery and new service introduction; and
. require us to pay significant monetary damages, royalties or licensing
fees.
In addition, litigation of these claims, whether or not they are
successful, could divert management's attention and resources away from our
business and otherwise be time-consuming and expensive.
In January 2000, a subsidiary of Gemstar International Group, Inc. sued
TiVo, Inc., one of our competitors, for allegedly infringing a patent related
to recording of television programming. This action seeks an injunction and
damages. We cannot assure you that Gemstar will not bring a similar action
against us in the future. If
8
<PAGE>
Gemstar were to bring such an action and be successful, it could materially
adversely impact our business. In January 2000, we and TiVo were sued by
PhoneTel Communications, Inc. for allegedly infringing a patent related to
specifying an order for playback of recorded television programs. In addition,
in February 2000, we and a number of other web site operators unaffiliated
with us were sued by TechSearch L.L.C. for allegedly infringing a patent
related to audio/visual and graphical presentation on our and their web sites.
We are also aware that some media companies may attempt to form
organizations to develop standards and practices in the personal television
industry. These organizations or individual media companies may attempt to
require companies in the personal television industry to obtain copyright or
other licenses for the use of the companies' programming. A number of articles
have appeared in the press recently regarding the formation of a consortium of
broadcast and cable television networks called the Advanced Television
Copyright Coalition. Some of those articles have indicated that the coalition
is prepared to support litigation and to explore legislative solutions unless
the providers of personal television services and products agree to obtain
license agreements for the use of the companies' programming. We have received
indications from a number of content providers asserting their belief that our
business activities will require approvals and licenses from these content
providers. Lawsuits or other actions taken by these types of organizations or
companies could make it more difficult or impossible for us to introduce new
services, delay widespread consumer acceptance of our services, restrict our
use of some television content, increase our costs and materially adversely
affect our business.
We face intense competition from a number of sources, which may impair our
ability to generate viewers and future revenues.
We are likely to face intense direct competition from a number of personal
and interactive television companies such as TiVo Inc. and WebTV Networks Inc.
Many of these companies have greater brand recognition and market presence, a
significantly larger installed base and substantially greater financial,
marketing and distribution resources than we do. Some of these companies also
have established relationships with third-party consumer electronics
manufacturers, satellite and cable system operators, television programmers,
Internet service providers and others, which could make it harder for us to
compete with them and may make it difficult for us to establish relationships
and enter into agreements with these third parties. Some of these competitors
also have relationships with our strategic partners. Furthermore, we and our
manufacturing partners also compete with consumer electronics companies that
may incorporate competing personal television capabilities into future
generations of their consumer electronics products. Faced with this
competition, we may be unable to expand our market share and attract an
increasing number of viewers to the ReplayTV Service.
We also compete with consumer electronics products in the television and
home entertainment industry. The television and home entertainment industry is
characterized by rapid technological innovation, a small number of dominant
manufacturers and intense price competition. The competition for consumer
spending in the television and home entertainment market is intense, and our
services may compete with:
. VCRs and DVD players and recorders;
. video-on-demand services;
. interactive television services; and
. personal computers.
Many of these technologies, services or devices have an established market,
a broad viewer base and proven consumer acceptance. We may be unable to
effectively differentiate the ReplayTV-enabled personal video recorder or the
ReplayTV Service from these technologies, services or devices, and many of the
alternative home entertainment devices and services may be purchased by
consumers at lower prices than a ReplayTV-enabled personal video recorder.
Further, cable and satellite services are already a large expense item for
many households, and consumers may be unwilling to make the additional
expenditure required to purchase a ReplayTV-enabled personal video recorder to
complement these services. In addition, since our Internet service provider's
access numbers require long distance calls for a portion of television
households in the United States,
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<PAGE>
some potential ReplayTV viewers may have to pay recurring long distance
charges to connect to the ReplayTV Service network, which could impact our
ability to market the ReplayTV Service in these markets.
We may also compete with new and evolving forms of delivery of video
programs to viewers' homes. For example, a number of companies are developing
video-on-demand products and services, which would use broadband delivery
systems to feed video as demanded by viewers in real time. In addition, as
broadband delivery systems become more prevalent, it is possible that more and
more programs may be available for ordering, over the Internet or otherwise,
which may lessen the importance of broadcast television and weaken the appeal
of the ReplayTV Service. If these companies are successful in developing these
services, their products and services may be more appealing to viewers than
ours.
The market for personal television services is evolving rapidly, and we or
our strategic partners may not be able to adequately address this market.
Because of the early stage of the personal television industry, the life
cycle of our services is difficult to estimate. We or our strategic partners
may not be able to develop and introduce new services and enhancements that
respond to technological changes, evolving industry standards or consumer
preferences on a timely basis, or at all, in which case our business would
suffer. In addition, we cannot predict the rate of adoption by consumers of
our services and products which enable our service, or the price they will be
willing to pay for these services and products. As a result, it is extremely
difficult to predict our future prices for these services and the future size,
growth rate and profitability of this market.
If we are unable to integrate the ReplayTV Service with the products and
services provided by cable and satellite system operators, we will not be
able to grow our installed base as rapidly as we expect.
We intend to enter into relationships for the distribution of the ReplayTV
Service with cable and satellite system operators and/or with the
manufacturers of set-top boxes that enable cable and satellite services. We
cannot be certain that these parties will be willing to enter into agreements
with us to directly integrate the ReplayTV Service into set-top boxes or that
we will be able to negotiate agreements on terms favorable to us.
Historically, cable and satellite system operators have been hesitant to
implement new services. In addition, cable and satellite system operators and
the manufacturers of cable and satellite set-top boxes may choose to develop
their own services in competition with us or to enter into relationships with
our competitors. If we fail to establish distribution relationships with cable
and satellite system operators or the manufacturers of set-top boxes, we may
not be able to execute our business plan, and our business could suffer
significantly.
We must also work with cable and satellite system operators to ensure that
the ReplayTV Service and ReplayTV-enabled products are compatible with their
products and services. If we are unable to adequately ensure that the ReplayTV
Service is compatible with our viewers' cable and satellite systems, for which
new designs come to market on a regular basis, we may not be able to attract
and retain viewers and our reputation may be harmed.
If we lose key management personnel, we may not be able to successfully
operate our business.
Our future performance will be substantially dependent on the continued
services of our senior management and other key personnel. The loss of any
members of our executive management team and our inability to hire additional
executive management could harm our business and results of operations. In
addition, we do not have term employment agreements with, or key man insurance
policies for, any of our key personnel.
We have recently hired several senior executive officers. Any inability by
these individuals to execute our business strategy and manage our growth
could harm our ability to generate revenues and achieve profitability.
Several members of our executive management team were hired in 1999 and
2000, including our Chief Executive Officer; Executive Vice President,
Corporate Development; Executive Vice President, Finance and
10
<PAGE>
Chief Financial Officer; Executive Vice President, Sales and Marketing;
Executive Vice President, Business Operations; and Executive Vice President,
ReplayTV Service. These individuals have not previously worked together nor
with the other members of our management team and, therefore, may require time
to adequately familiarize themselves with the nature of our business and
operations and each other. We cannot assure you that these individuals will be
able to successfully work together or manage any growth we may experience. The
process of integrating these individuals into our management team may detract
from the operation of our business.
Failure to manage our growth could disrupt our business and impair our
ability to generate revenues.
Since we began our business in August 1997, we have significantly expanded
our operations. We anticipate continued expansion in our headcount, facilities
and infrastructure to support potential growth in our viewer base and to allow
us to pursue market opportunities. This expansion has placed, and will
continue to place, a significant strain on our management, operational and
financial resources and systems. Additional risks we face as our business
expands include:
. We do not have experience in manufacturing a large volume of ReplayTV-
enabled products and may not be able to accurately forecast and respond
to consumer demand for our products and services.
. We may be unable to successfully attract, integrate or retain
sufficiently qualified personnel, especially engineers and personnel with
the relevant and necessary media and television experience.
. The ability of our systems to scale as we add new viewers and
capabilities is unproven. Our inability to accommodate additional viewers
or to upgrade our technology, systems or network infrastructure could
adversely affect our business, cause interruptions in the ReplayTV
Service or delay the introduction of new services.
. If we or our distribution partners are unable to adequately support
ReplayTV Service viewers, our brand and our ability to generate and
retain new viewers will be harmed.
Seasonal trends in consumer and advertiser spending behavior may cause our
operating results to fluctuate.
Our business model anticipates that a majority of our future revenues will
come from targeted commercials and other forms of television advertising
enabled by the ReplayTV Service. Expenditures by advertisers tend to be
seasonal and cyclical, reflecting overall economic conditions as well as
budgeting and buying patterns. A decline in the economic prospects of
advertisers or the economy in general could alter current or prospective
advertisers' spending priorities or increase the time it takes to close a sale
with our advertisers, which could cause our revenues from advertisements to
decline significantly in any given period.
In addition, we are subject to seasonality in consumer electronics product
sales, which have traditionally been much higher during the holiday shopping
season (occurring in the fourth quarter) than during other times of the year.
Although predicting consumer demand for our products will be very difficult,
we believe that sales of ReplayTV-enabled personal video recorders and
attraction of new viewers to the ReplayTV Service will be disproportionately
high during the holiday shopping season when compared to other times of the
year. Because we expect to subsidize the purchase price of ReplayTV-enabled
personal video recorders, we will incur greater costs and expenses when more
ReplayTV-enabled personal video recorders are sold.
If we are unable to raise additional capital on acceptable terms, our
ability to effectively manage growth and build a strong brand could be
harmed.
We expect that our existing capital resources, combined with the net
proceeds of this offering, will be sufficient to meet our cash requirements
through the next 12 months. We may be required to raise additional capital
sooner if consumer acceptance of the ReplayTV Service occurs more rapidly than
we expect or if we have to increase our subsidies earlier than we anticipate
to meet competitive retail pricing. In order to continue
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<PAGE>
to grow our business, we will have to raise additional capital, which may not
be available on acceptable terms. If we cannot raise necessary additional
capital on acceptable terms, we may not be able to develop or enhance our
services, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements. If we raise additional capital
through debt financing, we may be subject to covenants limiting or restricting
our operations or future opportunities.
Risks Related to Our Service and Technology
System failures, interruptions to the ReplayTV Service or product defects
may have a negative impact on our revenues, damage our reputation and
decrease our ability to attract new viewers.
Our ability to provide high quality products, service and customer support
is critical to our success because consumers of television-related products
are not accustomed to, and may not accept, interruptions in their television
service. Our network, communications hardware and other operating systems for
the ReplayTV Service are vulnerable to damage or interruption from
earthquakes, floods, fires, power loss, telecommunication failures and similar
events. They are also subject to break-ins, sabotage, intentional acts of
vandalism and similar misconduct. These types of interruptions in the ReplayTV
Service may reduce our revenues and profits. In addition to placing increased
burdens on our engineering staff, service outages will create numerous
customer questions and complaints that must be responded to by our or our
partners' customer support personnel. Any frequent or persistent system
failures could irreparably damage our reputation and brand.
In addition, any delivery by us of products or upgrades with undetected
material product defects or software errors could harm our credibility and
prevent market acceptance of the ReplayTV Service. For example, the hard disk
used in the ReplayTV-enabled personal video recorder was originally designed
for use in personal computers, and as a result exhibits behaviors that are
viewed as typical and minimally disruptive when using a personal computer but
may result in the viewer momentarily facing a black television screen when
using the ReplayTV Service. Any errors and product defects can result in
delays in releasing new versions of our ReplayTV-enabled personal video
recorders, affect system uptime, result in returns and significant warranty
and repair costs and cause customer relations problems. Correcting errors in
our software and hardware design requires significant time and resources,
which could delay future product releases and affect market acceptance of the
ReplayTV Service.
Any failure to secure and protect our patents, trademarks and other
proprietary rights could reduce our competitive advantage.
Our success and ability to compete are substantially dependent upon our
internally developed technology. We rely on patent, trademark and copyright
law, trade secret protection and confidentiality or license agreements with
our employees, customers, partners and others to protect our proprietary
rights. However, the steps we take to protect our proprietary rights may be
inadequate. We are currently the assignee of two United States patents. We
have also filed patent applications and provisional patent applications
relating to important aspects of the ReplayTV technology and the ReplayTV
Service, including its features and capabilities. To date, none of these
patents has been granted, and we cannot assure you that any patents will ever
be granted, that any issued patents will protect our intellectual property or
that third parties will not challenge any issued patents. In addition, other
parties may independently develop similar or competing technologies designed
around any patents that may be issued to us. Our failure to protect our
proprietary rights could have a material adverse effect on our business.
Laws, regulations, agreements and standards that govern the television
industry and the delivery of programming could expose us to legal action if
we fail to comply or could require us to change our business.
Adoption of new laws and industry standards, and changes in the regulatory
climate or in the enforcement or interpretation of existing laws, could expose
us to additional costs and expenses and could require us to change our
business. For example, copyright laws could be applied or amended to restrict
the capture or alteration of
12
<PAGE>
television programming, which would materially adversely affect our business.
Also, new regulations adopted by the Federal Communications Commission, or new
FCC interpretations of existing regulations, may directly affect us and the
strategic partners on whom we substantially rely for the marketing and
distribution of ReplayTV-enabled personal video recorders and the ReplayTV
Service. This could negatively impact the adoption of the ReplayTV Service or
force us to alter the features or capabilities of the ReplayTV Service.
Several manufacturers, media companies and content delivery providers, such
as cable and satellite system operators, have developed and will continue to
develop standards that govern how these companies operate and interact with
one another. For example, cable modem manufacturers and cable operators are
developing standards relating to cable systems and cable modems. Media
companies, consumer electronics companies, computer companies and
semiconductor companies are developing standards relating to copyright
protection of media content. If we are unable to develop services that comply
with the agreements and standards set by these consortiums, we may be
prevented from marketing and distributing ReplayTV-enabled personal video
recorders and providing the ReplayTV Service.
We need to safeguard the security and privacy of our viewers' confidential
data, and any inability to do so may harm our reputation and brand and
could result in lawsuits.
The ReplayTV-enabled personal video recorder collects and stores viewer
preferences and other data that our viewers may consider confidential. Any
compromise or breach of the encryption and other security measures that we use
to protect this data could harm our reputation and expose us to potential
liability. Advances in computer capabilities, new discoveries in the field of
cryptography or other events or developments could compromise or breach the
systems we use to protect our viewers' confidential information. We may be
required to make significant expenditures to protect against security breaches
or to remedy problems caused by any breaches.
Viewers may be concerned about the use of personal information gathered by
the ReplayTV Service and the ReplayTV-enabled personal video recorder. We do
not release this data to third parties, and we are committed to complying with
all privacy laws and to protecting the confidentiality of our viewers. Privacy
concerns, however, could create uncertainty in the marketplace for personal
television and our services. In addition, privacy concerns or breaches, or
consumers' dissatisfaction with any privacy policy we may adopt, could reduce
demand for the ReplayTV Service, increase the cost of doing business as a
result of litigation costs or increased service delivery costs, or otherwise
harm our reputation and business.
Risks Related to this Offering and Our Common Stock
Purchasers of our common stock in this offering will suffer immediate and
substantial dilution and may be harmed by future debt or equity issuances.
The initial public offering price per share will significantly exceed our
net tangible book value per share. You will experience immediate dilution of
$9.52 in the pro forma adjusted net tangible book value per share of common
stock, assuming an initial public offering price of $14.00 per share. You also
will experience additional dilution when outstanding options and warrants are
exercised. If we raise additional capital through the issuance of equity
securities, the percentage ownership of our existing stockholders will
decline, you may experience dilution in net book value per share, and these
equity securities may have rights, preferences or privileges senior to those
of the holders of our common stock. Any debt financing, if available, may
involve covenants limiting or restricting our operations or future
opportunities.
Management has broad discretion as to how to use the proceeds from this
offering and may apply these proceeds to uses that do not increase our
revenues or market value.
We expect to spend a substantial amount, including amounts from the net
proceeds we receive in connection with this offering, to advertise and promote
the ReplayTV Service and the ReplayTV brand, to subsidize the retail price of
ReplayTV-enabled personal video recorders, to develop new services and for
other working capital and
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<PAGE>
general corporate purposes. We have not determined the specific amounts we
intend to spend in any of these areas or the timing of these expenditures.
Consequently, management will have broad discretion with respect to the use of
the net proceeds from this offering. Because of the number and variability of
factors that determine our use of proceeds from this offering, we cannot
assure you that the uses will not vary from our current intentions.
Our certificate of incorporation, bylaws and Delaware law contain
provisions that could discourage a third party from acquiring us and
consequently decrease the market value of your investment.
Some provisions of our certificate of incorporation and bylaws and of
Delaware law could delay or prevent a change of control or changes in our
management that a stockholder might consider favorable. Any delay or
prevention of a change of control or change in management could cause the
market price of our common stock to decline. For more information about
particular anti-takeover provisions, see "Description of Capital Stock."
Our stock price may be volatile after this offering and you may lose some
or all of your investment.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiations
between the representatives of the underwriters and us and may not be
indicative of the market price for the common stock that may develop after
this offering. We do not know the extent to which investor interest will lead
to the development of an active public market. You may not be able to resell
your shares of our common stock at or above the initial public offering price
and you may lose some or all of your investment as a result. We expect our
operating results to fluctuate significantly due to a number of factors, many
of which are described elsewhere in this prospectus. In addition to our
operating results, many factors may cause our stock price to fluctuate,
including:
. economic or market conditions generally or in the technology, television,
media or home entertainment industries;
. our failure to meet estimates of our financial performance by securities
analysts; and
. changes in estimates of our financial performance or changes in
recommendations by securities analysts.
An aggregate of 43,043,823 shares, or approximately 83%, of our outstanding
stock will become eligible for resale in the public market between 180 days
and one year after this offering, and future sales of this stock may cause
our stock price to decline.
The market price of our common stock could drop as a result of sales of a
large number of shares of common stock in the market after this offering or in
response to the perception that sales of a large number of shares could occur.
We cannot predict the effect that future sales of common stock will have on
the market price of our common stock. Of the 51,543,823 shares of our common
stock to be outstanding upon completion of this offering, the 8,500,000 shares
offered hereby (plus any shares issued upon exercise of the underwriters'
over-allotment option) will be freely tradable. All of the shares outstanding
prior to the offering will be "restricted securities" as the term is defined
under Rule 144 promulgated under the Securities Act. Unless sold pursuant to
Rule 144, which provides for minimum holding periods, public availability of
information, and volume and manner restrictions on sales, "restricted
securities" cannot be sold without an effective registration statement on file
with the SEC. Based on shares outstanding as of December 31, 1999, as adjusted
to reflect the issuance of 5,627,267 shares of Series F preferred stock in
January 2000 and 2,090,907 shares of Series G preferred stock in March 2000,
these shares will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
Number of Shares/
Percent Outstanding Date When Shares Become Available for Resale in the
After this Offering Public Market
------------------- ---------------------------------------------------
<C> <S>
35,306,093 / 68% 180 days after the date of this prospectus pursuant to
agreements between the stockholders and the underwriters
or ReplayTV, provided that Morgan Stanley & Co.
Incorporated can waive this restriction at any time.
24,070,571 of these shares will also be subject to sales
volume restrictions under Rule 144 under the Securities
Act
7,737,730 / 15% Upon expiration of applicable one-year holding periods
under Rule 144, which will expire between 180 days after
the date of this prospectus and March 10, 2001, subject
to sales volume restrictions under Rule 144
</TABLE>
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<PAGE>
In addition, we intend to file a registration statement on Form S-8 under the
Securities Act to register an aggregate of 18,218,561 shares of common stock
reserved for issuance under our various stock plans as of December 31, 1999.
We have made forward-looking statements in this prospectus, but actual
results may differ materially.
We have made forward-looking statements in this prospectus, including the
section entitled "Management's Discussion and Analysis of Financial Condition
and Result of Operations," that are based on our management's beliefs and
assumptions and on information currently available to our management. Forward-
looking statements include the information concerning our possible or assumed
future results of operations, business strategies, financing plans,
competitive position, potential growth opportunities, benefits resulting from
this offering and the effects of competition. Forward-looking statements
include all statements that are not historical facts and can be identified by
the use of forward-looking terminology such as the words "believes,"
"expects," "anticipates," "intends," "plans," "estimates" or similar
expressions.
Forward-looking statements involve risks, uncertainties and assumptions.
Actual results may differ materially from those expressed in these forward-
looking statements. You should not put undue reliance on any forward-looking
statements.
You should understand that many important factors, in addition to those
discussed elsewhere in this prospectus, could cause our results to differ
materially from those expressed in forward-looking statements. These factors
include our competitive environment, economic and other conditions in the
markets in which we operate, consumer and retailer preferences, alternative
technological advances, prices and supplies of components and cyclical and
seasonal fluctuations in our operating results.
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<PAGE>
USE OF PROCEEDS
We expect to receive net proceeds of about $109.6 million from this
offering, or $126.2 million if the underwriters exercise their over-allotment
option in full, assuming an initial public offering price of $14.00 per share,
(based on the midpoint of the range set forth on the cover page of this
prospectus) after deducting the estimated underwriting discount and
commissions and estimated offering expenses. We estimate our offering expenses
to be about $1.1 million.
The principal reason for this offering is to raise capital for:
. subsidies related to the distribution of ReplayTV-enabled products;
. advertising to promote the ReplayTV Service and ReplayTV brand;
. development of new products and services; and
. other working capital and general corporate purposes.
The foregoing discussion is based on our current expectations, and we may
allocate the net proceeds among these purposes as we deem necessary or
appropriate. These determinations will be based upon various factors, a number
of which are not yet known, including:
. competitive and technological developments;
. the rate of growth, if any, of our business;
. the number of personal video recorders that we sell, which may result in
increases in subsidies;
. marketing expenses, which may vary depending on our strategic
relationships; and
. the amount of advertising revenue we receive.
In addition, these and other market factors may require us to allocate
portions of the net proceeds for purposes other than those described above.
Pending the uses described above, we will invest the net proceeds in short-
term, interest bearing, investment-grade securities. We cannot predict whether
the proceeds will be invested to yield a favorable return.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. In
addition, under our bank credit facility, we cannot pay dividends without our
bank's consent, with limited exceptions. We currently intend to retain any
future earnings to fund the development and growth of our business and do not
anticipate paying any cash dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect the issuance of 5,627,267 shares of
Series F preferred stock in January 2000 at $11.00 per share resulting in
net cash proceeds of about $61.4 million, the issuance of 2,090,907
shares of Series G preferred stock in March 2000 at $11.00 per share
resulting in net cash proceeds of about $23.0 million and the automatic
conversion of 33,459,759 shares of preferred stock, including the shares
of Series F preferred stock issued in January 2000 and the shares of
Series G preferred stock issued in March 2000, outstanding as of the date
of this prospectus into 33,459,759 shares of common stock. We will record
a non-cash preferred stock dividend of $15.5 million to reflect the
beneficial conversion feature that results from the difference between
the issuance price of the Series F and G preferred stock and $13.00, the
estimated fair value of our common stock based on the low end of the
assumed initial price range of the common stock in this offering; and
. on a pro forma basis as further adjusted to reflect the sale of 8,500,000
shares of common stock in this offering at an assumed initial public
offering price of $14.00 per share (based on the midpoint of the range
set forth on the cover page of this prospectus) after deducting the
estimated underwriting discount and commissions and estimated offering
expenses.
The capitalization information set forth in the table below is qualified
by, and you should read it in conjunction with, more detailed financial
statements and related notes and the information included under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
and per share data)
<S> <C> <C> <C>
Cash, cash equivalents and short-term
investments................................... $ 36,150 $120,550 $230,120
======== ======== ========
Line of credit................................. $ -- $ -- $ --
-------- -------- --------
Stockholders' equity (deficit):
Convertible Preferred Stock, issuable in
series, $0.001 par value; 27,137,306 shares
authorized, 25,741,585 shares issued and
outstanding actual; 35,077,301 shares
authorized, no shares issued and outstanding
pro forma; 5,000,000 shares authorized, no
shares issued and outstanding pro forma as
adjusted.................................... $ 26 $ -- $ --
Common Stock, $0.001 par value; 75,000,000
shares authorized, 9,584,064 shares issued
and outstanding actual; 75,000,000 shares
authorized, 43,043,823 shares issued and
outstanding pro forma; 200,000,000 shares
authorized, 51,543,823 shares issued and
outstanding pro forma as adjusted........... 6 39 48
Additional paid-in capital................... 110,451 194,844 304,405
Notes receivable............................. (3,200) (3,200) (3,200)
Unearned stock-based compensation............ (30,579) (30,579) (30,579)
Deficit accumulated during development
stage....................................... (40,006) (40,006) (40,006)
-------- -------- --------
Total stockholders' equity................. 36,698 121,098 230,668
-------- -------- --------
Total capitalization..................... $ 36,698 $121,098 $230,668
======== ======== ========
</TABLE>
This table excludes the following shares as of December 31, 1999:
. 10,789,637 shares of common stock issuable upon the exercise of stock
options outstanding under our stock option plans at a weighted average
exercise price of $2.53 per share;
. 128,924 shares of common stock available for issuance under our stock
option plans; and
. 6,666 shares of common stock issuable upon the exercise of an outstanding
warrant at an exercise price of $7.50 per share.
17
<PAGE>
DILUTION
The pro forma net tangible book value of ReplayTV, Inc. as of December 31,
1999 was $121.1 million or $2.81 per share of common stock. Pro forma net
tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the number of shares of common stock
outstanding, after giving effect to the conversion of all outstanding shares
of preferred stock (including 5,627,267 shares of Series F preferred stock
issued at $11.00 per share in January 2000 and 2,090,907 shares of Series G
preferred stock issued at $11.00 per share in March 2000) into common stock
immediately prior to the closing of this offering. Assuming the sale by us of
8,500,000 shares of common stock in this offering at an assumed initial public
offering price of $14.00 per share, our pro forma net tangible book value as
of December 31, 1999 would have been $230.7 million, or $4.48 per share of
common stock. This represents an immediate increase in pro forma net tangible
book value of $1.67 per share to our existing stockholders and an immediate
dilution in pro forma net tangible book value of $9.52 per share to new
investors purchasing shares in this offering. The following table illustrates
this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $14.00
Pro forma net tangible book value per share as of December
31, 1999................................................... $2.81
Increase per share attributable to new investors............ 1.67
-----
Pro forma net tangible book value per share after this
offering..................................................... 4.48
------
Dilution per share to new investors........................... $ 9.52
======
</TABLE>
The following table summarizes on a pro forma basis, as of December 31,
1999, the number of shares of common stock, including shares of preferred
stock to be converted into shares of common stock at the closing of this
offering, purchased from us, the total consideration paid to us and the
average price per share paid by existing stockholders and by new investors.
The information presented is based upon an assumed initial public offering
price of $14.00 per share for shares purchased in this offering, before
deducting the estimated underwriting discount 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... 43,043,823 83.5% $157,252,000 56.9% $3.65
New investors........... 8,500,000 16.5 119,000,000 43.1 14.00
---------- ----- ------------ -----
Totals................ 51,543,823 100.0% $276,252,000 100.0%
========== ===== ============ =====
</TABLE>
These tables assume no exercise of any outstanding stock options or
warrants to purchase common stock. As of December 31, 1999, there were:
. 10,789,637 shares of common stock issuable upon the exercise of stock
options outstanding under our stock option plans at a weighted average
exercise price of $2.53 per share;
. 128,924 shares of common stock available for issuance under our stock
option plans; and
. 6,666 shares of common stock issuable upon the exercise of an
outstanding warrant at an exercise price of $7.50 per share.
To the extent these options or warrants are exercised, there will be
further dilution to the new investors.
18
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
our financial statements and related notes included elsewhere in this
prospectus and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The statement of operations data for the period
from August 27, 1997 (inception) to December 31, 1997, for the year ended
December 31, 1998 and 1999 and for the period from August 27, 1997 (inception)
to December 31, 1999 and the balance sheet data as of December 31, 1998 and
1999, are derived from the audited financial statements included elsewhere in
this prospectus. The historical results are not necessarily indicative of
results to be expected for future periods.
<TABLE>
<CAPTION>
Period from Period from
August 27, 1997 Year Ended August 27, 1997
(Inception) to December 31, (Inception) to
December 31, ----------------- December 31,
1997 1998 1999 1999
--------------- ------- -------- ---------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Costs and expenses:
Research and development
(excludes stock-based
compensation of $0, $163,
$1,635 and $1,798)....... $ 136 $ 1,961 $ 7,980 $ 10,077
Programming and content
(excludes stock-based
compensation of $0, $15,
$2,179 and $2,194)....... -- -- 1,029 1,029
Sales and marketing
(excludes stock-based
compensation of $0, $15,
$1,418 and $1,433)....... 10 764 14,586 15,360
General and administrative
(excludes stock-based
compensation of $0, $13,
$3,042 and $3,055)....... 9 325 3,271 3,605
Hardware distribution
costs, net (excludes
stock-based compensation
of $0, $0, $357 and
$357).................... -- -- 2,030 2,030
Stock-based compensation.. -- 206 8,631 8,837
------ ------- -------- --------
Total costs and
expenses............. 155 3,256 37,527 40,938
------ ------- -------- --------
Operating loss.............. (155) (3,256) (37,527) (40,938)
Interest income (expense),
net........................ -- (28) 960 932
------ ------- -------- --------
Net loss.................... $ (155) $(3,284) $(36,567) $(40,006)
====== ======= ======== ========
Basic and diluted net loss
per share.................. $(0.08) $ (0.48) $ (4.83) $ (5.59)
Basic and diluted weighted
average shares used in
computation of net loss per
share...................... 2,026 6,889 7,565 7,157
Pro forma basic and diluted
net loss per share......... $ (1.38)
Pro forma basic and diluted
weighted average shares.... 26,476
</TABLE>
Pro forma net loss per share is computed using the weighted average number
of common shares outstanding, including the conversion of convertible
preferred stock into shares of common stock effective upon the closing of this
offering, as if the conversion had occurred on January 1, 1999 or on the date
of original issuance, if later.
<TABLE>
<CAPTION>
As of December 31,
--------------------
1997 1998 1999
---- ------ -------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments......... $103 $ 711 $36,150
Working capital (deficit)................................. 94 (392) 33,606
Total assets.............................................. 144 1,068 43,449
Total stockholders' equity (deficit)...................... 125 (260) 36,698
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
ReplayTV was incorporated in August 1997, and through the first quarter of
1999, our operating activities consisted primarily of product and service
development. We continue to operate as a development stage company and have
not yet recognized any operating revenues from advertising or other sources.
In April 1999, we launched the ReplayTV Service and the ReplayTV-enabled
personal video recorder via direct sales from our web site and toll free
telephone number. More recently, our products have become available through
online retailers. We have received proceeds from the shipment of ReplayTV-
enabled personal video recorders; however, these proceeds are considered
incidental to our ongoing business and thus have been reported as a reduction
of the related hardware distribution costs in our statement of operations. We
do not intend to manufacture personal video recorders. Instead, we intend to
license our technology to partners to manufacture personal video recorders or
incorporate our technology in their consumer electronics products such as
VCRs, DVD players and recorders, set-top boxes or televisions. We recently
entered into such an agreement with MKE, and we intend to enter into similar
relationships with other consumer electronics companies in the future.
MKE initially will purchase from us a minimum number of ReplayTV-enabled
products manufactured by Flextronics and will market, sell and distribute
those products under the Panasonic brand name featuring the ReplayTV logo. We
will also work with MKE to jointly develop future ReplayTV-enabled products.
MKE will focus on hardware development while we will focus primarily on the
further development of the ReplayTV Service. MKE may also develop ReplayTV-
enabled products independent of us. We will work with MKE to develop and
establish customer service and support standards and processes for ReplayTV-
enabled products. We will also cooperate with MKE to market and promote the
ReplayTV Service and ReplayTV-enabled products. MKE will have primary
responsibility for promoting Panasonic-branded ReplayTV-enabled products while
we maintain primary responsibility for promoting the ReplayTV Service. MKE has
agreed to commit a minimum dollar amount toward the promotion and advertising
of ReplayTV-enabled products to be sold under the Panasonic brand. MKE has
agreed to exclusively deal with us in the area of personal video recorders for
the term of our agreement.
Although we have recognized no operating revenues to date, we anticipate
that the majority of our revenues will be generated from the sale of
advertising on the ReplayTV Service. We expect that advertising on the
ReplayTV Service may include graphic and full-motion video advertisements on
the Replay Guide and other viewer interfaces, transitional advertisements such
as screen swipes when the pause or other features are activated, lead-in or
lead-out advertisements inserted at the beginning or end of recorded programs
and, with the cooperation of content providers, targeted advertisements
inserted over existing broadcast messages. We will not recognize revenues from
advertising already included in broadcast programs recorded using a personal
video recorder.
In order to generate significant advertising revenues, we need to expand
the capabilities of the ReplayTV Service to permit full-motion video
advertisements on multiple viewer interfaces. In addition, current versions of
ReplayTV-enabled products may not have sufficient memory to handle software
upgrades required to provide full-motion video advertisements. We must also
establish additional strategic relationships with leaders in the television
media industry, including advertisers, television programmers and broadcast
companies. For example, we have entered into an agreement with Turner
Broadcasting to produce ReplayZones that highlight current and upcoming
programming from the Turner television networks. Turner and ReplayTV will
jointly sell advertising space on the Turner ReplayZones and will share
advertising revenues. In addition, we have agreed to work with Turner to
develop future collaborative offerings on the ReplayTV Service, including a
CNN premium channel, advertisements promoting Turner television programs and
TV-commerce for Turner products. We have also entered into an agreement with
FOX Broadcasting Company to negotiate in good faith with respect to
opportunities regarding, among other things, lead-in/lead-out advertisements,
zone advertisements and/or pause-time advertisements in connection with FOX
content or programs. To date, we have not entered into any contracts for the
sale of advertising on the ReplayTV Service. We may not be able to establish
sufficient, commercially attractive relationships with our existing or future
media partners to allow us to generate significant advertising revenues.
20
<PAGE>
We will recognize advertising revenue ratably over the period in which the
advertising is displayed, provided that no significant performance obligations
remain. We do not expect these revenues to become significant until we reach a
substantially larger installed viewer base and develop additional ReplayTV
Service functionality. We do not expect to generate significant revenues from
advertising in 2000, and we may not be able to generate significant revenues
thereafter. As a result, we expect to continue to incur significant losses and
negative operating cash flow for the foreseeable future.
We also anticipate recognizing revenues from future services, such as media
sponsorships, premium subscription services, near video-on-demand services and
TV-commerce. Revenues from media sponsorships, which will primarily take the
form of ReplayZones that promote branded content provided and edited by media
sponsors, will be recognized in the period in which the programming is
delivered, provided that no significant performance obligations remain.
Revenues from premium and near video-on-demand services will be recognized
during the period in which the services are provided to the subscriber.
Commissions revenue received for orders processed over the ReplayTV Service
will be recognized as we forward the order information to the vendor. We do
not generate any revenues from the provision of our basic service.
Version 2.0 of our ReplayTV Service software permits us to deliver certain
limited advertising; however, we are continuing to develop additional
functionality to enable us to deliver additional advertising and other
services on the ReplayTV Service in conjunction with various media partners.
Version 2.0 provides advertising and sponsorship capabilities solely on theme-
based or branded content areas called ReplayZones. In order to generate
significant advertising revenues, we need to expand the capabilities of the
ReplayTV Service to permit full-motion video advertisements on multiple viewer
interfaces. We also intend to expand the capabilities of the ReplayTV Service
to permit premium subscription services, near video-on-demand and TV-commerce,
none of which are included in version 2.0 of the ReplayTV Service software.
We expect to share a significant portion of the related advertising and
service revenues with our media partners. We also intend to enter into
agreements with multiple distribution partners to encourage more rapid
adoption of the ReplayTV Service. These agreements will provide for retail and
other distribution of ReplayTV-enabled products as well as subsidization of
hardware costs. Our decision to subsidize the manufacturing cost of ReplayTV-
enabled products is based upon our expectation that lower retail prices will
help us obtain viewers, broaden market acceptance for personal television and
increase our future revenues. If these expectations are not met, we may be
unable to generate sufficient revenues to cover our expenses and other
obligations.
Results of Operations
Year Ended December 31, 1999 and 1998
Research and Development. Research and development expenses consist of
engineering personnel and related expenses, materials, connectivity costs and
outside consulting costs related to developing and enhancing the ReplayTV
Service and ReplayTV-enabled personal video recorder. Total research and
development expenses increased to $8.0 million for the year ended December 31,
1999 from $2.0 million for the year ended December 31, 1998. The increase was
attributable to increased engineering personnel, consultants and materials
necessary to support the development and launch of the ReplayTV platform and
related service in April 1999. We expect that research and development costs
will continue to increase in the foreseeable future as we continue to devote
resources to develop additional functionality within the ReplayTV Service.
Programming and Content. Programming and content expenses consist of
personnel and related expenses and outside consulting costs related to
developing and presenting content on the ReplayTV Service. Programming and
content expenses for the year ended December 31, 1999 were $1.0 million. No
programming and content costs were incurred during the year ended December 31,
1998, as the ReplayTV Service was not launched until April 1999. The increase
was attributable to increased personnel necessary for content development. We
anticipate that programming and content costs will continue to increase as we
develop and provide additional services and content within the ReplayTV
Service.
Sales and Marketing. Sales and marketing expenses consist of advertising,
promotional activities, trade shows, personnel and related expenses and
outside consulting costs. Sales and marketing expenses increased to
21
<PAGE>
$14.6 million for the year ended December 31, 1999 from $764,000 for the year
ended December 31, 1998. The increase was attributable to increased personnel
and promotional costs associated with the promotion of the commercial launch
of the ReplayTV Service and ReplayTV-enabled personal video recorder in April
1999. We anticipate that sales and marketing expenses will continue to
increase as we support the full-scale retail launch of the ReplayTV-enabled
personal video recorder in the year 2000. Starting in the second half of the
year 2000, we expect to incur additional sales and marketing expenses to
support the sale of advertising on the ReplayTV Service.
General and Administrative. General and administrative expenses consist of
personnel and related expenses and professional fees related to the
management, legal, finance, accounting and other administrative functions.
General and administrative expenses increased to $3.3 million for the year
ended December 31, 1999 from $325,000 for the year ended December 31, 1998.
The increase was the result of increased personnel and consultants necessary
to support our growth. We expect that general and administrative expenses will
continue to increase in the foreseeable future.
Hardware Distribution Costs, Net. Hardware distribution costs, net, include
costs to manufacture and distribute the ReplayTV-enabled personal video
recorder net of the proceeds from sales to customers. As we plan to transition
the manufacturing and distribution of our personal video recorders to MKE and
other partners, sales of personal video recorders are considered incidental to
our business and, therefore, have been reflected as a reduction of the related
costs. Hardware distribution costs, net, were $2.0 million for the year ended
December 31, 1999. During the year ended December 31, 1999, we shipped about
6,000 personal video recorders and incurred manufacturing and distribution
costs of $7.2 million. Proceeds from sales of personal video recorders were
$5.2 million during the same period. We have agreed to subsidize Matsushita in
connection with their manufacturing and distribution of ReplayTV-enabled
personal video recorders in future periods. We expect the subsidies to
increase significantly as we increase our installed base.
Stock-Based Compensation. Stock-based compensation includes the
amortization of unearned employee stock-based compensation and expenses for
stock and options granted to consultants in exchange for services. In
connection with the grant of employee stock options, we recorded aggregate
unearned stock-based compensation of $37.7 million through December 31, 1999
and additional unearned stock-based compensation of about $4.8 million for
stock options granted in January and February 2000. Employee stock-based
compensation expense is amortized over the vesting period of the options,
which is generally four years, using the multiple-option approach. We recorded
employee stock-based compensation expense of $7.0 million for the year ended
December 31, 1999. We currently expect to record employee stock-based
compensation expenses of about $4.9 million for the quarter ending March 31,
2000 and $4.5 million for the quarter ending June 30, 2000. We anticipate that
these expenses will decrease in future periods. Unearned stock-based
compensation expense will be reduced in future periods to the extent that
options are terminated prior to full vesting. We recorded expenses of $734,000
for the year ended December 31, 1999 in connection with the vesting of stock
options issued for services. Expenses related to options granted to
consultants may increase in future periods if we grant additional options to
consultants in exchange for services or the fair value of our stock increases
during the vesting period of the options. We also recorded expenses of
$953,000 for the year ended December 31, 1999 in connection with common stock
issued for services.
Interest Income (Expense), Net. Interest income (expense), net, consists of
interest earned on cash equivalents and short-term investments, offset by
interest expense related to bank borrowings and other financing lines.
Interest income (expense), net, was $960,000 for the year ended December 31,
1999 and ($28,000) for the year ended December 31, 1998. The increase in
interest income was due to higher average cash equivalents and short-term
investment balances from additional sales of preferred stock completed in
1999.
Provision for Income Taxes. We have incurred operating losses for all
periods from inception through December 31, 1999, and therefore have not
recorded a provision for income taxes. Our deferred tax asset primarily
consists of net operating loss carryforwards, nondeductible accruals and
allowances and research credits. We have recorded a valuation allowance for
the full amount of our net deferred tax assets, as the future realization of
the tax benefit is not currently likely.
22
<PAGE>
As of December 31, 1999, we had net operating loss carryforwards for both
federal and state tax purposes of about $29.6 million. These federal and state
tax loss carryforwards are available to reduce future taxable income and
expire at various dates into the year 2019. We expect that the amount of net
operating loss carryforwards that could be utilized annually in the future to
offset taxable income will be limited by "change in ownership" provisions of
the Internal Revenue Code. This annual limitation may result in the expiration
of net operating loss carryforwards before their utilization.
Year Ended December 31, 1998 and Period from Inception to December 31, 1997
Research and Development. Research and development expenses increased to
$2.0 million in fiscal 1998 from $136,000 for the period from inception to
December 31, 1997. The increase was the result of growth in ReplayTV's
engineering personnel, consultants and materials from inception throughout
1998.
Sales and Marketing. Sales and marketing expenses increased to $764,000 in
fiscal 1998 from $10,000 for the period from inception to December 31, 1997.
The increase was the result of increased personnel to support the commercial
launch of the ReplayTV Service and ReplayTV-enabled personal video recorder in
April 1999.
General and Administrative. General and administrative expenses increased
to $325,000 in fiscal 1998 from $9,000 for the period from inception to
December 31, 1997. The increase was the result of increased personnel costs to
support our overall growth.
Stock-Based Compensation. In connection with the grant of employee stock
options, we recorded unearned stock-based compensation of $857,000 for the
year ended December 31, 1998, which is being amortized over a four-year
vesting period using the multiple-option approach.
Interest Income (Expense), Net. Interest income (expense), net, was
$(28,000) and $0 for the year ended December 31, 1998 and for the period from
inception to December 31, 1997, respectively. The increase in interest expense
was due to interest paid on a convertible promissory note issued by one of our
founders.
Quarterly Results of Operations
The following table sets forth a summary of our unaudited quarterly
operating results for each of the eight quarters in the period ended December
31, 1999. The amount and timing of our costs and operating expenses generally
will vary from quarter to quarter depending on our level of actual and
anticipated business activities. Our revenues, if any, costs and operating
results are difficult to forecast and will fluctuate, and we believe that
period-to-period comparisons of our operating results will not necessarily be
meaningful. As a result, you should not rely on them as an indication of
future performance.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Costs and expenses:
Research and
development........... $ 160 $ 297 $ 546 $ 958 $ 1,462 $ 1,145 $ 2,204 $ 3,169
Programming and
content............... -- -- -- -- -- 79 431 519
Sales and marketing.... 6 50 237 471 1,484 3,274 4,058 5,770
General and
administrative........ 18 30 111 166 314 532 1,231 1,194
Hardware distribution
costs, net............ -- -- -- -- -- 167 589 1,274
Stock-based
compensation.......... 12 24 64 106 200 1,670 2,370 4,391
----- ----- ----- ------- ------- ------- -------- --------
Total costs and
expenses............. 196 401 958 1,701 3,460 6,867 10,883 16,317
----- ----- ----- ------- ------- ------- -------- --------
Operating loss.......... (196) (401) (958) (1,701) (3,460) (6,867) (10,883) (16,317)
Interest income
(expense), net......... 1 1 (6) (24) (33) 33 342 618
----- ----- ----- ------- ------- ------- -------- --------
Net loss................ $(195) $(400) $(964) $(1,725) $(3,493) $(6,834) $(10,541) $(15,699)
===== ===== ===== ======= ======= ======= ======== ========
</TABLE>
23
<PAGE>
Costs and expenses increased each quarter from the first quarter of 1998
through the first quarter of 1999 as we completed the development and
introduction of the ReplayTV Service and ReplayTV-enabled personal video
recorder. Costs and expenses increased during the second, third and fourth
quarters of 1999 as we continued to enhance the functionality of the ReplayTV
Service and increased personnel and related costs in anticipation of the
commencement of distribution of the ReplayTV-enabled personal video recorder
in major U.S. markets through leading consumer electronics retailers in 2000.
We expect that future costs and expenses will increase substantially for the
foreseeable future due to subsidies of ReplayTV-enabled products to reduce
consumer prices and encourage the distribution of our products and increased
advertising and promotional efforts.
Seasonality
Expenditures by advertisers tend to be seasonal and cyclical, reflecting
overall economic conditions as well as budgeting and buying patterns. A
decline in the economic prospects of advertisers or the economy in general
could alter current or prospective advertisers' spending priorities or
increase the time it takes to close a sale with our advertisers, which could
cause our revenues from advertisements to decline significantly in any given
period.
We may be subject to seasonality in consumer electronics product sales,
which are traditionally much higher during the holiday shopping season
(occurring in the fourth quarter) than during other times of the year.
Although predicting consumer demand for our products will be very difficult,
we believe that sales of ReplayTV-enabled products and attraction of new
viewers to the ReplayTV Service will be disproportionately high during the
holiday shopping season when compared to other times of the year. Because we
expect to subsidize the purchase price of ReplayTV-enabled products, we will
incur greater costs and expenses when more ReplayTV-enabled products are sold.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of our equity securities. At December 31, 1999, we had raised $67.8
million from the sale of our preferred and common stock and had an accumulated
deficit of $40.0 million, and held cash, cash equivalents and short-term
investments totaling $36.1 million.
Our operating activities used cash in the amount of $26.0 million for the
year ended December 31, 1999, $2.5 million for fiscal 1998 and $144,000 for
the period from inception through December 31, 1997. This negative operating
cash flow resulted primarily from our net losses experienced during these
periods. Since inception, we have invested in the development of our ReplayTV
Service and ReplayTV-enabled personal video recorders and related marketing
efforts and hired additional personnel to support our growth.
Net cash used in investing activities totaled $27.3 million for the year
ended December 31, 1999, $149,000 for fiscal 1998 and $33,000 for the period
from inception through December 31, 1997. The net cash used was primarily for
the purchase of property and equipment and the purchase of short-term
investments in the third quarter of 1999. We will continue to invest our cash
in excess of current operating requirements in short-term, interest-bearing,
investment-grade securities, some of which are classified for accounting
purposes as cash equivalents and some as short-term investments.
Our financing activities generated cash of $64.3 million for the year ended
December 31, 1999, $3.3 million for fiscal 1998 and $280,000 for the period
from inception through December 31, 1997. The issuance of preferred stock to
financial investors and strategic corporate partners generated net proceeds of
$67.8 million, or nearly this entire amount.
In June 1999, we entered into a line of credit agreement with a financial
institution. The line provides for the issuance to ReplayTV of up to $1.25
million on a non-formula basis subject to meeting a monthly liquidity
covenant. The line bears interest at the bank's prime rate plus 0.75% and
expires in May 2000. At December 31, 1999, we had no borrowings and a $500,000
standby letter of credit to a vendor secured under this line.
24
<PAGE>
In January 2000, we issued 5,627,267 shares of Series F preferred stock at
$11.00 per share resulting in net cash proceeds of about $61.4 million. Upon
the closing of this offering, all outstanding shares of Series F preferred
stock will be converted on a one-for-one basis into shares of common stock.
For the quarter ending March 31, 2000, we will record a non-cash preferred
stock dividend of $11.3 million to reflect the beneficial conversion ratio as
a result of the difference between the issuance price of the Series F
preferred stock and the low end of the assumed initial price range of the
common stock in this offering.
In March 2000, we issued 2,090,907 shares of Series G preferred stock at
$11.00 per share resulting in net cash proceeds of about $23.0 million. Upon
the closing of this offering, all outstanding shares of Series G preferred
stock will be converted on a one-for-one basis into shares of common stock.
For the quarter ending March 31, 2000, we will record a non-cash preferred
stock dividend of $4.2 million to reflect the beneficial conversion ratio as a
result of the difference between the issuance price of the Series G preferred
stock and the low end of the assumed initial price range of the common stock
in this offering.
As of December 31, 1999, our principal commitments consisted of our line of
credit and a facilities operating lease totaling $15.7 million through its
expiration in March 2006.
We expect to incur significant operating expenses over the next several
years in connection with the continued development and expansion of our
business. As a result, we expect to continue to incur significant losses and
negative cash flow for the foreseeable future. We expect to devote significant
resources to marketing the ReplayTV Service and to subsidizing our partners'
distribution of ReplayTV-enabled products. Although we believe that our
existing cash, cash equivalents, short-term investments and net proceeds from
this offering will be sufficient to satisfy our cash requirements for the next
12 months, there can be no assurance that we will not require additional
financing within this time frame. If market acceptance of our ReplayTV Service
is faster than expected or we increase the amount of subsidy per unit in order
to maintain competitive pricing within the retail market, we will devote
substantially more resources to subsidize our distribution partners than
currently anticipated. In addition, we will need to raise additional capital
beyond the next 12 months in order to fund the continued development and
distribution of the ReplayTV Service. We may not be able to raise additional
funds on terms acceptable to us, or at all. If we are unable to raise
additional funds, we will not be able to execute on our operating plan in the
manner we currently anticipate. If additional funds are raised through the
sale of equity or convertible debt securities, our stockholders may experience
additional dilution, and these securities may have rights, preferences or
privileges senior to those of our stockholders.
Quantitative and Qualitative Disclosure About Market Risk
We intend to commence distribution of the ReplayTV Service in major U.S.
markets this year. We are also contemplating expanding our marketing and
distribution efforts beyond the U.S. As a result, our financial results could
be affected by factors including changes in foreign currency exchange rates or
weak economic conditions in foreign markets. As all sales are currently made
in U.S. dollars, a strengthening of the dollar could make our ReplayTV Service
and related personal video recorder less competitive in foreign markets. Our
interest income is sensitive to changes in the general level of U.S. interest
rates, particularly since the majority of our investments are in short-term
instruments. 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.
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BUSINESS
Overview
ReplayTV is a media company that empowers television viewers to watch what
they want when they want. We have developed the ReplayTV Service as a living
room portal through which viewers can easily access, navigate, control and
store television programming. We believe the ReplayTV Service will transform
the way consumers access television programming, advertising and, ultimately,
commerce services. We believe our portal creates a new, more effective medium
for advertisers, content providers and cable and satellite system operators to
target consumers. Based on ReplayTV-sponsored survey data, viewers using the
ReplayTV Service watch and record more hours of television per week and find
television viewing more appealing than before using the ReplayTV Service. We
believe this is because the ReplayTV Service gives viewers greater choice and
more control over their television viewing.
The ReplayTV Service is currently delivered through a personal video
recorder designed and developed by us. The personal video recorder is a device
connected to a television that employs a hard disk drive, software and other
technology to digitally record and access content. Through ReplayTV's
combination of proprietary software, hardware and media relationships, viewers
personalize their television viewing. The ReplayTV Service allows viewers to
set up personal channels that automatically record their favorite shows.
Programs can then be replayed "on demand," with no tapes to search or rewind.
Viewers can also search for programs based on a theme, a specific hobby or a
favorite actor or director. ReplayTV-enabled personal video recorders operate
with existing broadcast, cable and satellite infrastructures. In the future,
we expect that our personal video recorder technology will be incorporated
into other television-related consumer electronics devices that will provide
access to the ReplayTV Service.
We announced our ReplayTV Service in January 1999 and began shipment of our
personal video recorders in April 1999. We intend to commence distribution in
major U.S. markets through leading consumer electronics retailers this year.
Matsushita-Kotobuki Electronics Industries, Ltd., or MKE, a subsidiary of
Matsushita Electric Industrial Co., Ltd., the largest manufacturer of VCRs
sold in North America, has agreed to market and sell personal video recorders
under the Panasonic brand featuring the ReplayTV logo. The retail launch with
MKE is expected to occur in mid-2000, and MKE is working to develop new
consumer electronics devices that incorporate ReplayTV technology. We believe
that relying on MKE in the future to manufacture, market and sell ReplayTV-
enabled products will allow us to focus our creative resources on promoting
and enhancing the ReplayTV Service. We are also in discussions with a number
of other consumer electronics companies regarding the manufacture, marketing
and sale of ReplayTV-enabled products.
The ReplayTV Service has been designed to enable advertisers, content
providers and cable and satellite system operators to exploit the dramatic
growth potential of personal video recorders. Paul Kagan Associates, Inc.
estimates that there will be about six million devices with personal video
recorder functionality installed in U.S. households by 2002, with that number
increasing to about 16 million by 2005, representing about 15% of projected
U.S. households in 2005. International Data Corporation estimates that there
will be about nine million devices with personal video recorder functionality
installed in U.S. households by 2002, with that number increasing to about 40
million by 2005, representing about 37% of projected U.S. households in 2005.
Prior to our retail launch in major U.S. markets scheduled for the first half
of 2000, we have shipped only about 6,000 ReplayTV-enabled personal video
recorders.
Industry Background
More American households have televisions than have telephone service. The
average adult in the U.S. spends about 4.3 hours per day watching television.
According to Kagan, there are about 100 million television households in the
U.S., implying a market penetration of nearly 98%. According to U.S.
government data, the average American household owns about 2.4 televisions.
The number of television programming options and channels available to the
average viewer has increased significantly in recent years, resulting in an
overwhelmingly diverse selection of programming through which viewers must
sort.
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Television advertising remains the dominant medium for building general
awareness for consumer products and services. Kagan estimates that over $52
billion was spent on broadcast and cable television advertising in the U.S. in
1999. Over the past several decades, revenue from television advertising has
consistently increased despite the introduction of new technologies that
initially appeared to threaten traditional TV advertising, such as the remote
control and the VCR. Revenue from television advertising has increased in
every year but one since 1975.
The growing number of television viewing choices are creating significant
new challenges for viewers, content providers, advertisers and system
operators. These challenges create opportunities for personal television
service providers.
Challenges Faced by Viewers. Despite an increasing number of available
channels and programs, viewers continue to complain that they cannot find
anything that they want to watch. Viewers desire greater ease of use,
convenience and control in television viewing, particularly in light of their
decreasing leisure time. We believe viewers want the ability to:
. view the shows they want to watch at times that are convenient to them,
rather than at the times at which they are scheduled;
. easily find and record every episode of their favorite show;
. easily navigate through available content offerings to locate interesting
programs to watch; and
. access expanded information about available programming content.
Challenges Faced by Content Providers. Competition for the attention of
television viewers has dramatically increased over the past decade. The
expansion of the cable and satellite broadcast infrastructure, the subsequent
proliferation of available channels and the emergence of rival media, such as
the Internet and DVDs, have fragmented the television audience.
This fragmentation and broader competition have placed additional pressure
on content providers to attract more targeted audiences and to more
effectively evaluate viewer habits, preferences and frequency of watching
specific television shows. In order to attract more viewers, content providers
must:
. promote their shows more effectively and efficiently;
. continue to increase television usage in the face of alternative media;
. build their own brand recognition and loyalty; and
. provide viewers with easier access to their programs.
Challenges Faced by Advertisers. Despite declining market share and ratings
with respect to individual networks and programs, the cost of broadcast
advertising has increased. According to data from Nielsen Media Research, the
average cost of prime time advertisements on the major television networks
increased almost 28% between the 1994/95 season and the 1998/99 season. In
addition, cost constraints and the basic nature of traditional broadcast
television have placed limits on the length of messages that advertisers can
deliver. At the same time, advertisers have been forced to spend increasing
amounts to target desired demographic groups and to spread their advertising
budgets over an ever-expanding number of channels and programs. As a result of
these trends, advertisers must:
. target viewers by finding better ways to identify, measure and respond to
viewers' programming and purchasing preferences;
. deliver information to consumers more effectively; and
. spend advertising budgets as efficiently as possible.
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Challenges Faced by Cable and Satellite System Operators. Cable and
satellite system operators continue to make heavy investments to upgrade their
broadband infrastructures in response to competitive pressures, growing
consumer demand for additional and better programming and the advent of new
technologies. System operators face the challenge of increasing revenues in
order to realize returns on these investments. System operators must grow and
maintain subscriber bases because their market valuations are largely based on
numbers of subscribers. As a result of these trends, cable and satellite
system operators must:
. provide new features and functionality in order to retain existing
customers and attract new customers;
. enhance the appeal of existing premium offerings, thereby increasing
premium penetration and reducing subscriber churn rates for premium
services;
. enhance the appeal of existing pay-per-view offerings, thereby increasing
pay-per-view buy rates; and
. launch new and enhanced services such as video-on-demand and TV-commerce
at the lowest possible cost to maximize returns.
The ReplayTV Service
We have developed the ReplayTV Service to become the living room portal
that allows viewers to easily store, navigate and control television viewing,
thereby creating a new medium for advertisers, content providers and cable and
satellite system operators. Through this new medium, content providers and
advertisers can promote and deliver their programming and commercial messages
more effectively to consumers. The ReplayTV Service has won several consumer
awards, including the "Best of Show" award in the video category announced at
the International Consumer Electronics Show in January 1999, the "Innovations
2000" award in both the video software and video hardware categories announced
at the International Consumer Electronics Show in January 2000 and David
Coursey's Showcase 1999 People's Choice Award.
Benefits to Viewers. Just as consumers have achieved enhanced freedom and
control over their lives through automated teller machines, cellular phones,
the Internet and 24-hour grocery stores, we believe television viewers want
greater freedom and control with respect to their television viewing
experiences. The ReplayTV Service provides this freedom and control by
enabling viewers to:
. Watch what they want when they want. With ReplayTV, viewers can watch
shows on their own schedules. Viewers can easily select, view or replay
television shows through a simple-to-use on-screen channel guide.
ReplayTV's interactive channel guide and clock are conveniently and
automatically updated and synchronized on a nightly basis when the
ReplayTV-enabled personal video recorder dials into a secure remote
server.
. Never miss their favorite shows. ReplayTV is unlike any VCR. Most viewers
use their VCRs only for viewing pre-recorded tapes rather than recording
their favorite shows, due to the complexity involved in programming the
VCR. ReplayTV uses a hard disk drive rather than videotape to record,
store and replay currently up to twenty hours of television programming
and content using MPEG2, a digital compression technology. Recordings are
activated at the touch of a button using ReplayTV's universal remote.
Programs can be easily configured into personal, or on-demand channels,
so that viewers will never miss their favorite shows.
. Locate, capture and record the best in television. ReplayTV enables
viewers to locate programs of interest, especially when they do not have
a particular show in mind to watch. With the ReplayTV Service, viewers
will be able to find and record programs that match their viewing
preferences so that when they are ready to watch TV, they will be able to
choose from a number of shows that interest them. The ReplayTV Service
features unique and exciting program information, promotions and content
on theme-based or branded content areas called ReplayZones. ReplayZones
allow viewers to easily navigate through the wide variety of content that
viewers might otherwise be unaware of.
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. Control live TV. The ReplayTV Service offers real-time viewing features
not possible with VCRs, such as pause, multi-speed slow motion, rewind,
seven-second instant replay and still-frame advance because the ReplayTV
Service continuously records the program being watched. In addition,
viewers can use the fast forward feature to catch up to the live
broadcast in progress.
. Enjoy personal television services with no monthly fees. With the
purchase of a ReplayTV-enabled personal video recorder, the basic
ReplayTV Service is provided to viewers with no monthly fees and includes
free software upgrades and promotional content.
Benefits to Content Providers. The ReplayTV Service can enable television
programmers and broadcasters to proactively compile their content in ways that
will effectively promote their shows as part of their efforts to achieve
greater audience growth, loyalty, recognition and measurement. Key benefits
offered to content providers include:
. Generating a larger audience. The ReplayTV Service allows content
providers to reach an audience that may have been unable to watch their
shows due to conflicts between broadcast times and their own personal
schedules. ReplayTV-sponsored surveys indicate that viewers using the
ReplayTV Service watch an average of about 2.5 more hours and record an
average of about seven more hours of television each week than before
they began using the ReplayTV Service. In addition, because these viewers
are able to watch programming on their own schedule with VCR-like
functionality, we believe they are more likely to actually watch the
whole show. The ReplayTV Service will allow content providers to create
ReplayZones that will deliver program information, promotions and content
on channels that are branded and edited by the content providers
themselves. In the future, we also plan to offer content providers the
opportunity to promote shows that are similar even if the shows are not
broadcast sequentially. Other future programming opportunities include
sponsoring premium personal channels and providing additional footage,
such as "director's cuts," of programs for ReplayTV viewers.
. Enhanced viewer loyalty and retention. We believe that the ability to
easily record programs using the ReplayTV Service will increase the
likelihood that viewers will continue viewing new episodes of a
particular series or show. For example, the show-based recording feature
allows viewers to automatically record every episode of their favorite
show. Viewers also can easily replay the shows they have recorded at
their convenience long after they have aired, thereby enhancing viewer
retention and loyalty.
. New platform for innovative content delivery. The ReplayTV Service is
being developed to facilitate an entirely new paradigm for delivering
programming, products and services to viewers. We anticipate that viewers
will be able to simply "point and click" when ordering merchandise,
movies, sports events, programming packages, games and other products and
services, thereby offering content providers a new way to attract viewers
and expand audiences.
Benefits to Advertisers. We believe that our ReplayTV Service will offer
advertisers a new platform that provides a more effective way to deliver
information to consumers, a more efficient way to spend advertising budgets
and a better way to target audiences and identify, monitor and respond to
consumers' programming and purchasing preferences. Key benefits offered to
advertisers include:
. More effective targeting of consumers. The ReplayTV Service creates a
platform for specialized advertising. The ReplayTV platform is expected
to provide more accurate audience measurement and viewer data, while
maintaining viewer privacy on an individual basis. The ReplayTV Service
will enable advertisers to more effectively target consumers who have
actively selected specific programs to watch and therefore are more
likely to watch an entire show. Advertisers will also be able to target
advertising to viewers who have created theme-based ReplayTV channels
based on a specific topic, such as "tennis."
. Platform for new advertising opportunities. Our business plan is to
provide a wide range of future innovative advertising services. For
example, advertisers may be able to purchase new advertising on recorded
shows with the use of lead-in and lead-out advertisements. Viewers may
also be able to click on banners or short, full motion video commercials
to obtain longer, infomercial-style content. Ultimately, viewers may be
able to purchase a featured product or service using the remote control,
creating an interactive on-air shopping experience for the viewer.
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Benefits to Cable and Satellite System Operators. The ReplayTV Service
enables cable and satellite system operators to enhance the attractiveness of
their existing and anticipated services to consumers. We believe this will
enable cable and satellite system operators to increase acceptance of new
service offerings and improve growth prospects of existing lines of business.
Furthermore, we believe that greater customer satisfaction will lead to
reduced subscriber churn rates and increase the operators' ability to market
to new customers. Key benefits offered to cable and satellite system operators
include:
. Opportunities to reduce churn and grow subscriber base. The ReplayTV
Service is designed to reduce viewer frustration, make programming
accessible to viewers on their schedule, assist viewers in navigating the
expanding programming universe and allow viewers to customize their
viewing experience based on their personal preferences. We expect that
these benefits will increase customer satisfaction with cable and
satellite subscriptions and, therefore, reduce subscriber churn. In
addition, these benefits provide system operators with new marketing
tools to convert households that have never subscribed to or have
cancelled cable or satellite services into paying subscribers.
. Enhanced appeal of premium offerings. We believe that there is a
significant portion of cable and satellite customers who do not subscribe
to premium channels such as HBO and Showtime because they lack the
ability to easily watch what they want when they want. By enabling
subscribers to view their favorite premium shows on their own schedules,
we believe that service operators can increase premium penetration and
retention rates.
. Enhanced appeal of pay-per-view offerings. Convenience increases pay-per-
view usage. For example, the buy rates, or movie purchases per month, for
households with access to more advanced cable or satellite technologies
known as near video-on-demand are more than three times those for
conventional pay-per-view systems. With future versions of the ReplayTV
Service, subscribers will be able to watch selected movies or events when
they want, with the ability to control how they view the movie or event
with features that exceed VCR functionality.
. Platform for new services and better capacity utilization. We expect that
the ReplayTV Service will provide new sources of revenue for system
operators, such as near video-on-demand or TV-commerce services. For
example, system operators could pre-deliver onto ReplayTV-enabled
products a variety of pay-per-view movies or events from which
subscribers could choose to purchase and view at their convenience. The
hard disk capacity of the ReplayTV Service can be used to store data
transmitted into viewers' homes during off- or non-peak hours, thereby
supporting data-intensive services such as near video-on-demand with
bandwidth for which there are few current applications.
ReplayTV Strategy
Although we have a limited operating history, our goal is to establish our
proprietary ReplayTV Service as the leading living room portal to enrich
personal television viewing, advertising and TV-commerce. Our strategy to
achieve this goal includes the following key elements that leverage the
benefits of the ReplayTV Service:
Enhance the Living Room Experience. The ReplayTV Service is designed to
enhance the traditional living room experience. ReplayTV incorporates the best
personal computer technologies, such as hard drive storage, a search engine
and a microprocessor, while still maintaining the ease and comfort of living
room TV entertainment. Because we do not identify the ReplayTV Service as
either a personal computer or an Internet-based service, we believe the
ReplayTV Service will appeal to a broader range of viewers.
Drive Market Penetration. We are focused on making ReplayTV the standard
for personal television, which depends upon accelerating our market
penetration.
. Partnership-based distribution model. Our strategy is to increase our
market penetration by incentivizing consumer electronics manufacturers
and cable and satellite system operators to deliver ReplayTV-enabled
products to their customers. We plan to license our technology to major
consumer electronics manufacturers to manufacture, distribute and market
ReplayTV-enabled units to customers.
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We have a manufacturing, marketing and distribution agreement with MKE, a
subsidiary of Matsushita Electric Industrial Co., Ltd., the largest
manufacturer of VCRs sold in North America, and we intend to enter into
similar relationships with other consumer electronics companies in the
future. We anticipate that future versions of our service will be
integrated into other consumer electronics products, such as cable and
satellite set-top boxes, DVD players, television sets and Internet access
devices. By offering consumers a broad array of ReplayTV-enabled products,
we can expand the infrastructure upon which our services may be offered
and increase our installed base.
. Lower consumer price point. We plan to subsidize the retail price of our
personal video recorders in order to lower the cost to the consumer. We
anticipate that the prices of our personal video recorders and size of
the subsidy will generally decrease over the long term as economies of
scale and decreasing component costs reduce manufacturing costs. We
expect that component costs will decline largely because our personal
video recorders utilize components that are under continual pricing
pressure as a result of the proliferation of consumer electronics
products, such as DVD players, and personal computer peripherals, that
incorporate many of these components.
. Multi-channel marketing to customers. We intend to dedicate substantial
resources to promoting the ReplayTV brand through multiple advertising
and marketing channels, including direct mail, infomercials, non-
infomercial television, radio, online and print advertising, and free-
standing inserts.
. Free ReplayTV Service and customer support. We have designed the ReplayTV
Service with customer needs in mind. The basic ReplayTV Service is
available free of charge to purchasers of ReplayTV-enabled products,
while the services offered by our competitors are subscription-based. We
also provide free promotional content and free upgrades, which we
download remotely without effort by the viewer. In addition, we provide
free customer support by e-mail and telephone.
Work With Our Existing Media Partners. We are building strong industry
relationships by offering benefits to established industry participants. The
ReplayTV Service is designed to benefit broadcasters, cable and satellite
system operators, content companies and other existing industry participants
by offering new revenue opportunities while preserving traditional revenue
streams. Based on this model, we are building strong relationships with some
of the largest media companies in the world. For example, we have entered into
an agreement with Turner Broadcasting to produce ReplayZones that highlight
current and upcoming programming from the Turner television networks. We have
also entered into similar agreements with FOX, NBC and Showtime. The ReplayTV
Service currently features NBC, Showtime and Turner ReplayZones. See "--Media
Relationships." Our ability to build strong industry relationships is greatly
enhanced by our senior management team, which has substantial high-level
experience in television programming, content development, advertising and
promotion, and media-related finance.
Create New and Innovative Advertising Opportunities. We believe our
ReplayTV portal will provide advertising opportunities that do not exist in
television today. For example, we plan to offer graphic and full-motion
advertising on the Replay Guide and other viewer interfaces, transitional
advertisements when the pause or other features are activated, lead-in or
lead-out advertisements inserted at the beginning or end of recorded programs
and, with the cooperation of content providers, targeted advertisements
inserted over existing broadcast messages.
Develop Enhanced Services. We plan to expand the revenue-generating
opportunities of the ReplayTV Service by working with and, in appropriate
cases, securing licenses from, strategic partners to include future generation
services such as premium subscription services, near video-on-demand, and TV-
commerce.
. Premium subscription services. We intend to offer subscriptions to a
premium service that would allow customers to create personalized
channels such as individualized news, sports, business and weather
channels containing segments of content that are automatically combined
according to viewer preferences. For example, we are working with CNN to
index its program segments by key word and deliver targeted segments to a
viewer's personal news channel based upon his or her customized
preferences. We believe that sponsorship of premium subscription services
by content providers will provide a new revenue stream.
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. Near video-on-demand. We intend to offer near video-on-demand services
that would enable viewers to watch select pay-per-view movies at the
times convenient to them. A selection of pay-per-view movies would be
downloaded to the ReplayTV Service overnight, and viewers could then
choose a movie for viewing at their desired time for a one-time fee. With
future increases in both hard disk storage and transmission capacity, we
expect to be able to pre-deliver a substantial library of movies to the
ReplayTV Service, which viewers could conveniently access on a pay-per-
view basis.
. TV-commerce. As a living room portal, the ReplayTV interface provides
several TV-commerce opportunities. Similar to the Internet, we intend to
provide the viewer with access to one-click shopping for merchandise
offered by partners through the ReplayTV Service.
We do not expect these services to be available prior to the end of 2001.
The ReplayTV Platform
The ReplayTV-enabled Personal Video Recorder. The ReplayTV Service is
delivered through a personal video recorder designed and developed by
ReplayTV. The ReplayTV-enabled personal video recorder connects with a
viewer's television set and cable or satellite set-top box and employs a hard
disk drive and software technology to digitally record and replay analog or
digital broadcast television signals. As a viewer watches television, the
ReplayTV-enabled personal video recorder automatically records the current
program onto its hard disk, enabling the viewer to control live television
with features such as pause, rewind and multi-speed slow motion. Using the
ReplayTV remote control, the viewer can manipulate a live broadcast, select
shows to record or replay recorded shows stored on the hard disk. The hard
disk in the current model of the ReplayTV-enabled personal video recorder can
accommodate up to 20 hours of recording under standard resolution, and we
expect to introduce an additional model that will accommodate 30 hours of
standard recording capacity in mid-2000.
The ReplayTV Network. The ReplayTV network forms the backbone of the
ReplayTV Service. ReplayTV-enabled personal video recorders automatically dial
into the ReplayTV network each night through a standard telephone line to
receive downloads of updated information. Through this connection, individual
ReplayTV-enabled personal video recorders are able to receive regular updates
of Channel Guide data, advertisements and ReplayZone content. In addition,
connecting to the ReplayTV network allows ReplayTV-enabled personal video
recorders to receive free software upgrades and to automatically download new
features of the ReplayTV Service.
Communications services for the ReplayTV network are currently provided by
UUNET Technologies, Inc. The software for the ReplayTV network is currently
maintained in servers owned by ReplayTV and operated by Exodus Communications,
Inc. in a data center located in Santa Clara, California. ReplayTV has also
arranged for backup data center services at a second outside facility. We are
in the process of qualifying additional network communications providers in
order to incorporate redundancy in our network. We plan to enter into an
arrangement with an additional network provider in the near future, and then
to set up a duplicate data center in the eastern United States.
The ReplayTV Experience
The ReplayTV Service is designed for television viewers who want to watch
their favorite shows when they want to watch them, with no monthly fees. The
ReplayTV Service is customized for the traditional living room viewing
experience. With an easy-to-use interface, the ReplayTV Service allows viewers
to personalize their television viewing by:
. automatically recording television shows on a hard disk;
. controlling live television using features such as pause, rewind, multi-
speed slow motion, seven-second instant replay and still-frame advance;
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. easily finding the shows that interest them; and
. accessing specialized content on theme-based or branded content areas
called ReplayZones.
Using the ReplayTV Service. The viewer navigates the ReplayTV Service using
the ReplayTV remote control. ReplayTV offers three basic interfaces--the
Channel Guide, the Replay Guide and ReplayZones--rather than just one access
point. The Channel Guide combines regularly updated television programming
with proprietary software to provide an interactive lineup of all channels
available to the viewer. The Replay Guide is an on-screen guide of personal
channels that viewers create based on shows they select to record or themes
they define to locate and record shows. ReplayZones are portals to access
theme-based programming focused around a category or a network. The viewer can
directly access the central screens through their corresponding remote control
buttons or by selecting them from the Main Menu, both of which are shown
below:
[SCREEN SHOT OF MAIN MENU]
[SCREEN SHOT OF REPLAY TV PERSONAL VIDEO RECORDER AND REMOTE CONTROL]
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Channel Guide. The ReplayTV Service includes an on-screen Channel Guide
that combines regularly updated television programming with proprietary
software to provide an interactive lineup of all channels available to the
viewer. The Channel Guide is shown here:
[SCREEN SHOT OF CHANNEL GUIDE SHOWING ALLY MCBEAL]
The Channel Guide is updated nightly via an automatic download from the
ReplayTV Service and is based directly on the analog broadcast, cable or
satellite services that the viewer subscribes to, as specified by the viewer
during the on-screen setup process. If the viewer receives television from
more than one source, the Channel Guide presents all of the available
programming in one convenient guide. From the Channel Guide screen, the viewer
can either select a show to watch or select a show for recording at a later
time.
Finding shows to record. The ReplayTV Service allows the viewer to quickly
find a show for recording through its Find Shows feature. The viewer can
search by entering the show title, a part of the title, an actor or director
or even a topic. A sample search using the Find Shows feature is shown below:
[SCREEN SHOT OF FIND SHOWS SEARCH FOR "TENNIS"]
Once the ReplayTV Service completes a search, the viewer can choose to
record an episode of a particular show located by the Find Shows feature or
create a show-based ReplayTV channel that will automatically record every
episode of a selected show. A single-record ReplayTV channel is a channel that
the viewer has set up to record just one broadcast of a show. Only the chosen
show is recorded. A show-based ReplayTV channel set up by the viewer will
record every episode of a recurring show, whether it is broadcast daily or
weekly. When searching by topic, the viewer can also create a theme-based
ReplayTV channel that will automatically search for and record every show
related to that topic on an ongoing basis. For example, the viewer can create
a theme-based channel to record all shows related to the keyword "tennis." In
addition to capturing televised tennis matches, the tennis-themed ReplayTV
channel would also record a biography about a famous tennis player or a show
about the history of tennis at Wimbledon.
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Recording shows. The ReplayTV Service allows the viewer to record a show
with the touch of a button without programming exact start times or channel
settings. Once the viewer has identified a particular show, the viewer simply
presses the Record button on the remote control to record the show for future
viewing. By pressing the Record button twice, the viewer creates a show-based
ReplayTV channel, which automatically records every episode of the show. The
viewer can also select shows to record by pressing the Select button on the
remote control and completing the Record Options screen, as shown below:
[SCREEN SHOT OF CHANNEL GUIDE SHOWING ALLY MCBEAL]
[SCREEN SHOT OF RECORD OPTIONS SCREEN]
Once a show has been selected for recording, the Channel Guide displays a
single solid red dot to confirm a guaranteed recording of a single show and two
solid red dots to confirm a guaranteed recording of a show-based ReplayTV
channel. Non-guaranteed recordings are represented by hollow red dots. The
ReplayTV Service will always record guaranteed shows, and will record non-
guaranteed shows if space is available on the hard disk at the time the show is
scheduled to air. The viewer manages hard disk space by setting up guaranteed
and non-guaranteed shows and by deleting recorded shows after they have been
watched.
ReplayZones. ReplayZones are portals to access theme-based programming
around a category or a network. ReplayZones, which are created by our media
partners or by ReplayTV, contain program information, promotions and content
for viewers. Viewers can browse through topical ReplayZones and choose programs
to record. For example, we have introduced a Movie Zone, where the viewer
chooses movie channels that are organized by genre, such as action adventure,
romantic comedy or drama. Once the viewer selects a particular channel from the
ReplayZone, it is added to the Replay Guide for future recording. By choosing a
genre represented within a ReplayZone instead of a specific program, a viewer
can record many programs automatically. ReplayZones are a dynamic part of the
ReplayTV Service, and we plan to continuously adapt them in order to encourage
repeated visits and use. In addition, through strategic relationships with
ReplayTV, television programmers and other content providers can create their
own branded ReplayZones with customized content and promotions for viewers.
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An example of a ReplayZone is shown here:
[SCREEN SHOT OF REPLAY ZONE]
Replay Guide. Recorded shows are listed in the Replay Guide, shown below.
To watch a recorded show, the viewer selects a show from the Replay Guide and
chooses "Play" from the on-screen menu. All control features offered by the
ReplayTV Service, such as pause, rewind, multi-speed slow motion, fast
forward, seven-second instant replay and still-frame advance, are available
while viewing a recorded ReplayTV show. Viewers can also cancel a recording
before it airs and change the recording options they had previously set for
any ReplayTV show.
[SCREEN SHOT OF REPLAY GUIDE]
Customer support. Viewers can access our free high-quality customer support
by e-mail and telephone.
ReplayTV Advertising Services
Advertisers have embraced every new avenue and medium to reach their
audience, but continue to favor television over other forms of media due to
its unique "living room" access and its broad reach. We believe that our
ReplayTV Service will offer advertisers a new platform that provides a more
effective way to deliver information to consumers, a more efficient way to
spend advertising budgets and a better way to target audiences and identify,
monitor and respond to consumers' programming and purchasing preferences. The
ReplayTV Service is expected to provide more accurate audience measurement and
viewer data, while maintaining viewer privacy on an individual basis. This
should allow advertisers to better target advertisements at viewers who have
actively selected and chosen specific programs to watch.
Version 2.0 of the ReplayTV Service software offers advertisers the ability
to advertise in theme-based or branded content areas called ReplayZones. For
example, a "health" zone focused on healthcare and fitness-related programming
would provide a target audience for pharmaceutical companies and other
advertisers
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<PAGE>
seeking a health-focused demographic. Our business plan is to provide a wide
range of future advertising services through the ReplayTV Service, such as:
. graphic and full-motion video advertising on the Replay Guide and other
viewer interfaces;
. transitional advertising such as screen swipes when the pause button or
other features are activated;
. lead-in and lead-out advertising inserted at the beginning or end of
recorded programming; and
. targeted advertisements inserted over existing broadcast messages with
the cooperation of content providers.
Future Offerings
The ReplayTV Service is being developed to facilitate an entirely new
paradigm for delivering programming, products and services to viewers based on
TV-commerce. We anticipate that viewers will ultimately be able to use the
ReplayTV Service to simply "point and click" when ordering movies, sports
events, programming packages, games and other products and services. In
particular, we plan to expand the revenue-generating opportunities of the
ReplayTV Service by working with, and, in appropriate cases, securing licenses
from, strategic partners to include future generation services such as premium
subscription services, near video-on-demand, and TV-commerce. We do not expect
these services to be available prior to the end of 2001.
. Premium Subscription Services. We intend to offer subscriptions to a
premium service that would allow customers to create personalized
channels, such as individualized news, sports, business and weather
channels containing segments of content that are automatically combined
according to viewer preferences. For example, we are working with CNN to
index its program segments by key word and deliver targeted segments to a
viewer's personal news channel based on his or her customized
preferences.
. Near Video-on-Demand. We intend to offer near-video-on-demand services
that would enable viewers to watch select pay-per-view movies at the
times convenient to them. A selection of pay-per-view movies would be
downloaded to the ReplayTV Service overnight, and viewers could then
choose a movie for viewing at their desired time for a one-time fee.
. TV-Commerce. We intend to provide the viewer with access to one-click
shopping for merchandise offered by partners, including sponsors of
ReplayZones, through the ReplayTV Service.
Media Relationships
We plan to work with our existing media partners and are pursuing
additional strategic relationships with television programmers, advertising
agencies and other potential media partners to expand our advertising and
sponsorship opportunities, offer unique programming content, differentiate the
ReplayTV Service and enhance the ReplayTV brand.
For example, we have entered into an agreement with Turner Broadcasting to
produce ReplayZones that highlight current and upcoming programming from the
Turner television networks. Turner and ReplayTV will jointly sell advertising
space on the Turner ReplayZones and will share advertising revenues. In
addition, we have agreed to work with Turner to develop future collaborative
offerings on the ReplayTV Service, including a CNN premium channel,
advertisements promoting Turner television programs and TV-commerce for Turner
products. We have also entered into agreements to produce ReplayZones with FOX
Broadcasting, NBC and Showtime that highlight programming from their networks,
and we expect to enter into additional programming and sponsorship
relationships with other media companies in the future. We have agreed to
negotiate in good faith with FOX with respect to opportunities regarding,
among other things, lead-in/lead-out advertisements, zone advertisements
and/or pause-time advertisements in connection with FOX content or programs.
Our agreement with FOX also contemplates the provision of supplemental
programming associated with FOX ReplayZones, including video out-takes,
bloopers, behind-the-scenes footage and special interviews that enhance the
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programming of the FOX networks. We have also agreed to negotiate in good
faith with FOX to develop personalized, premium FOX channels through the
ReplayTV Service. Our agreement with Showtime provides that Showtime will make
reasonable efforts to provide us with the opportunity to sponsor select
Showtime events. We have also agreed to work with Showtime on future
promotional offerings, including thematic virtual channels relating to
Showtime's television program services. The ReplayTV Service currently
features a number of NBC, Showtime, and Turner ReplayZones. To date, we have
received no revenues from our agreements with FOX, NBC, Showtime or Turner.
Our investors include leading media companies such as Disney, FOX, Liberty
Media, NBC, Showtime, Time Warner and Tribune.
Distribution and Manufacturing Relationships
We are pursuing strategic relationships with consumer electronics
manufacturers, cable and satellite system operators and manufacturers of cable
and satellite set-top boxes to manufacture, distribute and market ReplayTV-
enabled products. When established, we intend to use these manufacturing and
distribution relationships to accelerate our market penetration and grow our
installed base of viewers. For example, we have entered into a non-binding
letter of intent with EchoStar Communications to incorporate the ReplayTV
Service into its DISH network satellite set-top boxes and a non-binding letter
of intent with Sharp Electronics for the manufacture and distribution of
ReplayTV-enabled personal video recorders. Our investors include leading
manufacturing companies and cable and satellite system operators such as
EchoStar, MKE, Sharp and Time Warner. We cannot assure you that we will enter
into binding agreements with EchoStar, Sharp or any other distribution and
manufacturing partners.
All ReplayTV-enabled personal video recorders are currently manufactured by
Flextronics International, a third party contract manufacturer. In addition,
we have entered into an agreement with MKE, a subsidiary of Matsushita
Electric Industrial Co., Ltd., the largest manufacturer of VCRs sold in North
America, to manufacture, distribute and market ReplayTV-enabled personal video
recorders under the Panasonic brand featuring the ReplayTV logo. We anticipate
that MKE will begin distributing ReplayTV-enabled personal video recorders
manufactured by Flextronics in mid-2000. Under our agreement with MKE, MKE has
been granted subsidies and favored customer terms, as well as licenses to
manufacture and distribute ReplayTV-enabled personal video recorders
incorporating our driver and client device software. We also intend to enter
into agreements with other equipment manufacturers to integrate the ReplayTV
Service into additional consumer electronics products, such as DVD players,
television sets and Internet access devices. We believe that entering into
strategic relationships with MKE and other consumer electronics companies to
manufacture and sell ReplayTV-enabled products will enable us to focus our
creative resources on promoting and enhancing the ReplayTV Service. In
addition, we intend to leverage these partners' established retail
distribution channels to drive the rapid market penetration of the ReplayTV
Service.
We also plan to establish distribution relationships with cable and
satellite system operators and manufacturers of cable and satellite set-top
boxes. We believe that strategic relationships with cable and satellite system
operators will enable us to expand our installed base of viewers. Furthermore,
we intend to enter into relationships with cable and satellite equipment
manufacturers to integrate the ReplayTV Service with cable and satellite set-
top boxes and expand the distribution of the ReplayTV Service.
To drive market penetration, we anticipate that all of our agreements with
third-party manufacturers will require us to subsidize the manufacturing cost
of ReplayTV-enabled products for the foreseeable future in order to lower the
retail price to the consumer. We anticipate that the size of the subsidy and
the price of ReplayTV-enabled products will generally decrease over the long
term as the cost of manufacturing ReplayTV-enabled products declines due to
increases in volume and also as the costs of the components incorporated into
ReplayTV-enabled products decrease. We expect that component costs will
decline largely because our ReplayTV-enabled products utilize components that
are under continual pricing pressure as a result of the proliferation of
consumer electronics products, such as DVD players and personal computer
peripherals, that incorporate many of these components.
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Sales and Marketing
ReplayTV's sales and marketing strategy is designed to establish the
ReplayTV brand, increase customer awareness of personal television and the
ReplayTV Service and build our installed base of viewers. Beginning in mid-
2000, we plan to initiate an aggressive marketing campaign to promote the
ReplayTV Service as the brand leader in the personal television market. This
multi-channel campaign will include infomercials, conventional television and
radio advertising, print, outdoor and online advertising, and free-standing
inserts, on both national and regional levels.
We anticipate that retail distribution will become the primary channel for
sales of ReplayTV-enabled products in 2000. Since we began shipping ReplayTV-
enabled personal video recorders in April 1999, we have sold personal video
recorders to consumers principally through our web site, www.replaytv.com, and
our toll-free number, 1-877-ReplayTV, as well as through online retailers such
as Amazon.com, Roxy.com and 800.com. MKE plans to launch distribution of
ReplayTV-enabled personal video recorders in major U.S. markets under the
Panasonic brand featuring the ReplayTV logo in mid-2000 through major national
and regional retail chains. We intend to use the established retail
distribution channels of MKE and other parties with whom we may establish
distribution relationships in the future to drive our installed base of
ReplayTV viewers. In addition, we intend to subsidize the cost of distributing
ReplayTV-enabled products in order to maintain an attractive retail price and
accelerate our market penetration.
MKE and other parties with whom we may establish distribution relationships
in the future will take primary responsibility for selling ReplayTV-enabled
products to retailers and supporting the retail channel through marketing, in-
store promotions and sales force training. However, we will guide the creative
content of these marketing efforts in conjunction with our broader marketing
campaign. In addition, we will support the sales and marketing efforts of MKE
and other parties with whom we may establish distribution relationships in the
future by educating retailers about personal video recorders and the ReplayTV
Service and by training their sales teams.
The current version of our ReplayTV Service permits us to provide certain
limited advertising; however, we are continuing to develop additional
functionality to enable us to deliver additional advertising and other
services on the ReplayTV Service in conjunction with various media partners.
We expect to share a significant portion of the related advertising and
service revenues with these media partners. We are building a direct sales
force to market our advertising inventory.
Research and Development
Our engineering efforts are focused on three main areas: hardware platform
engineering, client service software development and network infrastructure
development.
Hardware Platform Engineering. We have developed hardware reference
implementations (including both electrical and mechanical designs) and the
necessary platform-specific software to enable our partners to design,
manufacture and distribute a large number of products enabled by the ReplayTV
Service, including stand-alone devices, DVD players and cable and satellite
set-top boxes. Our implementations are used by our partners as the basis for
their own product designs, with each partner deciding how much of our
reference implementation it will use. We also develop and provide
documentation of our reference platform designs, as well as samples of various
elements of the platform-specific software. As with our agreement with MKE, we
anticipate that we will grant third-party manufacturers licenses to use our
client device and driver software to distribute and manufacture ReplayTV-
enabled devices and to develop improvements to the platform-specific software.
We work closely with our partners and with component suppliers and data
storage suppliers to lower the cost of the ReplayTV platform and to take
advantage of newly developed technologies. We intend to work with a broad
range of partners to develop our technology platform and to establish ReplayTV
as the leading platform in the personal television market.
Client Service Software Development. Because we plan ultimately to deliver
the ReplayTV Service on a variety of hardware platforms, we devote significant
engineering effort to building a flexible and robust client
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software implementation of our network services. This client software is
designed to operate on many different platforms in a manner that provides a
consistent and clearly branded ReplayTV Service offering. Viewers receive
automatic updates of the ReplayTV Service via the nightly download from the
ReplayTV Service network.
Network Infrastructure Development. The creation of content and advertising
by our partners and the aggregation, management and delivery of that content
to the ReplayTV Service requires a complex network infrastructure. We develop
tools that allow our media partners and advertisers to create content for the
ReplayTV Service quickly and easily, using non-technical personnel and
existing equipment. We also develop software to run on the ReplayTV Service
servers to verify the quality of that content and to deliver it to the correct
viewers.
Our research and development expenses totaled $136,000 for the period from
inception to December 31, 1997, $1,961,000 for the year ended December 31,
1998 and $7,980,000 for the year ended December 31, 1999. As of December 31,
1999, we had 49 employees engaged in research and development activities.
Competition
The market for home entertainment goods and services is intensely
competitive, rapidly evolving and subject to rapid technological change. We
believe that the principal competitive factors in this market are brand
recognition, performance, pricing, ease of use, features, installed base and
quality of service and support. Because the personal television market is new
and rapidly evolving, we expect to face significant barriers in our efforts to
secure broad market acceptance and will confront intense competition at
several different levels.
Personal television competes in a consumer electronics market that is
crowded with several established products and services, especially products
delivering television programming and other home video entertainment. Personal
video recorders and the ReplayTV Service compete with products and
technologies that have established markets and proven consumer support,
including VCRs, DVD players, cable and satellite television systems and
personal computers. In addition, many of the manufacturers and distributors of
these products have more strategic partners and greater brand recognition,
market presence, financial resources, distribution channels, advertising and
marketing budgets and promotional and other strategic partners than we do. To
be successful, we believe we will need to spend significant resources to
develop consumer awareness of the ReplayTV Service and the personal television
product category.
Our ability to establish an installed base will depend on consumers
purchasing ReplayTV-enabled personal video recorders. Many consumers who have
purchased VCRs, DVD players or other home video entertainment products may be
reluctant to purchase personal video recorders. The ReplayTV-enabled personal
video recorder and the ReplayTV Service do, however, offer several advantages
over traditional home video entertainment products, including:
. an on-air guide to television programming updated on a nightly basis;
. the ability to digitally store and retrieve up to 20 hours of television
programming using the current model of the ReplayTV-enabled personal
video recorder, and up to 30 hours of programming using an additional
model we expect to introduce in mid-2000;
. the ability to pause and rewind live television, and fast forward to
catch up to live broadcasts in progress;
. the ability to record every episode of a given show at the click of a
button;
. the ability to search and navigate television shows by theme based on a
viewer's customized preferences; and
. specialized programming and content, including ReplayZones.
In addition to competition from established consumer electronics products,
we face competition from companies that offer personal television
capabilities. For example, TiVo Inc. markets a personal video recorder that
includes a hard disk drive and features similar to those of the ReplayTV-
enabled personal video recorder.
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Although the TiVo personal video recorder is less expensive to purchase than
the ReplayTV-enabled personal video recorder, TiVo charges viewers a monthly
subscription fee for its service, unlike the basic ReplayTV Service, which is
free to the customer. TiVo currently offers a one-time lifetime subscription
fee, resulting in an overall cost of the TiVo product substantially equivalent
to that of the ReplayTV-enabled personal video recorder. TiVo has
manufacturing relationships with several consumer electronics manufacturers
and a distribution relationship with DirecTV, Inc. We also face competition
from companies that intend to combine personal video recorder features with
Internet access, interactive television features and/or broadcast, cable or
satellite television reception into a single medium. For example, WebTV
Networks, Inc., a subsidiary of Microsoft Corporation, and EchoStar
Communications Corporation, the operator of the DISH Network, have released
products that combine Internet access with an electronic program guide and
offer features similar to those of the ReplayTV-enabled personal video
recorder. The WebTV personal television service is offered on a monthly
subscription fee basis. TiVo recently announced an agreement with Blockbuster
Inc. to jointly develop the capability to deliver products and video-on-demand
services. In addition, TiVo and Liberate Technologies have announced an
agreement to bundle Liberate's interactive television platform with TiVo's
service and market it to network operators, as well as to deliver personal
video recorder capabilities in connection with a new interactive television
service to be offered by America Online, Inc. under the brand name AOL TV.
General Instrument Corporation and Charter Communications, Inc. recently
announced an agreement to manufacture and distribute set-top boxes that
provide personal video recorder features. While some of these competitive
products and services offer fewer services than the ReplayTV Service, we do
not currently offer Internet or interactive television features. In order to
compete effectively, we will need to enter into similar strategic
relationships.
We may also face additional competition as a result of future technological
developments. For example, cable and satellite system operators could in the
future offer video-on-demand services that might reduce consumer demand for
personal television services. As broadband delivery systems become more
prevalent, it is possible that more and more programs may be available for
ordering, over the Internet or otherwise, which may lessen the importance of
broadcast television and weaken the appeal of the ReplayTV Service.
Patents and Intellectual Property
We have adopted a proactive patent and trademark strategy designed to
protect our technology and intellectual property. We are the assignee of two
United States patents, have filed twelve United States patent applications and
have filed four international patent applications. Our pending patent
applications relate to our technology, including hardware, software and the
ReplayTV Service features and appearance; however, these patent applications
may never result in the issuance of patents.
We have filed trademark applications covering substantially all of our
trade dress, logos and slogans, including:
<TABLE>
<C> <S>
. ReplayTV logo .Watch What You Want When You Want
. ReplayTV .Zone
. Primetime. Anytime. .It's Television Made Personal
</TABLE>
These applications are currently pending with the United States Patent and
Trademark Office. We also have international trademark applications pending
for our ReplayTV logo. We have licensed the use of our name and logo to some
of our strategic partners.
The emerging enhanced television industry is highly litigious, particularly
with respect to patent infringement and other intellectual property claims. In
some cases we have been contacted by patent owners offering us the opportunity
to license their patents. Some of these patent owners have alleged that we are
infringing their patents.
Trademarks
Our trademarks are listed above. All other trademarks and service marks
appearing in this prospectus are trademarks or service marks of the respective
companies that use them.
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Employees
As of March 15, 2000, we had 196 full-time employees, including 77 in
product management and engineering, 13 in programming and content, 24 in sales
and marketing, 53 in business operations, 13 in finance and administration and
16 in customer care. We expect our workforce to increase substantially over
the next 12 months. We believe our employee relations are good.
Facilities
We have 61,728 square feet of space in a facility located in Mountain View,
California, under a lease that expires in March 2006. We believe that our
current facilities are adequate to meet our needs through the middle of 2000,
and we are currently in negotiations with respect to the lease of additional
space. We might not be able to lease additional space on favorable terms, if
at all.
Legal Matters
We are aware that media companies and other organizations may support
litigation or explore legislative solutions unless the members of the personal
television industry agree to obtain license agreements for the use of certain
programming. We have received letters and/or oral indications from a number of
content providers, including Fox Television, Universal Studios, The Walt
Disney Company and Warner Bros., asserting their belief that our business
activities and those of some of our competitors will require approvals and
licenses from these content providers. In addition, under our Network Service
Agreement with Time Warner and Turner Broadcasting Systems, Inc., Turner has
reserved the right to assert any claims or rights against us. We are also
aware of similar indications from other content providers. On January 6, 2000,
we and TiVo were sued by PhoneTel Communications, Inc. in the U.S. District
Court for the Northern District of Texas for allegedly infringing a patent
related to specifying an order for playback of recorded television programs.
PhoneTel has asserted that it is entitled to recover unspecified damages, but
in no event less than a reasonable royalty, and has requested an injunction
prohibiting further acts of infringement. On February 23, 2000, we filed a
declaratory judgment action against PhoneTel in the Northern District of
California seeking declaration that the patent is not infringed. On March 20,
2000, we filed a motion to dismiss on the basis that the patent underlying
PhoneTel's claim has expired due to PhoneTel's failure to pay mandatory patent
maintenance fees. In addition, on February 29, 2000, we and a number of other
web site operators unaffiliated with us were sued by TechSearch L.L.C. in the
U.S. District Court for the Northern District of Illinois for allegedly
infringing a patent related to audio/visual and graphical presentations on our
and their web sites. TechSearch has asserted that it is entitled to recover
unspecified damages, but in no event less than a reasonable royalty and has
requested an injunction prohibiting further acts of infringement. We have
obtained a 60-day extension of the period of time in which we must respond to
the TechSearch complaint.
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MANAGEMENT
Executive Officers and Directors
The names and ages of our executive officers and directors as of March 15,
2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
Earle H. "Kim"
LeMasters, III......... 50 Chief Executive Officer and Chairman of the Board
Anthony J. Wood......... 34 President, Products and Director
Layne L. Britton........ 44 Executive Vice President, Corporate Development
Craig W. Dougherty...... 43 Executive Vice President, Finance and Chief Financial
Officer
Alexander Gray.......... 42 Executive Vice President, Business Operations
Bruce L. Kaplan......... 50 Executive Vice President, Sales and Marketing
Robert Kenneally........ 41 Executive Vice President, ReplayTV Service
Daniel J. Levin......... 36 Chief Technical Officer and Senior Vice President,
Corporate Strategy
Jeffrey Berg (1)........ 52 Director
Kevin L. Bohren......... 42 Director
Sky D. Dayton (1)....... 28 Director
William R. Hearst III
(1).................... 50 Director
</TABLE>
- --------
(1) Member of audit committee and compensation committee.
Earle H. "Kim" LeMasters, III has served as Chief Executive Officer and
Chairman since September 1999. Previously, Mr. LeMasters worked as a freelance
television writer from June 1999 to September 1999 and served as Executive
Producer at Twentieth Television from May 1996 to June 1999. From June 1992 to
May 1996, Mr. LeMasters served as President of Stephen J. Cannell Productions,
a television production company which was acquired by New World Television in
1996. From 1976 to 1990, Mr. LeMasters was employed by CBS Television, serving
most recently as President of CBS Entertainment. Mr. LeMasters holds a
Bachelor of Arts from the University of California at Los Angeles.
Anthony J. Wood founded ReplayTV and has served as President, Products
since November 1999 and as a director since August 1997. From August 1997 to
August 1999, he served as Chairman and from November 1997 to August 1999 he
served as President and Chief Executive Officer. Previously, Mr. Wood served
as Vice President of Internet Authoring at Macromedia from March 1996 to
September 1997. From January 1995 to March 1996, Mr. Wood co-founded and
served as President and Chief Executive Officer of iband, Inc., which was
acquired by Macromedia in 1996. From August 1990 to January 1995, he founded
and served as President and Chief Executive Officer of SunRize Industries, a
developer of audio hardware and software. Mr. Wood holds a Bachelor of Science
in Electrical Engineering from Texas A&M University.
Layne L. Britton has served as Executive Vice President, Corporate
Development since March 2000 and previously served as Executive Vice
President, ReplayTV Service from June 1999 until March 2000. From October 1997
to May 1999, Mr. Britton served as Executive Vice President of Business
Operations at United Paramount Networks. From October 1996 to October 1997, he
served as President and Chief Operating Officer of Ticketmaster Ventures, a
ticketing and merchandising company acquired by Home Shopping Network in 1997.
Previously, Mr. Britton was employed as Vice President of Business Affairs at
CBS Entertainment, as Vice President of Business Affairs at NBC Entertainment,
and as Director of Business Affairs at The Dick Clark Company, Inc. Mr.
Britton holds a Bachelor of Arts from Loyola University and a Juris Doctorate
from the UCLA School of Law.
Craig W. Dougherty has served as Executive Vice President, Finance and
Chief Financial Officer since November 1999. Previously, Mr. Dougherty was
employed at Union Bank of California from 1979 to October 1999, serving most
recently as Executive Vice President and Manager of the Specialized Industries
Group, which provides corporate financing to the entertainment, media,
communication, telecom and retailing industries. Mr. Dougherty was also
President of the Private Capital Group, a merchant banking arm that provides
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equity and mezzanine financing for privately held growth companies. Mr.
Dougherty holds a Bachelor of Arts in Economics and French from Tufts
University.
Alexander Gray has served as Executive Vice President, Business Operations
since November 1999. From July 1997 to November 1999, Mr. Gray was employed at
Lucent Technologies, serving most recently as Vice President and General
Manager of Internet Communications, a business unit developing a family of
next-generation Internet-oriented communications systems. Previously, Mr. Gray
was employed by Octel Communications, serving as Senior Vice President of
Operations from January 1996 to July 1997 and as Vice President and Chief
Information Officer from December 1992 to January 1996. Mr. Gray holds a
Bachelors of Science in Computer Science and a Masters in Electrical
Engineering from Washington University.
Bruce L. Kaplan has served as Executive Vice President, Sales and Marketing
since November 1999. Previously, Mr. Kaplan served as President of Kaplan &
Co., a marketing consulting firm, from February 1990 to September 1999. From
March 1990 to February 1999, Mr. Kaplan also served as Executive Vice
President of Fattal & Collins, a wholly-owned subsidiary of Grey Advertising.
From January 1997 to February 1998, Mr. Kaplan served as Vice Chairman of
American Cybercast, an online entertainment company. Mr. Kaplan holds a
Bachelor of Arts in Political Science and a Juris Doctorate from the
University of California at Los Angeles.
Robert Kenneally has served as Executive Vice President, ReplayTV Service
since March 2000. Previously, Mr. Kenneally served as President of IZ.COM, a
multi-media internet company, from January 1999 to February 2000. Prior to
joining IZ.COM, Mr. Kenneally was employed by Rysher Entertainment, as
President of Television from August 1996 to December 1998 and as Executive
Vice President, Creative Affairs from February 1994 to August 1996. Prior to
joining Rysher Entertainment, Mr. Kenneally served as Executive Vice President
of Network Programming for Reeves Entertainment from 1991 to 1994 and before
that, as Executive Vice President of the FOX Broadcasting Company from 1987 to
1991. Mr. Kenneally attended the University of Southern California, majoring
in Political Science.
Daniel J. Levin has served as Chief Technical Officer and Senior Vice
President, Corporate Strategy since January 2000. From December 1998 to
December 1999, he served as our Vice President of Engineering. Previously, Mr.
Levin consulted in acting executive roles at several local companies from
March 1997 to December 1998. From June 1992 to March 1997, Mr. Levin co-
founded and served as President and director of Books That Work, which was
acquired by Sierra On-Line in 1997. From June 1986 to September 1991,
Mr. Levin served in various engineering and marketing capacities at MIPS
Computer Systems. Mr. Levin holds a Bachelor of Arts from Princeton
University.
Jeffrey Berg has served as a director since April 1999. Since November
1994, Mr. Berg has served as Chairman and Chief Executive Officer of
International Creative Management, a talent agency. Since November 1997, he
has served as a director of Oracle Corporation, an enterprise software
company. Mr. Berg holds a Bachelor of Arts from the University of California
at Berkeley and a Masters of Liberal Arts from the University of Southern
California.
Kevin L. Bohren has served as a director since July 1998. Since October
1998, Mr. Bohren has been employed as a private investor. From January 1997 to
October 1998, Mr. Bohren served as President and Chief Executive Officer of
Traveling Software (now LapLink.com), a leading manufacturer of remote
communications software. From March 1983 to January 1997, Mr. Bohren was
employed at Compaq Corporation, serving most recently as Vice President,
Desktop Division. Mr. Bohren holds a Bachelor of Arts in Geography from the
University of Minnesota.
Sky D. Dayton has served as a director since April 1999. Since June 1999,
Mr. Dayton has been a co-founder of eCompanies LLC, an incubator of Internet
start-ups. Mr. Dayton founded Earthlink Network, an Internet service provider,
in May 1994 and served as its Chairman until January 2000. Mr. Dayton remains
a director of Earthlink.
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William R. Hearst III has served as a director since March 1999. Since
January 1995, Mr. Hearst has been a Partner at Kleiner Perkins Caufield &
Byers, a venture capital firm. From May 1995 until August 1996, he was the
Chief Executive Officer for @Home Network, a high speed Internet access and
consumer online services company. Previously, Mr. Hearst served as Editor and
Publisher of the San Francisco Examiner from 1984 until 1995. Mr. Hearst is a
director of Juniper Networks, Excite@Home, Com21 and Hearst-Argyle Television.
Mr. Hearst holds a Bachelor of Arts in Mathematics from Harvard College.
Board Composition
We currently have authorized six directors. Currently, each director is
elected for a period of one year at our annual meeting of stockholders and
serves until the next annual meeting or until his successor is duly elected
and qualified. Beginning at the first annual meeting of stockholders after the
annual meeting of stockholders at which we have at least 800 stockholders, the
board of directors will be divided into three classes, each serving staggered
three-year terms: Class I, consisting of Sky D. Dayton and William R. Hearst
III, whose term will expire at the first annual meeting of stockholders after
our first annual meeting of stockholders at which we have 800 stockholders;
Class II, consisting of Kevin Bohren and Earle H. "Kim" LeMasters, III, whose
term will expire at the second annual meeting of stockholders after our first
annual meeting of stockholders at which we have 800 stockholders; and Class
III, consisting of Jeffrey Berg and Anthony J. Wood, whose term will expire at
the third annual meeting of stockholders after our first annual meeting of
stockholders at which we have 800 stockholders. As a result, only one class of
directors will be elected at each annual meeting of our stockholders, with the
other classes continuing for the remainder of their respective terms. Our
officers are appointed by the board of directors and serve at the discretion
of the board of directors. There are no family relationships among any of our
directors or executive officers.
Board Compensation
Our directors do not currently receive compensation for their services as
members of the board of directors, except for reimbursement for reasonable
travel expenses relating to attendance at board meetings. Employee directors
are eligible to participate in our 1997 stock option plan and 1999 stock plan
and will be eligible to participate in our 2000 employee stock purchase plan.
Nonemployee directors are eligible to participate in our 1997 stock option
plan and 1999 stock plan and will be eligible to participate in our 2000
directors' stock option plan. See "Stock Plans."
In July 1998, we granted Kevin L. Bohren an option to purchase 120,000
shares of common stock at $0.03 per share. The option becomes exercisable at
the rate of 1/3rd of the total number of shares on July 27, 1999 and 1/36th of
the total shares per month thereafter. In April 1999, we granted Mr. Bohren an
option to purchase 80,000 shares of common stock at $0.25 per share. The
option becomes exercisable at the rate of 1/3rd of the total number of shares
on April 23, 2000 and 1/36th of the total shares per month thereafter. We
entered into a consulting relationship with Mr. Bohren in March 1999 pursuant
to which he has earned an aggregate of $71,666, and have issued him an
aggregate of 38,720 shares of restricted stock as of December 31, 1999.
In April 1999, we granted Sky D. Dayton and Jeffrey Berg each an option to
purchase 200,000 shares of common stock at $0.25 per share. These options
become exercisable at the rate of 1/3rd of the total number of shares on April
28, 2000 and 1/36th of the total shares per month thereafter.
In April 1999, we granted Anthony J. Wood an option to purchase 275,000
shares of common stock at $0.275 per share. The option becomes exercisable at
the rate of 1/12th of the total number of shares per month from and after
August 1, 2000.
In September 1999, we granted Earle H. "Kim" LeMasters, III an option to
purchase 2,500,000 shares of common stock at $4.00 per share. The option is
immediately exercisable; however, if the option is exercised, we have the
right to repurchase the underlying shares at a price of $4.00 per share upon
the termination of Mr. LeMasters' employment with us. Our right to repurchase
lapses at the rate of 1/8th of the total number of shares on March 13, 2000
and 1/48th of the total shares per month thereafter.
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<PAGE>
Board Committees
In January 2000, the board of directors established the audit committee and
the compensation committee. The compensation committee currently consists of
Jeffrey Berg, Sky D. Dayton and William R. Hearst III. The functions of the
compensation committee are to:
. review and approve the compensation and benefits for our executive
officers and grant stock options under our stock option plans; and
. make recommendations to the board of directors regarding these matters.
The audit committee consists of Jeffrey Berg, Sky D. Dayton and William R.
Hearst III. The functions of the audit committee are to:
. make recommendations to the board of directors regarding the selection of
independent auditors;
. review the results and scope of the audit and other services provided by
our independent auditors; and
. review and evaluate our audit and control functions.
Compensation Committee Interlocks and Insider Participation
The members of the compensation committee of the board of directors are
currently Jeffrey Berg, Sky D. Dayton and William R. Hearst III, none of whom
has ever been an officer or employee of ReplayTV. None of our executive
officers serves 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 of directors or compensation committee. Before establishing the
compensation committee in January 2000, the board of directors as a whole
performed the functions delegated to the compensation committee.
Executive Compensation
The following table sets forth the compensation received for services
rendered to us during the year ended December 31, 1999 by the two individuals
who served as Chief Executive Officer during 1999 and the four other most
highly compensated executive officers during the year ended December 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------- ------------
Securities
Name and Principal Salary Other Annual Underlying All Other
Position ($) Bonus ($)(7) Compensation ($) Options (#) Compensation ($)
- ------------------ -------- ------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Earle H. "Kim"
LeMasters, III(1)...... $109,154 -- -- 2,500,000 --
Chairman and Chief
Executive Officer
Anthony J. Wood(2)...... 144,250 -- -- 275,000 --
President, Products
Layne L. Britton(3)..... 140,000 -- -- 1,120,000 --
Executive Vice
President, Corporate
Development
Craig W. Dougherty(4)... 41,667 -- $125,000 600,000 --
Executive Vice
President, Finance and
Chief Financial Officer
Alexander Gray(5)....... 41,667 -- -- 600,000 --
Executive Vice
President, Business
Operations
Bruce L. Kaplan(6)...... 40,000 $12,000 30,000 500,000 --
Executive Vice
President, Sales and
Marketing
</TABLE>
46
<PAGE>
- --------
(1) Mr. LeMasters commenced employment with us in September 1999. On an annual
basis, Mr. LeMasters' salary for the fiscal year ended December 31, 1999
would have been $360,000 plus reimbursement of expenses up to $50,000.
(2) Mr. Wood served as Chief Executive Officer until August 1999. In
September 1999, he was appointed President, Products. The amount excludes
deferred compensation of $84,500 which Mr. Wood earned during the fiscal
year ended December 31, 1998 but which was paid to him during the fiscal
year ending December 31, 1999. Effective January 1, 2000, the board of
directors approved raising Mr. Wood's annual salary to $250,000.
(3) Mr. Britton commenced employment with us in July 1999. On an annual
basis, Mr. Britton's salary for the fiscal year ended December 31, 1999
would have been $240,000, plus reimbursement of up to $50,000 of
relocation expenses.
(4) Mr. Dougherty commenced employment with us in November 1999. On an annual
basis, Mr. Dougherty's salary for the fiscal year ended December 31, 1999
would have been $250,000. Mr. Dougherty was paid a signing bonus of
$100,000. Mr. Dougherty must repay 100% of this bonus in the event he
resigns or is terminated with cause within 12 months following his start
date and 50% of this bonus in the event he resigns or is terminated with
cause between 12 and 24 months following his start date. The remaining
$25,000 of other annual compensation represents a relocation allowance.
(5) Mr. Gray commenced employment with us in November 1999. On an annual
basis, Mr. Gray's salary for the fiscal year ended December 31, 1999
would have been $250,000.
(6) Mr. Kaplan commenced employment with us in November 1999. On an annual
basis, Mr. Kaplan's salary for the fiscal year ended December 31, 1999
would have been $240,000. The $30,000 of other annual compensation
represents a relocation allowance.
(7) Other than Mr. Kaplan, who received a guaranteed bonus, each officer is
eligible to receive a bonus for the year ended December 31, 1999, the
amounts of which have not yet been determined by the board of directors.
Option Grants
The following table provides summary information regarding stock options
granted to the two individuals who served as Chief Executive Officer during
the year ended December 31, 1999 and the four other most highly compensated
executive officers during the year ended December 31, 1999. No stock
appreciation rights were granted to these individuals during the year. The
options were granted pursuant to the 1997 stock option plan and the 1999 stock
plan.
Options granted to Messrs. LeMasters, Dougherty, Gray and Britton are
exercisable for all option shares; however, if an option is exercised, we have
the right to repurchase the underlying shares at the original exercise price
per share upon the termination of the optionee's employment with us. Our right
to repurchase the shares exercised by Messrs. LeMasters, Dougherty and Gray
lapses at the rate of 1/8th of the total number of shares on the six month
anniversary of the vesting commencement date specified in the respective
option agreement, or March 13, 2000 in the case of Mr. LeMasters and May 1,
2000 in the cases of Mr. Dougherty and Mr. Gray, and 1/48th of the total
number of shares each month thereafter. Our right to repurchase shares
exercised by Mr. Britton lapses at the rate of 1/48th of the total number of
shares per month beginning June 30, 1999. Additionally, the option granted to
Mr. Wood becomes exercisable at the rate of 1/12th of the total number of
shares on September 1, 2000 and 1/12th of the total number of shares each
month thereafter, and the option granted to Mr. Kaplan becomes exercisable at
the rate of 1/8th of the total number of shares on May 1, 2000 and 1/48th of
the total number of shares each month thereafter.
The percentages below are based on a total of 10,882,500 shares subject to
options granted by us during the year ended December 31, 1999 to all of our
employees and consultants, including the executive officers named in the
table. The exercise price per share of each option was equal to the fair
market value of the common stock as determined by the board of directors on
the date of grant. The potential realizable value is calculated assuming the
$14.00 per share assumed initial public offering price (based upon the
midpoint of the range set forth on the
47
<PAGE>
cover page of this prospectus) appreciates at the indicated rate from the date
of grant until the end of the term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price. All options have a term of ten years. Stock price
appreciation of 5% and 10% is assumed pursuant to the rules of the Securities
and Exchange Commission. There can be no assurance that the actual stock price
will appreciate over the ten-year option term at the assumed rates of 5% and
10% or at any other defined rate. Unless the market price of the common stock
appreciates over the option term, no value will be realized from the option
grants made to the below named executive officers.
Option Grants in 1999
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------
Potential Realizable
Percent of Value at Assumed Annual
Number of Total Rates of Stock Price
Securities Options Appreciation For Option
Underlying Granted in Exercise Term
Options Fiscal Price Expiration -----------------------
Name Granted (#) 1999 ($/Share) Date 5% 10%
- ---- ----------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Earle H. "Kim"
LeMasters, III......... 2,500,000 22.97% $4.00 9/13/09 $47,011,312 $80,780,986
Anthony J. Wood......... 275,000 2.53 0.275 4/27/09 6,195,619 9,910,283
Layne L. Britton........ 1,120,000 10.29 0.625 5/31/09 24,841,068 39,969,882
Craig W. Dougherty...... 600,000 5.51 5.00 10/31/09 10,682,715 18,787,437
Alexander Gray.......... 600,000 5.51 5.00 10/31/09 10,682,715 18,787,437
Bruce L. Kaplan......... 500,000 4.59 5.00 10/31/09 8,902,262 15,656,197
</TABLE>
Option Exercises and Holdings
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by the two
individuals who served as Chief Executive Officer during the year ended
December 31, 1999 and the four other most highly compensated executive
officers during the year ended December 31, 1999. The values realized and the
values of unexercised options at December 31, 1999 are based on the assumed
initial public offering price of $14.00 per share, which is the midpoint of
the range set forth on the cover page of this prospectus . Therefore, these
values are calculated based on the value of $14.00 per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying these options.
Aggregated Option Exercises in 1999 and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Shares Unexercised Options at In-the-Money Options
Acquired December 31, 1999 at December 31, 1999
on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- --------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Earle H. "Kim"
LeMasters, III......... 250,000 $ 2,500,000 2,250,000 -- $22,500,000 --
Anthony J. Wood......... -- -- -- 275,000 -- $3,774,375
Layne L. Britton........ 1,120,000 14,980,000 -- -- -- --
Craig W. Dougherty...... 200,000 1,800,000 400,000 -- 3,600,000 --
Alexander Gray.......... 100,000 900,000 500,000 -- 4,500,000 --
Bruce L. Kaplan......... -- -- -- 500,000 -- 4,500,000
</TABLE>
Change of Control Agreements
We entered into an Offer Letter with Earle H. "Kim" LeMasters, III that
entitles Mr. LeMasters to 12 months accelerated vesting of his options and
restricted stock in the event there is a change of control within 18 months
following his commencement of employment with us and acceleration of 75% of
the then unvested options and restricted stock held by him in the event there
is a change of control after 18 months following his commencement of
employment. In addition, Mr. LeMasters is entitled to 12 months severance and
an additional 12 months accelerated vesting of his unvested options or
restricted stock in the event he is terminated without cause or resigns with
good reason following a change of control.
48
<PAGE>
We entered into Offer Letters with Craig W. Dougherty, Bruce L. Kaplan and
Robert Kenneally that entitle each such officer to six months severance and
accelerated vesting equal to the greater of 12 months or 50% of the then
unvested stock options or restricted stock held by him in the event he is
terminated without cause or resigns for good reason within 12 months following
a change of control transaction.
We entered into Offer Letters with Layne L. Britton and Alexander Gray that
entitle each such officer to accelerated vesting equal to the greater of 12
months or 50% of the then unvested stock options or restricted stock held by
him in the event he is terminated without cause or resigns for good reason
within 12 months following a change of control.
We entered into an Offer Letter with Daniel J. Levin that entitles him to
six months severance in the event he is terminated without cause.
Stock Plans
1999 Stock Plan. Our 1999 stock plan provides for the grant of incentive
stock options to employees, including employee directors, and of nonstatutory
stock options and stock purchase rights to employees, directors and
consultants. The purposes of the 1999 stock plan are to attract and retain the
best available personnel, to provide additional incentives to our employees
and consultants and to promote the success of our business. The 1999 stock
plan was originally adopted by our board of directors and approved by our
stockholders in August 1999. As of December 31, 1999, an aggregate of
4,230,000 shares were reserved for issuance under the 1999 stock plan, options
to purchase 3,680,000 shares of common stock were outstanding under the 1999
stock plan at a weighted average exercise price of $4.38 per share, 550,000
shares had been issued upon exercise of options or pursuant to restricted
stock purchase rights at a weighted average purchase price of $4.55 per share
and no shares remained available for future grant. In January 2000, the board
of directors and stockholders approved an amendment to the 1999 stock plan to
increase the total number of shares reserved for issuance under the plan by
5,470,000 shares, so that an aggregate of 9,700,000 shares are reserved as of
the date of this offering. At the same time, the board approved amendments to
the plan providing for an automatic annual increase on the first day of each
of our fiscal years beginning in 2001 through 2009 equal to the greater of
4,000,000 shares or 6% of our outstanding common stock on the last day of the
immediately preceding fiscal year, and providing that up to 7,600,000 shares
of common stock that either return to our 1997 stock option plan upon
cancellation of options issued under that plan or are shares of stock issued
under our 1997 stock option plan that we repurchase when the holder terminates
his or her employment or consulting relationship with us shall become
available for issuance under the 1999 stock plan. As currently structured, the
maximum aggregate number of shares that are approved for issuance over the
ten-year term of our 1999 stock plan is 62,300,000 (including the maximum
number of shares that may become available for issuance under the plan as a
result of award cancellations and repurchases under our 1997 stock option
plan). These amendments to the 1999 stock plan were approved by our
stockholders in March 2000. Unless terminated earlier by the board of
directors, the 1999 stock plan will terminate in August 2009.
The 1999 stock plan may be administered by the board of directors or a
committee of the board, each known as the administrator. The administrator
determines the terms of options and stock purchase rights granted under the
1999 stock plan, including the number of shares subject to the award, the
exercise or purchase price, the vesting and/or exercisability of the award and
any other conditions to which the award is subject. No employee may receive
awards for more than 5,000,000 shares under the 1999 stock plan in any fiscal
year. Incentive stock options granted under the 1999 stock plan must have an
exercise price of at least 100% of the fair market value of the common stock
on the date of grant. The plan does not impose restrictions on the exercise or
purchase price applicable to nonstatutory stock options and stock purchase
rights, although we expect that nonstatutory stock options and stock purchase
rights granted to our Chief Executive Officer and our four other most highly
compensated officers will generally equal at least 100% of the grant date fair
market value. Payment of the exercise or purchase price may be made in cash or
any other consideration allowed by the administrator.
With respect to options granted under the 1999 stock plan, the
administrator determines the term of the options, which may not exceed ten
years (or five years in the case of an incentive stock option granted to a
holder
49
<PAGE>
of more than 10% of the total voting power of all classes of our stock).
Generally, an option is nontransferable other than by will or the laws of
descent and distribution, and may be exercised during the lifetime of the
optionee only by such optionee. In certain circumstances, the administrator
has the discretion to grant nonstatutory stock options with limited
transferability rights. Stock options are generally subject to vesting,
meaning that the optionee earns the right to exercise the option over a
specified period of time only if he or she continues to provide services to
ReplayTV over that period. Stock issued pursuant to stock purchase rights
granted under the 1999 stock plan is generally subject to a repurchase right
exercisable by ReplayTV upon the termination of the holder's employment or
consulting relationship with us for any reason (including death or
disability). This repurchase right will lapse as provided by the administrator
at the time of grant.
If we are acquired by another corporation, each outstanding option and
stock purchase right may be assumed or an equivalent award substituted by our
acquiror. If our acquiror did not agree to assume or substitute outstanding
awards, those awards would terminate to the extent they had not been exercised
prior to consummation of the transaction. Outstanding awards, the number of
shares remaining available for issuance under the plan, the number of shares
added to the plan each year under the plan's evergreen provision or as a
result of cancelled options or repurchases of shares under our 1997 plan and
the annual per-employee share limit will each adjust in the event of a stock
split, stock dividend or other similar change in our capital stock. The
administrator has the authority to amend or terminate the 1999 stock plan, but
no action may be taken that materially and adversely impairs the rights of any
holder of an outstanding option or stock purchase right without the holder's
consent. In addition, we must obtain stockholder approval of amendments to the
plan as required by applicable law.
1997 Stock Option Plan. Our 1997 stock option plan was adopted by our board
of directors in August 1997 and approved by our stockholders in November 1997.
The 1997 stock option plan provides for the grant of incentive stock options
to employees (including employee directors) and the grant of nonstatutory
stock options to employees, consultants and directors. As of December 31,
1999, an aggregate of 9,070,000 shares of common stock were reserved for
issuance under the 1997 stock option plan, options to purchase 7,109,637
shares of common stock at a weighted average exercise price of $1.55 per share
were outstanding, 1,831,439 shares with a weighted average purchase price of
$0.39 per share had been issued upon exercise of options and 128,924 shares
remained available for future grant. In January 2000, the board of directors
and our stockholders approved amendments to the 1997 stock option plan to
increase the total number of shares reserved for issuance under the plan by
530,000 shares to an aggregate of 9,600,000 shares. In addition, at that time,
the 1997 stock option plan was also amended to provide that up to 7,600,000
shares of stock subject to options issued under the plan that would otherwise
become available for grant under the plan upon cancellation of such options
and sold under the plan that we repurchase upon termination of the holder's
employment or consulting relationship with us shall become available for
issuance under our 1999 stock plan. Unless terminated earlier, the 1997 stock
option plan will terminate in August 2007.
Following this offering, the terms of awards issued under our 1997 stock
option plan will generally be the same as those that may be issued under our
1999 stock plan, except with respect to the following features. The 1997 stock
option plan does not provide for the issuance of stock purchase rights, and it
does not impose an annual limitation on the number of shares of stock subject
to options that may be granted to any individual employee during a fiscal
year.
2000 Employee Stock Purchase Plan. Our 2000 employee stock purchase plan
was adopted by the board of directors in January 2000 and approved by our
stockholders in March 2000. An aggregate of 1,000,000 shares of common stock
were reserved for issuance under the 2000 purchase plan, none of which have
been issued as of the date of this offering. The number of shares reserved for
issuance under the 2000 purchase plan will be subject to an automatic annual
increase on the first day of each of our fiscal years beginning in 2001
through 2009 equal to the lesser of 500,000 shares, 2% of our outstanding
common stock on the last day of the immediately preceding fiscal year, or a
lesser number of shares as the board of directors determines. The 2000
purchase plan becomes effective upon the date of this offering. Unless
terminated earlier by the board of directors, the 2000 purchase plan will
terminate in January 2020.
50
<PAGE>
The 2000 purchase plan, which is intended to qualify under Section 423 of
the Internal Revenue Code, will be implemented by a series of overlapping
offering periods of approximately 24 months' duration, with new offering
periods (other than the first offering period) commencing on May 1 and
November 1 of each year. Each offering period will generally consist of four
consecutive purchase periods of six months' duration, at the end of which an
automatic purchase will be made for participants. The initial offering period
is expected to commence on the date of this offering and end on April 30,
2002; the initial purchase period is expected to begin on the date of this
offering and end on October 31, 2000, with subsequent purchase periods ending
on April 30, 2001, October 31, 2001 and April 30, 2002. The 2000 purchase plan
will be administered by the board of directors or by a committee appointed by
the board. Our employees (including officers and employee directors), or of
any majority-owned subsidiary designated by the board, are eligible to
participate in the 2000 purchase plan if they are employed by us or any such
subsidiary for at least 20 hours per week and more than five months per year.
The 2000 purchase plan permits eligible employees to purchase common stock
through payroll deductions, which in any event may not exceed 15% of an
employee's base salary. The purchase price is equal to the lower of 85% of the
fair market value of the common stock at the beginning of each offering period
or at the end of each purchase period, subject to certain adjustments as
provided in the plan. Employees may end their participation in the 2000
purchase plan at any time during an offering period, and participation ends
automatically on termination of employment.
An employee is not eligible to participate in the 2000 purchase plan if
immediately after the grant of an option to purchase stock under the plan such
employee would own stock and/or hold outstanding options to purchase stock
equaling 5% or more of the total voting power or value of all classes of our
stock or stock of our subsidiaries, or if such option would permit an
employee's rights to purchase stock under the 2000 purchase plan at a rate
that exceeds $25,000 of fair market value of such stock for each calendar year
in which the option is outstanding. In addition, no employee may purchase more
than 3,000 shares of common stock under the 2000 purchase plan in any one
purchase period. If the fair market value of the common stock on a purchase
date is less than the fair market value at the beginning of the offering
period, each participant in that offering period shall automatically be
withdrawn from the offering period as of the end of the purchase date and re-
enrolled in the new 24 month offering period beginning on the first business
day following the purchase date.
If we merge or consolidate with or into another corporation or sell all or
substantially all of our assets, each right to purchase stock under the 2000
purchase plan will be assumed or an equivalent right substituted by our
acquiror. If our acquiror did not agree to assume or substitute stock purchase
rights, any offering period and purchase period then in progress would be
shortened and a new exercise date occurring prior to the closing of the
transaction would be set. Outstanding awards, the number of shares remaining
available for issuance under the plan, the number of shares added to the plan
each year under the plan's evergreen provision and the maximum number of
shares that may be purchased by a participant during a purchase period will
each adjust in the event of a stock split, stock dividend or other similar
change in our capital. Our board of directors has the power to amend or
terminate the 2000 purchase plan and to change or terminate offering periods
as long as such action does not adversely affect any outstanding rights to
purchase stock thereunder. However, the board of directors may amend or
terminate the 2000 purchase plan or an offering period even if it would
adversely affect outstanding options in order to avoid our incurring adverse
accounting charges.
2000 Directors' Stock Option Plan. The 2000 directors' stock option plan
was adopted by the board of directors in January 2000 and approved by our
stockholders in March 2000. It will become effective upon the date of this
offering. An aggregate of 300,000 shares of common stock were reserved for
issuance under the 2000 directors' plan, all of which remain available for
future grants. In addition, the 2000 directors' plan provides that as of
January 1 of each year beginning in 2001 and ending in 2009, the aggregate
number of shares available to be issued under the plan will automatically be
increased by the number of shares necessary to cause the number of shares then
available for issuance under the plan to be restored to 300,000 shares,
provided that the maximum number of shares that will be available for issuance
under the plan over the ten-year term of the plan will not exceed 3,000,000
shares. The 2000 directors' plan provides for the grant of nonstatutory stock
options to our nonemployee directors. The 2000 directors' plan is designed to
work automatically without administration;
51
<PAGE>
however, to the extent administration is necessary, it will be performed by
the board of directors. To the extent they arise, it is expected that
conflicts of interest will be addressed by abstention of any interested
director from both deliberations and voting regarding matters in which a
director has a personal interest. Unless terminated earlier, the 2000
directors' plan will terminate in January 2010.
The 2000 directors' plan provides that each person who becomes a
nonemployee director after the completion of this offering will be granted a
nonstatutory stock option to purchase 50,000 shares of common stock on the
date on which such individual first becomes a member of our board of
directors. In addition, on the date of each annual stockholders meeting after
completion of this offering, each nonemployee director who will continue
serving on the board following the meeting and who has been a director of
ReplayTV for at least six months prior to the meeting date will be granted an
option to purchase 15,000 shares of common stock.
All options granted under the 2000 directors' plan will have a term of ten
years and an exercise price equal to the fair market value of our common stock
on the date of grant and will generally be nontransferable, except in certain
limited circumstances to family members and family trusts or similar entities.
The options to purchase 50,000 shares granted to directors joining our board
after this offering will vest in installments as to one-third of the
underlying shares on each of the first, second and third anniversaries of the
option grant date. The options to purchase 15,000 shares granted to directors
annually on the date of our stockholders meetings after this offering will
vest as to all underlying shares on the first anniversary of the option grant
date. If a nonemployee director ceases to serve as a director for any reason
other than death or disability, he or she may, but only within 90 days after
the date he or she ceases to be a director, exercise options granted under the
2000 directors' plan. If he or she does not exercise the option within such
90-day period, the option shall terminate. If a director's service terminates
as a result of his or her disability or death, or if a director dies within
three months following termination for any reason, the director or his or her
estate will have 12 months after the date of termination or death, as
applicable, to exercise options that were vested as of the date of
termination. In addition, if ReplayTV determines that a director has engaged
in fraud, embezzlement or similar acts against us, or if a director has
disclosed information that is confidential to ReplayTV or engaged in any
conduct constituting unfair competition against us, we have the right to
suspend or terminate that director's right to exercise an option under the
2000 directors' plan.
If we are acquired by another corporation, each option outstanding under
the 2000 directors' plan will be assumed or equivalent options substituted by
our acquiror, unless our acquiror does not agree to such assumption or
substitution, in which case the options will terminate upon consummation of
the transaction to the extent not previously exercised. In connection with any
acquisition, each director holding options under the 2000 directors' plan will
have the right to exercise his or her options immediately before the
consummation of the merger as to all shares underlying the options, including
shares which would not have been vested and exercisable but for the
acquisition. Outstanding awards, the number of shares remaining available for
issuance under the plan, the number of shares to be granted to new directors
and to directors annually on stockholder meeting dates, and the number of
shares automatically added to the plan each year will each adjust in the event
of a stock split, stock dividend or other similar change in capital. Our board
of directors may amend or terminate the 2000 directors' plan as long as such
action does not adversely affect any outstanding option and we obtain
stockholder approval for any amendment to the extent required by applicable
law.
Limitation of Liability and Indemnification Matters
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 which 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.
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This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission. Our certificate of
incorporation and bylaws provide that we shall indemnify our directors and
executive officers and may indemnify our other officers and employees and
other agents to the fullest extent permitted by law. We believe that
indemnification under our bylaws covers at least negligence and gross
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 that capacity,
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, among other things, provide for indemnification of our directors
and executive officers for expenses specified in the agreements, including
attorneys' fees, judgments, fines and settlement amounts incurred by a
director or executive officer in any action or proceeding arising out of his
or her services as a director or executive officer of ReplayTV or any
subsidiary of ReplayTV. In addition, we maintain directors' and officers'
insurance. We believe that these provisions and agreements are necessary to
attract and retain qualified persons as directors and executive officers.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
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RELATED PARTY TRANSACTIONS
Agreements with Management
In March 1999, we entered into a consulting relationship with Kevin L.
Bohren, pursuant to which Mr. Bohren has earned an aggregate of $71,666 as of
December 31, 1999. We have also issued to Mr. Bohren an aggregate of 38,720
shares of restricted stock as of December 31, 1999.
In September 1997, we sold Anthony J. Wood 6,000,000 shares of common stock
at $0.0005 per share pursuant to a Common Stock Purchase Agreement. In March
1999, we entered into a Revised Offer Letter with Mr. Wood which entitles him
to a salary of $150,000 per year, 12 months accelerated vesting of his options
and restricted stock and 12 months severance in the event he is terminated
without cause or resigns with good reason, and full vesting with respect to
the 6,000,000 shares of restricted stock held by Mr. Wood in the event he is
replaced as Chief Executive Officer. Mr. Wood's 6,000,000 shares of restricted
stock vested in September 1999 when Earle H. "Kim" LeMasters, III became Chief
Executive Officer. In April 1999, we granted Mr. Wood an option to purchase
275,000 shares of common stock at $0.275 per share which vests with respect to
1/12th of the total number of shares on August 1, 2000 and 1/12th of the total
number of shares each month thereafter.
In November 1998, we entered into an Offer Letter with Daniel J. Levin. The
agreement entitles Mr. Levin to a salary of $140,000 per year. In February
1999, we granted Mr. Levin an option to purchase 450,000 shares of common
stock at $0.125 per share, which vests and becomes exercisable at the rate of
1/3rd of the total number of shares on December 28, 1999 and 1/36th of the
total shares per month thereafter. This option was partially exercised as to a
total of 152,000 shares in December 1998 and February 1999. Mr. Levin's salary
has subsequently been increased to $200,000 per year.
In July 1999, we entered into an Offer Letter with Layne L. Britton. The
agreement entitles Mr. Britton to a salary of $240,000 per year and
reimbursement of up to $50,000 of relocation expenses. In the event Mr.
Britton is terminated without cause or resigns for good reason, he is entitled
to nine months accelerated vesting of his restricted stock and severance
benefits equal to six months of salary and 50% of the bonus paid to him during
the prior year. If Mr. Britton is terminated without cause or resigns for good
reason within 12 months following a change of control, he is instead entitled
to the greater of 12 months accelerated vesting or acceleration of 50% of his
then unvested options and restricted stock. In connection with his
commencement of employment, we granted Mr. Britton an option to purchase
1,120,000 shares of common stock at $0.625 per share. The option was exercised
in full but is subject to a right of repurchase at cost in our favor in the
event Mr. Britton ceases employment with us. Our repurchase option lapses at
the rate of 1/48th of the total shares per month.
In September 1999, we entered into an Offer Letter with Earle H. "Kim"
LeMasters, III. The agreement entitles Mr. LeMasters to a salary of $360,000
per year and reimbursement of expenses of up to $50,000 per year. In September
1999, we granted Mr. LeMasters an option to purchase 2,500,000 shares of
common stock at $4.00 per share. The option has been partially exercised, but
the underlying shares are subject to a right of repurchase at cost in our
favor in the event Mr. LeMasters ceases employment with us. Our repurchase
option lapses at the rate of 1/8th of the total number of shares on March 13,
2000 and 1/48th of the total shares per month thereafter. Mr. LeMasters is
entitled to 12 months accelerated vesting of all stock and options held by him
in the event there is a change of control within 18 months following his
commencement of employment with us and acceleration of 75% of his restricted
stock and options in the event there is a change of control after 18 months
following his commencement of employment. In addition, Mr. LeMasters is
entitled to 12 months severance and an additional 12 months accelerated
vesting in the event he is terminated without cause or resigns with good
reason following a change of control.
In October 1999, we entered into an Offer Letter with Craig W. Dougherty.
The agreement entitles Mr. Dougherty to a salary of $250,000 per year, a
relocation bonus of $25,000 and severance benefits equal to
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<PAGE>
six months salary in the event he is terminated or resigns with good reason.
In addition, Mr. Dougherty was paid a signing bonus of $100,000. He must repay
100% of this bonus if he resigns or is terminated with cause during the first
year of his employment with us and 50% of this bonus if he resigns or is
terminated with cause during the second year of his employment with us. In
November 1999, we granted Mr. Dougherty an option to purchase 600,000 shares
of common stock at $5.00 per share. The option has been partially exercised,
but the underlying shares are subject to a right of repurchase at cost in our
favor in the event Mr. Dougherty ceases employment with us. Our repurchase
option lapses at the rate of 1/8th of the total number of shares on May 1,
2000 and 1/48th of the total shares per month thereafter. Mr. Dougherty is
entitled to six months accelerated vesting of his unvested options or
restricted stock in the event he is terminated without cause or resigns with
good reason. Alternatively, Mr. Dougherty is entitled to accelerated vesting
equal to the greater of 12 months or 50% of the then unvested stock options
and restricted stock held by him in the event he is terminated without cause
or resigns for good reason within 12 months following a change of control.
In October 1999, we entered into an Offer Letter with Alexander Gray. The
agreement entitles Mr. Gray to a salary of $250,000 per year. In November
1999, we granted Mr. Gray an option to purchase 600,000 shares of common stock
at $5.00 per share. The option has been partially exercised, but the
underlying shares are subject to a right of repurchase at cost in our favor in
the event Mr. Gray ceases employment with us. Our repurchase option lapses at
the rate of 1/8th of the total number of shares on May 1, 2000 and 1/48th of
the total shares per month thereafter. Mr. Gray is entitled to six months
accelerated vesting and six months severance in the event he is terminated
without cause or resigns with good reason. Alternatively, Mr. Gray is entitled
to accelerated vesting equal to the greater of 12 months or 50% of the then
unvested stock options or restricted stock held by him in the event he is
terminated without cause or resigns for good reason within 12 months following
a change of control.
In October 1999, we entered into an Offer Letter with Bruce L. Kaplan. The
agreement entitles Mr. Kaplan to a salary of $240,000 per year, a guaranteed
first year bonus of $72,000 and a relocation bonus of $30,000. In November
1999, we granted Mr. Kaplan an option to purchase 500,000 shares of common
stock at $5.00 per share which becomes exercisable at the rate of 1/8th of the
total number of shares on May 1, 2000 and 1/48th of the total shares per month
thereafter. In February 2000, we granted Mr. Kaplan an option to purchase
100,000 shares of Common Stock at $11.05 per share which becomes exercisable
at the rate of 1/4th of the total number of shares on February 1, 2001 and
1/48th of the total shares per month thereafter. Mr. Kaplan is entitled to six
months accelerated vesting and six months severance in the event he is
terminated without cause or resigns with good reason. Alternatively, Mr.
Kaplan is entitled to accelerated vesting equal to the greater of 12 months or
50% of the then unvested stock options or restricted stock held by him in the
event he is terminated without cause or resigns for good reason within 12
months following a change of control.
In March 2000, we entered into an Offer Letter with Robert Kenneally. The
agreement entitles Mr. Kenneally to a salary of $250,000 per year and a
guaranteed first year bonus of $100,000. In March 2000, we granted Mr.
Kenneally an option to purchase 630,000 shares of common stock at $11.05 per
share. The option has been partially exercised, but the underlying shares are
subject to a right of repurchase at cost in our favor in the event Mr.
Kenneally ceases employment with us. Our repurchase option lapses at the rate
of 1/8th of the total number of shares on September 1, 2000 and 1/48th of the
total shares per month thereafter. Mr. Kenneally is entitled to six months
severance in the event he is terminated without cause or resigns with good
reason. Alternatively, Mr. Kenneally is entitled to accelerated vesting equal
to the greater of 12 months or 50% of the then unvested stock options or
restricted stock held by him in the event he is terminated without cause or
resigns for good reason within 12 months following a change of control.
We have entered into indemnification agreements with each of our executive
officers and directors. These indemnification agreements may require us to
indemnify these persons against liabilities that may arise by reason of their
status as officers or directors, other than liabilities arising from willful
misconduct of a culpable nature, and to advance their expenses as a result of
any proceeding against them.
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Loans to Management
The following executive officers have issued full recourse promissory notes
in our favor in connection with their early exercise of stock options issued
pursuant to their original stock option agreements under the 1997 stock option
plan and the 1999 stock plan:
<TABLE>
<CAPTION>
Date of Principal Date Interest
Name Note Amount Due Rate
- ---- -------- ---------- ------- --------
<S> <C> <C> <C> <C>
Earle H. "Kim" LeMasters, III.............. 9/23/99 $1,000,000 9/22/04 5.98%
Layne L. Britton........................... 7/1/99 600,000 7/1/04 5.74
Layne L. Britton........................... 7/1/99 100,000 7/1/04 5.74
Craig W. Dougherty......................... 11/15/99 1,000,000 11/1/04 6.08
Alexander Gray............................. 11/15/99 500,000 11/1/04 6.08
Robert Kenneally........................... 3/1/00 250,000 2/28/05 6.69
</TABLE>
Private Placement Transactions
The following table summarizes the shares of preferred stock purchased by
executive officers, directors and 5% stockholders and persons and entities
associated with them in private placement transactions. Each share of
preferred stock converts into one share of common stock automatically upon the
closing of this offering. The shares of Series A preferred stock were sold at
$0.11 per share, the shares of Series B preferred stock were sold at $0.31 per
share, the shares of Series C preferred stock were sold at $0.632 per share,
the shares of Series D preferred stock were sold at $0.775 per share and the
shares of Series E preferred stock were sold at $7.50 per share. See
"Principal Stockholders."
<TABLE>
<CAPTION>
Series A Series B Series C Series D Series E
Name Preferred Preferred Preferred Preferred Preferred
- ---- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Entities affiliated with
KPCB Holdings (William R.
Hearst III)(1)............. -- -- -- 7,870,968 133,333
Anthony J. Wood............. 2,040,600 241,934 158,128 103,226 --
Kevin L. Bohren............. -- 645,160 395,324 51,612 --
Sky D. Dayton............... -- -- 790,648 -- 13,333
Layne L. Britton............ -- -- -- -- 8,394
Daniel J. Levin............. -- -- -- -- 13,333
</TABLE>
- --------
(1) All shares are held by KPCB Holdings Inc., as nominee. Mr. Hearst is a
general partner of Kleiner Perkins Caufield & Byers and is a Vice
President of KPCB Holdings, Inc. He disclaims beneficial ownership except
to the extent of his pecuniary interest therein.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to
beneficial ownership of our common stock as of December 31, 1999, as adjusted
to reflect the issuance of 5,627,267 shares of Series F preferred stock in
January 2000, the issuance of 2,090,907 shares of Series G preferred stock in
March 2000 and the sale of common stock offered in this offering, by:
. each person, or group of affiliated persons, known by us to own
beneficially more than 5% of our outstanding common stock,
. each director,
. the two individuals who served as chief executive officer and four other
most highly compensated executive officers during the fiscal year ended
December 31, 1999, and
. all directors and executive officers as a group.
<TABLE>
<CAPTION>
Percent
Beneficially
Owned
-----------------
Number of Before After
Shares Offering Offering
---------- -------- --------
<S> <C> <C> <C>
Anthony J. Wood.................................. 8,457,438 19.65% 16.41%
KPCB Holdings Inc. .............................. 8,004,301 18.60 15.53
KPCB Holdings Inc.
2750 Sand Hill Road
Menlo Park, CA 94025
William R. Hearst III(1)......................... 8,004,301 18.60 15.53
KPCB Holdings Inc.
2750 Sand Hill Road
Menlo Park, CA 94025
Earle H. "Kim" LeMasters, III(2)................. 2,500,000 5.52 4.65
Kevin L. Bohren(3)............................... 1,194,149 2.77 2.31
Layne L. Britton................................. 1,128,394 2.62 2.19
Sky D. Dayton.................................... 803,981 1.87 1.56
Craig W. Dougherty(4)............................ 600,000 1.38 1.16
Alexander Gray(5)................................ 600,000 1.38 1.15
Jeffrey Berg..................................... -- * *
Bruce L. Kaplan.................................. -- * *
All directors and executive officers as a group
(12 persons)(6)................................. 23,478,596 50.76% 42.88%
</TABLE>
- --------
* Less than one percent of the outstanding shares of common stock.
(1) All shares are held by KPCB Holdings Inc., as nominee. Mr. Hearst is a
general partner of Kleiner Perkins Caufield & Byers and a Vice President
of KPCB Holdings, Inc. He disclaims beneficial ownership except to the
extent of his pecuniary interest therein.
(2) Includes 2,250,000 shares issuable upon exercise of an option which will
be exercisable within 60 days of December 31, 1999 but which are subject
to a right of repurchase at cost in our favor in the event Mr. LeMasters
ceases employment with us.
(3) Includes 63,333 shares issuable upon exercise of an option which will be
exercisable within 60 days of December 31, 1999.
(4) Includes 400,000 shares issuable upon exercise of an option which will be
exercisable within 60 days of December 31, 1999 but which are subject to a
right of repurchase at cost in our favor in the event Mr. Dougherty ceases
employment with us.
(5) Includes 500,000 shares issuable upon exercise of an option which will be
exercisable within 60 days of December 31, 1999 but which are subject to a
right of repurchase at cost in our favor in the event Mr. Gray ceases
employment with us.
(6) Includes 175,000 shares issuable upon exercise of an option held by an
executive officer not listed in this table that will be exercisable within
60 days of December 31, 1999.
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<PAGE>
Except as otherwise noted, the address of each person listed in the above
table is c/o ReplayTV, Inc., 1945 Charleston Road, Mountain View, CA 94043-
1201. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to shares. To our knowledge, except under applicable community
property laws or as otherwise indicated, the persons named in the table have
sole voting and sole investment control with respect to all shares
beneficially owned. The applicable percentage of ownership for each
stockholder is based on 43,043,823 shares of common stock outstanding as of
December 31, 1999 on a pro forma basis to reflect the issuance of 5,627,267
shares of Series F preferred stock in January 2000, the issuance of 2,090,907
shares of Series G preferred stock in March 2000 and the automatic conversion
of all shares of preferred stock, including the shares of Series F preferred
stock issued in January 2000 and the shares of Series G preferred stock issued
in March 2000, into shares of common stock, and an assumed 51,543,823 shares
outstanding after the completion of this offering, in each case, together with
applicable options for that stockholder. Shares of common stock issuable upon
the exercise of options and other rights beneficially owned that are
exercisable within 60 days of December 31, 1999 are deemed outstanding for the
purpose of computing the percentage ownership of the person holding those
options and other rights but are not deemed outstanding for the purposes of
computing the percentage ownership of each other person. A portion of the
shares issued or issuable upon exercise of options in the table above is
subject to repurchase by us at the original purchase price in the event of
termination of the holder's relationship as an employee or director of
ReplayTV, which repurchase right lapses over time. The table assumes that the
underwriters' over-allotment to purchase up to 1,275,000 shares of common
stock is not exercised.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue
200,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
undesignated preferred stock, $0.001 par value. The following description of
our capital stock is intended to be a summary and does not describe all
provisions of our certificate of incorporation or bylaws or Delaware law
applicable to us. For a more thorough understanding of the terms of our
capital stock, you should refer to our certificate of incorporation and
bylaws, which are included as exhibits to the registration statement of which
this prospectus is a part.
Common Stock
As of December 31, 1999, there were 43,043,823 shares of common stock
outstanding on a pro forma basis to reflect the issuance of 5,627,267 shares
of Series F preferred stock in January 2000 and the issuance of 2,090,907
shares of Series G preferred stock in March 2000, held by approximately 100
stockholders, which reflects the conversion of all outstanding shares of
preferred stock, including the shares of Series F preferred stock issued in
January 2000 and the shares of Series G preferred stock issued in March 2000,
into common stock. In addition, as of December 31, 1999, there were options
outstanding to purchase 10,789,637 shares of common stock and a warrant
outstanding to purchase 6,666 shares of common stock at an exercise price of
$7.50 per share, which expires on May 31, 2004. Upon completion of this
offering, there will be 51,543,823 shares of common stock outstanding,
assuming no exercise of the underwriters' overallotment option or additional
exercise of outstanding options under our stock option plans and warrants.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, holders of common stock are
entitled to receive ratably dividends as may be declared by the board of
directors out of funds legally available for that purpose. 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
and the liquidation preference of any outstanding preferred stock. The common
stock has no preemptive or conversion rights, other subscription rights, or
redemption or sinking fund provisions.
Preferred Stock
Upon the closing of this offering, all outstanding shares of preferred
stock, including the shares of Series F preferred stock issued in January 2000
and the shares of Series G preferred stock issued in March 2000, will be
converted on a one-for-one basis into 33,459,759 shares of common stock and
automatically retired. Thereafter, the board of directors will have the
authority, without further action by the stockholders, to issue up to
5,000,000 shares of preferred stock in one or more series and to designate the
rights, preferences, privileges and restrictions of each series. The issuance
of preferred stock could have the effect of restricting dividends on the
common stock, diluting the voting power of the common stock, impairing the
liquidation rights of the common stock or delaying or preventing our change in
control without further action by the stockholders. We have no present plans
to issue any shares of preferred stock.
Registration Rights
Following conversion of the preferred stock into common stock, the holders
of 33,459,759 shares of common stock and warrants to purchase 6,666 shares of
common stock are entitled to have their shares registered by us under the
Securities Act under the terms of an agreement between us and the holders of
these "registrable securities." Subject to limitations specified in the
agreement, these registration rights include the following:
The holders of at least 35% of the outstanding registrable securities may
require, on two occasions beginning six months after the date of this
prospectus, that we use our best efforts to register the registrable
securities for public resale, provided that the aggregate offering price for
these registrable securities is at least $5.0 million. This right is subject
to the ability of the underwriters to limit the number of shares included in
this offering in view of market conditions.
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<PAGE>
If we register any common stock, either for our own account or for the
account of other security holders, the holders of registrable securities are
entitled to include their shares of common stock in that registration. This
right is subject to the ability of the underwriters to limit the number of
shares included in this offering in view of market conditions.
The holders of at least 20% of the then outstanding registrable securities
may require us to register all or a portion of their registrable securities on
Form S-3 when use of this form becomes available to us, provided that the
proposed aggregate offering price is at least $500,000. The holders of
registrable securities may not exercise this right if we have already effected
two Form S-3 registrations previously demanded by the holders of registrable
securities during the preceding twelve-month period.
We will bear all registration expenses other than underwriting discounts
and commissions, except in the case of registrations on Form S-3 after the
first two such registrations, in which case the holders will bear the expenses
of registration. All registration rights terminate on the date five years
following the closing of this offering, or, with respect to each holder of
registrable securities, at the time when the holder is entitled to sell all of
its shares in any three-month period under Rule 144 of the Securities Act.
Delaware Anti-Takeover Law and Provisions of our Certificate of Incorporation
and Bylaws
Provisions of Delaware law and our certificate of incorporation and bylaws
could make it more difficult for a third party to acquire us or to remove our
incumbent officers and directors. These provisions, summarized below, are
expected to discourage coercive takeover practices and inadequate takeover
bids and to encourage persons seeking to acquire control of ReplayTV to first
negotiate with us. We believe that the benefits of increased protection of our
ability to negotiate with the proponent of an unfriendly or unsolicited
acquisition proposal outweigh the disadvantages of discouraging these
proposals because, among other things, negotiation could result in an
improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law,
which regulates corporate acquisitions. 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:
. the board of directors approved the transaction in which the person
became an interested stockholder prior to the date the interested
stockholder attained this status;
. upon consummation of the transaction that resulted in the person's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers; or
. on or after the date of the business combination, it is approved by the
board of directors and authorized at an annual or special meeting of
stockholders.
A business combination generally includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. In general, 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.
Our certificate of incorporation and bylaws do not provide for the right of
stockholders to act by written consent without a meeting or for cumulative
voting in the election of directors. In addition, our certificate of
incorporation permits the board of directors to issue preferred stock with
voting or other rights without any stockholder action. Our certificate of
incorporation provides for the board of directors to be divided into three
classes, with staggered three-year terms, commencing at our first annual
meeting of stockholders following the date on which we have at least 800
stockholders. As a result, only one class of directors will be elected at each
annual meeting of stockholders. Each of the two other classes of directors
will continue to serve for the remainder
60
<PAGE>
of its respective three-year term. These provisions, which require the vote of
stockholders holding at least two thirds of the outstanding common stock to
amend, may have the effect of deterring hostile takeovers or delaying changes
in our management.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company. The transfer agent's address is 40 Wall Street, New
York, NY, 10005 and its telephone number is (212) 936-5100.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this
offering because of contractual restrictions on resale. Sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect the prevailing market price and impair our ability to
raise equity capital in the future.
Upon completion of this offering, we will have 51,543,823 outstanding
shares of common stock. Of these shares, the 8,500,000 shares sold in this
offering, plus any shares issued upon exercise of the underwriters'
overallotment option, will be freely tradable without restriction under the
Securities Act, unless purchased by our "affiliates" as that term is defined
in Rule 144 under the Securities Act. In general, affiliates include executive
officers, directors or 10% stockholders. Shares purchased by affiliates will
remain subject to the resale limitations of Rule 144.
The remaining 43,043,823 shares outstanding as of December 31, 1999, as
adjusted to reflect the issuance of 5,627,267 shares of Series F preferred
stock in January 2000 and the issuance of 2,090,907 shares of Series G
preferred stock in March 2000, are restricted securities within the meaning of
Rule 144. Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act, which are summarized
below. Sales of restricted securities in the public market, or the
availability of these shares for sale, could adversely affect the market price
of the common stock.
Our directors, executive officers and certain of our stockholders and
option holders have entered into lock-up agreements in connection with this
offering, as more fully described under "Underwriting," generally providing
that they will not offer, sell, contract to sell or grant any option to
purchase or otherwise dispose of our common stock or any securities
exercisable for or convertible into our common stock owned by them for a
period of 180 days after the date of this prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated. Notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701, shares
subject to lock-up agreements will not be salable until these agreements
expire or are waived by Morgan Stanley & Co. Incorporated. Taking into account
the lock-up agreements, and assuming Morgan Stanley & Co. Incorporated does
not release stockholders from these agreements, the following shares will be
eligible for sale in the public market at the following times:
. Beginning on the date of this prospectus, only the 8,500,000 shares sold
in this offering will be immediately available for sale in the public
market.
. Beginning 180 days after the date of this prospectus, about 9,411,088
shares will be eligible for sale pursuant to Rule 701, of which 7,710,720
are held by affiliates.
. Beginning 180 days after the date of this prospectus, about 1,824,434
shares will be eligible for sale pursuant to Rule 144(k), none of which
are held by affiliates.
. Beginning 180 days after the date of this prospectus, about 20,070,571
shares will be eligible for sale subject to volume, manner of sale and
other limitations under Rule 144, of which 12,379,543 are held by
affiliates.
. The remaining 7,737,730 shares will be eligible for sale pursuant to Rule
144 upon the expiration of various one-year holding periods during the
six months following 180 days after the date of this prospectus, none of
which are held by affiliates.
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities 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:
. one percent of the number of shares of common stock then outstanding
which will equal about 515,438 shares immediately after this offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
62
<PAGE>
Sales under Rule 144 are also subject to requirements with respect to
manner of sale, notice and the availability of current public information
about us. Under Rule 144(k), a person who is not deemed to have been our
affiliate 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, is
entitled to sell his or her shares without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits our employees, officers,
directors or consultants who purchased shares pursuant to a written
compensatory plan or contract to resell these shares in reliance upon Rule 144
but without compliance with specific restrictions. Rule 701 provides that
affiliates may sell their Rule 701 shares under Rule 144 without complying
with the holding period requirement and that non-affiliates may sell their
shares in reliance on Rule 144 without complying with the holding period,
public information, volume limitation or notice provisions of Rule 144.
In addition, we intend to file registration statements under the Securities
Act as promptly as possible after the effective date to register shares to be
issued pursuant to our employee benefit plans. As a result, any options or
rights exercised under the 1999 stock plan, the 1997 stock option plan, the
2000 employee stock purchase plan, the 2000 directors' stock option plan or
any other benefit plan after the effectiveness of the registration statements
will also be freely tradable in the public market. However, such shares held
by affiliates will still be subject to the volume limitation, manner of sale,
notice and public information requirements of Rule 144 unless otherwise
resalable under Rule 701. As of December 31, 1999 there were outstanding
options for the purchase of 10,789,637 shares of common stock, of which
options to purchase 4,039,396 shares were exercisable.
63
<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., Chase
Securities Inc., Deutsche Bank Securities Inc. and Wasserstein Perella
Securities, Inc. are acting as representatives, have severally agreed to
purchase and we have agreed to sell to them, the respective number of shares
of common stock set forth opposite the names of these underwriters below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ----------
<S> <C>
Morgan Stanley & Co. Incorporated...............................
Bear, Stearns & Co. Inc.........................................
Chase Securities Inc. ..........................................
Deutsche Bank Securities Inc....................................
Wasserstein Perella Securities, Inc.............................
----------
Total....................................................... 8,500,000
==========
</TABLE>
Morgan Stanley Dean Witter Online, Inc., an affiliate of Morgan Stanley &
Co. Incorporated and facilitator of Internet distribution, is acting as a
selected dealer in connection with this offering.
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us 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 specified legal matters by their counsel and to
other conditions. The underwriters are obligated to take and pay for all of
the shares of common stock offered by this prospectus, except those shares
covered by the over-allotment option described below, if any shares are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page of this prospectus and a portion to some dealers at a price that
represents a concession not in excess of $ per share under the public
offering price. Any underwriter may allow, and these dealers may reallow, a
concession not in excess of $ per share to other underwriters or to other
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.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of 1,275,000
additional shares at the public offering price set forth on the cover page of
this prospectus, less underwriting discounts and commissions. The underwriters
may exercise this option solely for the purpose of covering over-allotments,
if any, made in connection with the offering of the shares offered by this
prospectus. To the extent this option is exercised, each underwriter will
become obligated, subject to specified conditions, to purchase about the same
percentage of additional shares as the number set forth next to the
underwriter's name in the preceding table bears to the total number of shares
set forth next to the names of all underwriters in the preceding table. If the
underwriters exercise the over-allotment option in full, the total price to
the public for this offering would be $ , the total underwriting discounts
and commissions would be $ and the total proceeds to ReplayTV would be $
.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
At our request, the underwriters have reserved up to 575,000 shares of
common stock offered by this prospectus for sale at the initial public
offering price to some of our directors, officers, employees, business
64
<PAGE>
associates and related persons of ReplayTV. The number of shares available for
sale to the general public will be reduced to the extent that these persons
purchase these reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same basis as the
other shares offered by this prospectus.
ReplayTV has applied to list the common stock on the Nasdaq National Market
under the symbol "RPTV."
ReplayTV, our directors and executive officers and certain of our
stockholders and option holders have each agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, he, she or 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 agreement 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 the immediately preceding paragraph do not
apply to:
. the issuance by us 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;
. shares sold by us in this offering;
. transactions by any person other than ReplayTV relating to shares of
common stock or other securities acquired in open market transactions
after the completion of this offering; or
. in the case of ReplayTV, the grant of options to purchase common stock or
the issuance of restricted stock to our employees or consultants or the
issuance of shares of common stock or other rights to acquire our capital
stock, so long as these options and shares of stock are subject to the
same restrictions as those contained in this and the preceding paragraph.
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 shares of 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.
ReplayTV and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
65
<PAGE>
Pricing of this Offering
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price will be determined by
negotiations between us and the representatives of the underwriters. Among the
factors to be considered in determining the initial public offering price will
be:
. the future prospects of ReplayTV and its industry in general;
. earnings and certain other financial and operating information of
ReplayTV in recent periods; and
. the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies
engaged in activities similar to those of ReplayTV.
The estimated initial public offering price range set forth on the cover
page of this prospectus is subject to change as a result of market conditions
and other factors.
LEGAL MATTERS
The validity of the common stock in this offering will be passed upon by
Venture Law Group, A Professional Corporation, 2800 Sand Hill Road, Menlo
Park, California 94025. Mark Medearis, a Director of Venture Law Group, is our
Secretary. Legal matters in connection with this offering will be passed upon
for the underwriters by Davis Polk & Wardwell, 450 Lexington Avenue, New York,
New York 10017. As of the date of this prospectus, attorneys of Venture Law
Group and an investment partnership controlled by Venture Law Group
beneficially own an aggregate of 19,412 shares of our common stock.
EXPERTS
The financial statements of ReplayTV, Inc. as of December 31, 1998 and 1999
and for the period from August 27, 1997 (inception) to December 31, 1997, each
of the two years in the period ended December 31, 1999 and the period from
August 27, 1997 (inception) to 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.
ADDITIONAL INFORMATION AVAILABLE TO YOU
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the shares of common stock offered by
this prospectus. This prospectus does not contain all of the information set
forth in the registration statement and its exhibits and schedules. For
further information with respect to us and our common stock being offered, see
the registration statement and its exhibits and schedules. A copy of the
registration statement and its exhibits and schedules may be inspected without
charge at the public reference facilities maintained by the SEC located at
Room 1024, 450 Fifth Street, Washington, D.C. 20549 and at the SEC's regional
offices located at the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies of all or any part of the registration
statement may be obtained from these offices upon the payment of the fees
prescribed by the SEC. Information on the operation of the public reference
room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a
web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the SEC.
66
<PAGE>
REPLAYTV, INC.
(a development stage company)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheet.............................................................. F-3
Statement of Operations.................................................... F-4
Statement of Stockholders' Equity (Deficit)................................ F-5
Statement of Cash Flows.................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
ReplayTV, Inc.
The reincorporation described in Note 10 to the financial statements has not
been consummated as of March 28, 2000. When the reincorporation has been
completed, we will be in a position to furnish the following report:
"In our opinion, the accompanying balance sheets and the related
statements of operations, of stockholders' equity (deficit), and of
cash flows present fairly, in all material respects, the financial
position of ReplayTV, Inc. (a development stage company) at December
31, 1998 and 1999, and the results of its operations and its cash flows
for the period from August 27, 1997 (inception) to December 31, 1997,
each of the two years in the period ended December 31, 1999 and the
period from August 27, 1997 (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 audits 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
February 22, 2000, except for Note 10,
which is as of March , 2000
F-2
<PAGE>
REPLAYTV, INC.
(a development stage company)
BALANCE SHEET
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
----------------- December 31,
1998 1999 1999
------- -------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 686 $ 11,731
Short-term investments...................... 25 24,419
Accounts receivable, net of allowances of $0
and $13.................................... -- 1,464
Inventory................................... -- 1,700
Prepaid expenses and other current assets... 225 1,043
------- --------
Total current assets.......................... 936 40,357
Property and equipment, net................... 132 2,751
Other assets.................................. -- 341
------- --------
Total assets.................................. $ 1,068 $ 43,449
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................ $ 682 $ 5,406
Accrued liabilities......................... 45 1,345
Notes payable to related party.............. 601 --
------- --------
Total current liabilities..................... 1,328 6,751
------- --------
Commitments and contingencies (Note 4)
Stockholders' equity (deficit):
Convertible Preferred Stock, issuable in
series, $0.001 par value, 8,237 and 27,137
shares authorized at December 31, 1998 and
1999, respectively; 7,915 and 25,742 shares
issued and outstanding at December 31, 1998
and 1999, respectively; 5,000 shares
authorized; no shares issued and
outstanding pro forma ..................... 8 26 $ --
Common Stock, $0.001 par value, 30,000 and
75,000 shares authorized at December 31,
1998 and 1999, respectively; 6,970 and
9,584 shares issued and outstanding at
December 31, 1998 and 1999 respectively;
200,000 shares authorized and 35,326 shares
issued and outstanding pro forma .......... 4 6 32
Additional paid-in capital.................. 3,818 110,451 110,451
Notes receivable............................ -- (3,200) (3,200)
Unearned stock-based compensation........... (651) (30,579) (30,579)
Deficit accumulated during development
stage...................................... (3,439) (40,006) (40,006)
------- -------- --------
Total stockholders' equity (deficit).......... (260) 36,698 $ 36,698
------- -------- ========
Total liabilities and stockholders' equity
(deficit).................................... $ 1,068 $ 43,449
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
REPLAYTV, INC.
(a development stage company)
STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from Period from
August 27, August 27,
1997 Year Ended 1997
(inception) to December 31, (inception) to
December 31, ----------------- December 31,
1997 1998 1999 1999
-------------- ------- -------- --------------
<S> <C> <C> <C> <C>
Costs and expenses:
Research and development
(excludes stock-based
compensation of $0, $163,
$1,635 and $1,798)......... $ 136 $ 1,961 $ 7,980 $ 10,077
Programming and content
(excludes stock-based
compensation of $0, $15,
$2,179 and $2,194)......... -- -- 1,029 1,029
Sales and marketing
(excludes stock-based
compensation of $0, $15,
$1,418 and $1,433)......... 10 764 14,586 15,360
General and administrative
(excludes stock-based
compensation of $0, $13,
$3,042 and $3,055)......... 9 325 3,271 3,605
Hardware distribution costs,
net (excludes stock-based
compensation of ($0, $0,
$357 and $357)............. -- -- 2,030 2,030
Stock-based compensation.... -- 206 8,631 8,837
------ ------- -------- --------
Total costs and expenses.. 155 3,256 37,527 40,938
------ ------- -------- --------
Operating loss................ (155) (3,256) (37,527) (40,938)
Interest income (expense),
net.......................... -- (28) 960 932
------ ------- -------- --------
Net loss...................... $ (155) $(3,284) $(36,567) $(40,006)
====== ======= ======== ========
Basic and diluted net loss per
share........................ $(0.08) $ (0.48) $ (4.83) $ (5.59)
====== ======= ======== ========
Basic and diluted weighted
average shares used in
computation of net loss per
share........................ 2,026 6,889 7,565 7,157
====== ======= ======== ========
Pro forma basic and diluted
net loss per share
(unaudited).................. $ (1.38)
========
Pro forma basic and diluted
weighted average shares
(unaudited).................. 26,476
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
REPLAYTV, INC.
(a development stage company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Convertible Deficit
Preferred Accumulated Total
Stock Common Stock Additional Unearned During Stockholders'
------------- -------------- Paid-In Notes Stock-Based Development Equity
Shares Amount Shares Amount Capital Receivable Compensation Stage (Deficit)
------ ------ ------ ------ ---------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock
at inception........... -- $ -- 7,863 $ 4 $ -- $ -- $ -- $ -- $ 4
Issuance of Series A
Preferred Stock, net... 2,494 3 -- -- 273 -- -- -- 276
Net loss................ -- -- -- -- -- -- -- (155) (155)
------ ---- ----- --- -------- ------- -------- -------- -------
Balance at December 31,
1997................... 2,494 3 7,863 4 273 -- -- (155) 125
Issuance of Series B
Preferred Stock, net... 2,258 2 -- -- 695 -- -- -- 697
Issuance of Series C
Preferred Stock, net... 3,163 3 -- -- 1,993 -- -- -- 1,996
Exercise of Common Stock
options................ -- -- 90 -- -- -- -- -- --
Repurchase of Common
Stock.................. -- -- (983) -- -- -- -- -- --
Unearned stock-based
compensation........... -- -- -- -- 857 -- (857) -- --
Stock-based
compensation........... -- -- -- -- -- -- 206 -- 206
Net loss................ -- -- -- -- -- -- -- (3,284) (3,284)
------ ---- ----- --- -------- ------- -------- -------- -------
Balance at December 31,
1998................... 7,915 8 6,970 4 3,818 -- (651) (3,439) (260)
Issuance of Series D
Preferred Stock, net .. 10,194 10 -- -- 7,831 -- -- -- 7,841
Issuance of Series E
Preferred Stock, net .. 7,633 8 -- -- 56,995 -- -- -- 57,003
Issuance of Common
Stock ................. -- -- 2,614 2 4,171 (3,200) -- -- 973
Issuance of stock
options for services .. -- -- -- -- 734 -- -- -- 734
Issuance of warrants to
purchase Series E
Preferred Stock ....... -- -- -- -- 30 -- -- -- 30
Unearned stock-based
compensation .......... -- -- -- -- 36,872 -- (36,872) -- --
Stock-based
compensation .......... -- -- -- -- -- -- 6,944 -- 6,944
Net loss................ -- -- -- -- -- -- -- (36,567) (36,567)
------ ---- ----- --- -------- ------- -------- -------- -------
Balance at December 31,
1999................... 25,742 $ 26 9,584 $ 6 $110,451 $(3,200) $(30,579) $(40,006) $36,698
====== ==== ===== === ======== ======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
REPLAYTV, INC.
(a development stage company)
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from Period from
August 27, August 27,
1997 1997
(inception) Year Ended (inception)
to December 31, to
December 31, ----------------- December 31,
1997 1998 1999 1999
------------ ------- -------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss......................... $(155) $(3,284) $(36,567) $(40,006)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization.. 2 23 275 300
Stock-based compensation....... -- 206 8,661 8,867
Changes in assets and
liabilities:
Accounts receivable.......... -- -- (1,464) (1,464)
Inventory.................... -- -- (1,700) (1,700)
Accounts payable and other
current liabilities......... 19 739 5,993 6,751
Prepaid expenses and other
assets...................... (10) (215) (1,159) (1,384)
----- ------- -------- --------
Net cash used in operating
activities................ (144) (2,531) (25,961) (28,636)
----- ------- -------- --------
Cash flows from investing
activities:
Purchase of property and
equipment....................... (33) (124) (2,894) (3,051)
Purchase of short-term
investments..................... -- (25) (35,204) (35,229)
Sale of short-term investments... -- -- 10,810 10,810
----- ------- -------- --------
Net cash used in investing
activities................ (33) (149) (27,288) (27,470)
----- ------- -------- --------
Cash flows from financing
activities:
Proceeds from the issuance of
Common Stock.................... 4 -- 20 24
Proceeds from the sale of
Preferred Stock................. 276 2,693 64,844 67,813
Proceeds from (repayment of)
notes payable................... -- 570 (570) --
----- ------- -------- --------
Net cash provided by
financing activities...... 280 3,263 64,294 67,837
----- ------- -------- --------
Net increase in cash and cash
equivalents..................... 103 583 11,045 11,731
Cash and cash equivalents at the
beginning of the period......... -- 103 686 --
----- ------- -------- --------
Cash and cash equivalents at the
end of the period............... $ 103 $ 686 $ 11,731 $ 11,731
===== ======= ======== ========
Supplemental disclosure of cash
flow information:
Interest paid.................... $ -- $ -- $ 37 $ 37
===== ======= ======== ========
Supplemental disclosure of
noncash transactions:
Issuance of stock in exchange for
notes........................... $ -- $ -- $ 3,200 $ 3,200
===== ======= ======== ========
Issuance of stock in exchange for
services........................ $ -- $ -- $ 953 $ 953
===== ======= ======== ========
Issuance of options in exchange
for services.................... $ -- $ -- $ 734 $ 734
===== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
REPLAYTV, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
Note 1--The Company and Its Significant Accounting Policies:
ReplayTV, Inc. (the "Company") was incorporated in California in August
1997, and through the first quarter of 1999, the Company's operating
activities consisted primarily of product and service development. The Company
continues to operate as a development stage company and has not yet recognized
any operating revenues from advertising or other sources. In April 1999, the
Company launched the ReplayTV Service and the ReplayTV-enabled personal video
recorder via direct sales from its web site and toll free telephone number.
More recently, the Company's products have become available through online
retailers. The Company has received proceeds from the shipment of ReplayTV-
enabled personal video recorders; however, these proceeds are considered
incidental to the Company's ongoing business and thus have been reported as a
reduction of the related hardware distribution costs in its statement of
operations. The Company does not intend to manufacture personal video
recorders. Instead, it intends to license its technology to partners to
manufacture personal video recorders or incorporate ReplayTV's technology in
their consumer electronics products such as VCRs, DVD players and recorders,
set-top boxes or televisions. The Company recently entered into such an
agreement with Matsushita-Kotobuki Electronics Industries, Ltd., a subsidiary
of Matsushita Electric Industrial Co., Ltd. ("MKE"), and intends to enter into
similar relationships with other consumer electronics companies in the future.
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 the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The carrying
amount reported in the balance sheet for cash and cash equivalents
approximates its fair value.
Short-term investments
The Company classifies all investments in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" which requires investment
securities to be classified as either held to maturity, trading or available-
for-sale. All of the Company's investments are classified as available-for-
sale and are stated at fair market value which approximates cost.
The Company's short-term investments consist of a certificate of deposit of
$25,000 at December 31, 1998 and commercial paper of $24.4 million at December
31, 1999. Unrealized gains or losses have been insignificant for all periods
presented.
Inventory
Inventory is stated at the lower of cost or market, determined on a first-
in, first-out basis.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of the assets
of one to five years.
F-7
<PAGE>
REPLAYTV, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Software development costs
Software development costs incurred prior to the establishment of
technological feasibility are charged to research and development expense as
incurred. Material software development costs incurred subsequent to the time
a product's technological feasibility has been established using the working
model approach, through the time the product is available for general release
to customers, are capitalized. To date, development costs qualifying for
capitalization have been insignificant and therefore have been expensed as
incurred.
Hardware distribution costs, net
The costs associated with manufacturing and distribution of the personal
video recorders were $7.2 million for the year ended December 31, 1999.
Proceeds from sales of the personal video recorders totaled $5.2 million
during the same period. As the Company plans to transition the manufacturing
and distribution of its personal video recorders to MKE and other partners,
the sales of personal video recorders are considered incidental to its
business. Therefore, the Company has reflected the proceeds as a reduction of
the related hardware distribution costs. The Company has agreed to subsidize
MKE in connection with their manufacturing and distribution of ReplayTV-
enabled personal video recorders in future periods. The Company provides a
warranty to customers for a period of one year and records a provision for
estimated warranty costs at the time of sale. Warranty expenses have been
immaterial to date.
Net loss per share
Basic 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. Diluted net loss per share is computed by dividing the net
loss for the period by the weighted average number of common and potential
common equivalent shares 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 composed of Common Stock subject to
repurchase rights and incremental shares of Common Stock issuable upon the
exercise of stock options and warrants and Common Stock issuable upon
conversion of Preferred Stock.
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated:
<TABLE>
<CAPTION>
Period from Period from
August 27, August 27,
1997 Year Ended 1997
(inception) to December 31, (inception) to
December 31, ----------------- December 31,
1997 1998 1999 1999
-------------- ------- -------- --------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Numerator:
Net loss................. $ (155) $(3,284) $(36,567) $(40,006)
------ ------- -------- --------
Denominator:
Weighted average shares.. 2,315 6,889 8,161 7,412
Weighted average shares
of Common Stock subject
to repurchase
agreements.............. (289) -- (596) (255)
------ ------- -------- --------
Denominator for basic and
diluted calculation..... 2,026 6,889 7,565 7,157
------ ------- -------- --------
Basic and diluted net loss
per share................. $(0.08) $ (0.48) $ (4.83) $ (5.59)
====== ======= ======== ========
</TABLE>
F-8
<PAGE>
REPLAYTV, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table sets forth the weighted average potential shares of
Common Stock that are not included in the diluted net loss per share
calculation above because to do so would be antidilutive for the periods
indicated:
<TABLE>
<CAPTION>
Period from Period from
August 27, August 27,
1997 Year Ended 1997
(inception) to December 31, (inception) to
December 31, ------------ December 31,
1997 1998 1999 1999
-------------- ----- ------ --------------
(in thousands)
<S> <C> <C> <C> <C>
Weighted average effect of
dilutive securities:
Series A Preferred Stock...... 242 2,494 2,494 2,229
Series B Preferred Stock...... -- 1,460 2,258 1,587
Series C Preferred Stock...... -- 439 3,163 1,533
Series D Preferred Stock...... -- -- 7,843 3,358
Series E Preferred Stock...... -- -- 3,153 1,360
Warrant to purchase Series E
Preferred Stock.............. -- -- 3 1
Employee stock options........ 31 1,635 6,160 3,358
Common Stock subject to
repurchase agreements........ 289 -- 596 255
--- ----- ------ ------
562 6,028 25,670 13,681
=== ===== ====== ======
</TABLE>
Income taxes
Income taxes are accounted for using the asset and liability approach in
accordance with SFAS No. 109, "Accounting for Income Taxes." Under the asset
and liability approach, a current tax liability or asset is recognized for the
estimated taxes payable or refundable on tax returns for the current year. A
deferred tax liability or asset is recognized for the estimated future tax
effects attributable to temporary differences and carryforwards. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any benefits that, based on available evidence, are not expected to be
realized.
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted average number of common shares outstanding,
including the conversion of the Company's Convertible Preferred Stock into
shares of the Company's Common Stock effective upon the closing of the
Company's initial public offering, as if such conversion occurred at January
1, 1999 or at the date of original issuance, if later. The resulting unaudited
pro forma adjustment includes an increase of 18,911,000 shares in the weighted
average shares used to compute basic and diluted net loss per share for the
year ended December 31, 1999. The calculation of pro forma diluted net loss
per share excludes incremental Common Stock issuable upon the exercise of
stock options and warrants as the effect would be antidilutive.
Comprehensive income
Effective January 1, 1998, 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. During the period from August 27, 1997
(inception) to December 31, 1997, each of the two years in the period ended
December 31, 1999 and the period from August 27, 1997 (inception) to
December 31, 1999 the Company has not had any significant transactions that
are required to be reported in comprehensive income (loss).
F-9
<PAGE>
REPLAYTV, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock-based compensation
The Company accounts for stock-based compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB 25, unearned compensation is based on the difference,
if any, on the date of the grant, between the fair value of the Company's
stock and the exercise price. Unearned compensation is amortized and expensed
in accordance with Financial Accounting Standards Board Interpretation No. 28
using the multiple-option approach. The Company accounts for stock-based
compensation issued to non-employees in accordance with the provisions of SFAS
No. 123 and Emerging Issues Task Force No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."
Concentration of risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of cash equivalents and short-
term investments. Cash equivalents and short-term investments, primarily
composed of investments in money market funds and commercial paper, are
maintained with a single institution, and the composition and maturities are
regularly monitored by management. The carrying value of all financial
instruments approximate their respective fair value.
The Company relies on a single third-party contractor to manufacture the
ReplayTV-enabled personal video recorders. The Company also relies on other
third party suppliers to provide certain components necessary to manufacture
the personal video recorders. The loss of any manufacturer or supplier could
delay or prevent the Company from commercializing its services and have a
material adverse effect on the Company's business, financial position and
results of operations.
Recent accounting pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specified costs and amortization of such costs. The adoption of the provisions
of SOP 98-1 during the fiscal year beginning January 1, 1999, did not have a
material effect on the financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. In July 1999, the Financial Accounting Standards Board issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of FASB Statement No. 133". SFAS No. 137
deferred the effective date until the first fiscal quarter ending on or after
June 30, 2000. The Company will adopt SFAS No. 133 in its quarter ending June
30, 2000. The Company has not engaged in hedging activities or invested in
derivative instruments.
F-10
<PAGE>
REPLAYTV, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 2--Balance Sheet Components:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- --------
(in thousands)
<S> <C> <C>
Property and equipment:
Computer equipment and software......................... $ 138 $ 2,138
Lab and manufacturing equipment......................... 11 206
Office furniture and equipment.......................... 8 707
------ --------
157 3,051
Less: accumulated depreciation............................ (25) (300)
------ --------
$ 132 $ 2,751
====== ========
Accrued liabilities:
Payroll and related expense............................. $ 45 $ 505
Warranty reserve........................................ -- 91
Deferred rent........................................... -- 270
Other................................................... -- 479
------ --------
$ 45 $ 1,345
====== ========
</TABLE>
Note 3--Line of Credit:
On June 10, 1999, the Company entered into a loan agreement (the
"Facility") with a bank. The Facility is secured by the Company's assets. The
Facility allows for borrowings of up to $1.25 million bearing interest at a
rate equal to the bank's prime rate plus 0.75% and expires in May 2000. The
Company must comply with certain financial covenants and conditions as
described in the Facility. The Company was in compliance as of December 31,
1999. As of December 31, 1999, no borrowings were outstanding under the
Facility. The Company has an outstanding Letter of Credit of $500,000 under
the loan agreement. Under the terms of the loan agreement, the Company is
prohibited from paying dividends without approval from the bank.
Note 4--Commitments and Contingencies:
Operating leases
The Company leases office space under a noncancelable operating lease which
expires in March 2006. Rent expense totaled $9,000, $120,000 and $1.5 million
in 1997, 1998 and 1999, respectively.
Future minimum lease payments under noncancelable leases are as follows (in
thousands):
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
2000................................................................. $ 2,198
2001................................................................. 2,411
2002................................................................. 2,483
2003................................................................. 2,555
2004................................................................. 2,627
Thereafter........................................................... 3,392
-------
Total minimum lease payments....................................... $15,666
=======
</TABLE>
F-11
<PAGE>
REPLAYTV, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
MKE agreement
In December 1999, the Company entered into a three-year agreement (the
"Agreement") with MKE. Under the Agreement, MKE will purchase from the Company
ReplayTV-enabled products currently manufactured by another third party and
will market, sell and distribute those products under the Panasonic brand name
featuring the ReplayTV logo. Also, the Company will work jointly with MKE to
develop ReplayTV-enabled products. During the term of the Agreement, the
Company will subsidize MKE for products that are distributed by or on behalf
of MKE. The Company will expense such costs as incurred.
Contingencies
From time to time, the Company may have certain contingent liabilities,
including intellectual property claims, that arise in the ordinary course of
its business activities. The Company accrues contingent liabilities when it is
probable that future expenditures will be made and such expenditures can be
reasonably estimated. On January 6, 2000 and February 29, 2000, the Company
was sued by PhoneTel Communications, Inc. and TechSearch L.L.C., respectively,
alleging patent infringement. The Company has filed various responses to the
complaints. Management believes it has meritorious defenses to the suits and
plans to vigorously contest the claims. In the opinion of management, there
are no pending claims for which the outcome is expected to result in a
material adverse effect on the financial position or results of operations or
cash flows of the Company.
Note 5--Income Taxes:
The Company incurred net operating losses for the period from August 27,
1997 (inception) to December 31, 1997 and the year ended December 31, 1998 and
1999 and accordingly, no provision for income taxes has been recorded. The tax
benefit is reconciled to the amount computed using the federal statutory rate
as follows:
<TABLE>
<CAPTION>
Period from
August 27,
1997 Year Ended
(inception) to December 31,
December 31, -----------------
1997 1998 1999
-------------- ------- --------
(in thousands)
<S> <C> <C> <C>
Federal statutory
benefit................ $ 53 $ 1,116 $ 12,433
State taxes, net of
federal benefit........ 13 263 2,860
Future benefits not
currently recognized... (71) (1,365) (11,547)
Nondeductible
compensation........... -- (82) (3,403)
Other................... 5 68 (343)
---- ------- --------
$ -- $ -- $ --
==== ======= ========
</TABLE>
At December 31, 1999, the Company had approximately $29.6 million of
federal and state net operating loss carryforwards available to offset future
taxable income which expire at various dates through 2019. Under the Tax
Reform Act of 1986, the amounts of and benefits from net operating loss
carryforwards may be impaired or limited in certain circumstances. Events
which cause limitations in the amount of net operating losses that the Company
may utilize in any one year include, but are not limited to, a cumulative
ownership change of more than 50%, as defined, over a three-year period.
F-12
<PAGE>
REPLAYTV, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999
------- --------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 744 $ 11,775
Accruals and allowances................................. 544 567
Research credits........................................ 148 641
------- --------
Net deferred tax assets............................... 1,436 12,983
Valuation allowance..................................... (1,436) (12,983)
------- --------
$ -- $ --
======= ========
</TABLE>
The Company has incurred losses since inception. Management believes that
based on the history of such losses and other factors, the weight of available
evidence indicates that it is more likely than not that the Company will not
be able to realize its deferred tax assets, and thus a full valuation reserve
has been recorded at December 31, 1998 and 1999.
Note 6--Convertible Preferred Stock:
Convertible Preferred Stock ("Preferred Stock") consists of the following:
<TABLE>
<CAPTION>
Proceeds
Per Net of
Shares Shares Share Liquidation Issuance
Series Authorized Outstanding Amount Amount Costs
------ ---------- ----------- ------ ----------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
A....................... 2,494 2,494 $0.11 $ 276 $ 276
------ ------ ------- -------
Balance at December
31, 1997............. 2,494 2,494 276 276
B....................... 2,580 2,258 0.31 700 697
C....................... 3,163 3,163 0.63 1,999 1,996
------ ------ ------- -------
Balance at December
31, 1998............. 8,237 7,915 2,975 2,969
D....................... 10,200 10,194 0.78 7,900 7,841
E....................... 8,700 7,633 7.50 57,300 57,003
------ ------ ------- -------
Balance at December
31, 1999, ........... 27,137 25,742 $68,175 $67,813
====== ====== ======= =======
</TABLE>
The above table excludes the Series F Preferred Stock and Series G
Preferred Stock financings which occurred subsequent to December 31, 1999 (see
Note 10).
The holders of the Convertible Preferred Stock have various rights and
preferences as follows:
Dividends
Holders of the Series A, Series B, Series C, Series D and Series E
Preferred Stock are each entitled to receive annual dividends of 8% per share,
when as and if declared by the Board of Directors prior to the declaration of
dividends to holders of Common Stock.
F-13
<PAGE>
REPLAYTV, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Conversion
Each share of Series A, Series B, Series C, Series D and Series E Preferred
Stock is convertible into shares of Common Stock based on a formula which
currently results in a one-for-one exchange ratio. This formula is subject to
adjustment, as defined, which essentially provides adjustments for holders of
the Preferred Stock in the event of dilutive issuances, stock splits,
combinations or other recapitalizations. Such conversion is automatic upon the
earlier of (i) the effective date of a public offering of Common Stock
resulting in an offering price of not less than $7.50 per share (appropriately
adjusted for any stock split, dividend, combination or other
recapitalizations) or (ii) written notice to the Company by the holders of at
least 66 2/3% of the then outstanding shares of Preferred Stock of their
intent to convert into shares of Common Stock.
Liquidation
In the event of liquidation, holders of the Series A Preferred Stock are
entitled to a per share distribution in preference to holders of Common Stock
equal to the Series A stated value of $0.11 plus any declared but unpaid
dividends. The holders of Series B Preferred Stock are entitled to a per share
distribution preference to holders of Common Stock equal to the Series B
stated value of $0.31 plus any declared but unpaid dividends. The holders of
Series C Preferred Stock are entitled to a per share distribution preference
to holders of Common Stock equal to the Series C stated value of $0.63 plus
any declared but unpaid dividends. The holders of Series D Preferred Stock are
entitled to a per share distribution preference to holders of Common Stock
equal to the Series D stated value of $0.78 plus any declared but unpaid
dividends. The holders of Series E Preferred Stock are entitled to a per share
distribution preference to holders of Common Stock equal to the Series E
stated value of $7.50 plus any declared but unpaid dividends. In the event
funds are sufficient to make a complete distribution to holders of Series A,
Series B, Series C, Series D and Series E as described above, the remaining
assets will be distributed ratably among the holders of Common Stock. A
merger, acquisition, sale of voting control or sale of substantially all of
the assets of the Company, in which the shareholders of the Company do not own
a majority (50% or more) of the outstanding shares of the surviving
corporation is deemed to be a liquidation.
Redemption
The holders of the Series A, B, C, D and E Preferred Stock have no
redemption rights.
Voting
The holders of the Series A, B, C, D and E Preferred Stock have one vote
for each share of Common Stock into which such Preferred Stock may be
converted.
Warrants for Preferred Stock
In connection with a loan agreement entered into in June 1999, the Company
issued a warrant to purchase 6,666 shares of Series E Preferred Stock to the
lender. The warrant may be exercised at any time between May 1999 and May 2004
at an exercise price of $7.50 per share. The warrant was recorded as a debt
discount at its estimated fair value of $30,000. The Company estimated the
fair value of the warrant using the Black-Scholes option pricing model using
the following assumptions: risk-free interest rate of 5.5%; volatility of 80%;
and an expected life of five years.
Note 7--Common Stock:
At December 31, 1998 and 1999, there were 6,970,000 and 9,584,000 shares
outstanding, respectively, of Common Stock issued to the founders of the
Company, affiliates and other nonrelated parties. A portion of the shares sold
are subject to a right of repurchase by the Company subject to vesting. At
December 31, 1998 and
F-14
<PAGE>
REPLAYTV, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
1999, there were approximately 0 and 1,530,000 shares, respectively, subject
to repurchase. In June 1998, the Company repurchased 983,000 shares of
unvested Common Stock from a founder of the Company at $0.0005 per share.
In July 1999, the Board of Directors approved a two-for-one stock split of
the Company's Common Stock and Preferred Stock with a corresponding adjustment
to outstanding stock options and warrants. All Common and Preferred converted
share and per share data in the accompanying financial statements have been
adjusted retroactively to give effect to the stock split.
The Company issued 311,000 shares of fully vested common stock for services
during 1999. The Company recorded $953,000 of stock-based compensation
expense, based on the estimated fair value of the stock issued. The fair
market value of the Company's common stock is determined by the Board of
Directors. In determining the fair market value on each grant date, the Board
of Directors considered among other things, the developmental stage of the
Company, the absence of a public trading market for the Company's securities
and the nature of the Company's business.
The Company has reserved shares of Common Stock as follows:
<TABLE>
<CAPTION>
December 31,
1999
--------------
(in thousands)
<S> <C>
Conversion of Series A....................................... 2,494
Conversion of Series B....................................... 2,258
Conversion of Series C....................................... 3,163
Conversion of Series D....................................... 10,194
Conversion of Series E....................................... 7,633
Common Stock issued.......................................... 9,584
Exercise of options under the equity incentive plans......... 9,219
Exercise of warrants issued for Series E Preferred Stock..... 7
Undesignated................................................. 30,448
------
75,000
======
</TABLE>
The above shares do not include shares reserved for the conversion of
Series F and G Preferred Stock issued subsequent to December 31, 1999, shares
reserved under the 2000 Employee Stock Purchase Plan and shares reserved under
the 2000 Directors' Stock Option Plan (See Note 10).
Note 8--Stock Option Plan:
In November 1997, the Board of Directors adopted the 1997 Stock Option Plan
(the "1997 Plan") providing for the issuance of incentive and nonstatutory
stock options to employees, consultants and outside directors of the Company.
As of December 31, 1999, 9,070,000 shares are authorized for issuance under
the 1997 Plan.
In September 1999, the Board of Directors adopted the 1999 Stock Option
Plan (the "1999 Plan") providing for the issuance of incentive and
nonstatutory stock options to employees, consultants and outside directors of
the Company. As of December 31, 1999, 4,230,000 shares are authorized for
issuance under the 1999 Plan.
F-15
<PAGE>
REPLAYTV, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Under the 1997 and 1999 Plans, options may be granted at an exercise price
at the date of grant of not less than the fair market value per share for
incentive stock options and, under the 1997 Plan, not less than 85% of the
fair market value per share for nonstatutory stock options, except for options
granted to a person owning greater than 10% of the total combined voting power
of all classes of stock of the Company, for which the exercise price of the
option under both the 1997 and 1999 Plans must be not less than 110% of the
fair market value. The fair market value of the Company's common stock is
determined by the Board of Directors. In determining the fair market value on
each grant date, the Board of Directors considered among other things, the
developmental stage of the Company, the absence of a public trading market for
the Company's securities and the nature of the Company's business.
Options granted under the 1997 and 1999 Plans generally become exercisable
at a rate of 25% per year over four years and expire no later than ten years
after the grant date.
Under the 1999 Plan, a stock purchase right may be issued, either alone, in
addition to, or in tandem with other awards granted under the 1999 Plan and/or
cash awards made outside of the 1999 Plan. The purchase price of the shares
subject to the stock purchase right are determined by the Board. Shares
purchased using the stock purchase right are subject to the Company's option
to repurchase the shares from the purchaser at the purchaser's original cost
per share upon the voluntary or involuntary termination of the purchaser's
employment or consulting relationship for any reason, including death or
disability.
The following table summarizes information about stock option transactions
under the 1997 and 1999 Plans:
<TABLE>
<CAPTION>
Period from
August 27, 1997
(inception) to Year Ended December 31,
December 31, ---------------------------------
1997 1998 1999
--------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period..................... -- $ -- 260 $0.01 2,567 $ 0.02
Granted below fair value.... -- 2,616 0.02 10,883 2.83
Granted at fair value....... 260 0.01 -- -- -- --
Exercised................... -- -- (90) 0.01 (2,291) 1.53
Canceled.................... -- -- (219) 0.01 (369) 1.17
--- ----- ------
Outstanding at end of
period..................... 260 0.01 2,567 0.02 10,790 2.53
=== ===== ======
Options vested.............. -- 219 889
=== ===== ======
Weighted average fair value
of options granted during
the period................. $0.01 $0.35 $10.44
===== ===== ======
</TABLE>
At December 31, 1999, the Company had 128,924 shares available for future
grant under the 1997 and 1999 Plans.
F-16
<PAGE>
REPLAYTV, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
which were exercisable as of December 31, 1999 (unaudited):
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
-------------------------------------------------------------------
Weighted
Average
Remaining Weighted
Range of Number Contractual Average
Exercise Outstanding Life (in Exercise
Prices (in thousands) years) Price
----------- -------------- ----------- --------
<S> <C> <C> <C>
$0.011-0.03 489 8.56 $0.027
0.125-0.25 331 9.15 0.173
0.625 30 9.47 0.625
2.00-4.00 23 9.58 2.363
7.00-8.00 16 9.95 7.385
</TABLE>
The weighted average remaining contractual life of stock options
outstanding at December 31, 1999 was 9.43 years.
Fair value disclosures
The Company applies the measurement principles of APB 25 in accounting for
its stock option plans. Had compensation expense for options granted been
determined based on the fair value at the grant date as prescribed by SFAS No.
123, the Company's net loss and net loss per share would have been decreased
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Period from
August 27, Period from
1997 August 27,
(inception) Year Ended 1997
to December 31, (inception) to
December 31, ----------------- December 31,
1997 1998 1999 1999
------------ ------- -------- --------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net loss:
As reported......................... $ (155) $(3,284) $(36,567) $(40,006)
====== ======= ======== ========
Pro forma........................... $ (155) $(3,289) $(37,376) $(40,820)
====== ======= ======== ========
Basic and diluted net loss per
share:
As reported......................... $(0.08) $ (0.48) $ (4.83) $ (5.59)
====== ======= ======== ========
Pro forma........................... $(0.08) $ (0.48) $ (4.94) $ (5.70)
====== ======= ======== ========
</TABLE>
F-17
<PAGE>
REPLAYTV, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes option pricing model as prescribed by
SFAS No. 123 using the following assumptions:
<TABLE>
<CAPTION>
Period from Period from
August 27, August 27,
1997 1997
(inception) Year Ended (inception)
to December 31, to
December 31, --------------- December 31,
1997 1998 1999 1999
------------ ------ ------ ------------
<S> <C> <C> <C> <C>
Risk-free interest rates............ 5.5% 5.5% 5.5% 5.5%
Expected lives (in years)........... 5 5 5 5
Dividend yield...................... 0% 0% 0% 0%
Expected volatility................. 0% 0% 0% 0%
</TABLE>
Because the determination of fair value of all options granted after such
time as the Company becomes a public entity will include an expected
volatility factor in addition to the factors described in the preceding
paragraph, the above results may not be representative of future periods.
Unearned stock-based compensation
In connection with certain stock option grants to employees, during the
year ended December 31, 1998 and 1999, the Company recognized unearned stock-
based compensation totaling $857,000 and $36.9 million, respectively, which is
being amortized over the vesting periods of the related options, which is
generally four years, using the multiple option approach, where each option
grant is treated as several concurrent awards, each with a different vesting
date. Amortization expense recognized for the year ended December 31, 1998 and
1999 totaled approximately $206,000 and $7.0 million, respectively. The
Company also recorded amortization expense of $734,000 for the year ended
December 31, 1999 in connection with stock options issued for services. The
Company estimated the fair value of the options issued for services using the
Black-Scholes option pricing model using the following assumptions; risk-free
interest rate of 5.5%; volatility of 80%; and an expected life of ten years
(term).
Note 9--Related Party Transactions:
In September and October 1998 a certain founder of the Company received
convertible promissory notes in exchange for $570,000. The notes bore interest
at 20% per annum. In March 1999, the note and accrued interest of $628,000 was
repaid in full.
In July, September and November 1999, certain executives of the Company
exercised their stock options prior to vesting by issuance of full recourse
promissory notes to the Company. Stock options that have been exercised prior
to vesting are subject to a right of repurchase at cost in the Company's favor
should the executive cease employment. The aggregate notes of $3.2 million
bear interest at a rate of 5.74% through 6.08% per annum and are due in July,
September and November 2004. The notes are collateralized by the related
1,670,000 shares of Common Stock issued, of which 1,530,000 are subject to the
Company's right to repurchase. The outstanding loan balance has been reflected
as a separate component of stockholders' equity.
Note 10--Subsequent Events:
Reincorporation
In January 2000, the Company's Board of Directors authorized the
reincorporation of the Company in the State of Delaware. When the
reincorporation and related filings are effected, the Company will be
authorized to
F-18
<PAGE>
REPLAYTV, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
issue 200,000,000 shares of $0.001 par value Common Stock and 5,000,000 shares
of $0.001 par value Preferred Stock. The Board of Directors will have the
authority to issue the undesignated Preferred Stock in one or more series and
to fix the rights, preferences, privileges and restrictions thereof. The par
value and additional paid-in capital related to the issuance of Preferred
Stock and Common Stock have been retroactively adjusted to reflect the
reincorporation.
Stock option grants
During January and February 2000, the Company granted options to purchase
1,238,000 shares of Common Stock to existing and new employees at a weighted
average exercise price of $9.64. In connection with these stock option grants,
the Company will recognize $4.2 million in unearned stock-based compensation
that will be amortized over the related vesting periods.
Series F and G Preferred Stock
In January 2000, the Company issued 5,627,267 shares of Series F Preferred
Stock ("Series F") at $11.00 per share resulting in cash proceeds of $61.9
million. Each share of Series F has voting rights equal to the number of
shares of Common Stock into which such share is convertible. Holders of Series
F are entitled to receive annual dividends of $0.88 per share, when and if
declared by the Board of Directors, on a pari passu basis with the holders of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock, and prior to the Common
Stock. The Series F is convertible at any time into Common Stock at a one-for-
one exchange ratio. Such conversion is automatic upon the effective date of an
initial public offering provided the public offering price is at least $7.50
per share. In the event of any liquidation, dissolution, winding up or a
change in control of the Company, the holders of Series F are entitled to
receive an amount equal to $11.00 per share, plus any declared but unpaid
dividends, prior and in preference to any holders of Common Stock. For the
first quarter ending March 31, 2000, the Company will record a non-cash
Preferred Stock dividend of $11.3 million to reflect the beneficial conversion
ratio as a result of the difference between the issuance price of the Series F
and $13.00, the estimated fair value of the Company's Common Stock.
In March 2000, the Company issued 2,090,907 shares of Series G Preferred
Stock ("Series G") at $11.00 per share resulting in cash proceeds of $23.0
million. Each share of Series G has voting rights equal to the number of
shares of Common Stock into which such share is convertible. Holders of Series
G are entitled to receive annual dividends of $0.88 per share, when and if
declared by the Board of Directors, on a pari passu basis with the holders of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and Series F Preferred
Stock, and prior to the Common Stock. The Series G is convertible at any time
into Common Stock at a one-for-one exchange ratio. Such conversion is
automatic upon the effective date of an initial public offering provided the
public offering price is at least $7.50 per share. In the event of any
liquidation, dissolution, winding up or a change in control of the Company,
the holders of Series G are entitled to receive an amount equal to $11.00 per
share, plus any declared but unpaid dividends, prior and in preference to any
holders of Common Stock. For the first quarter ending March 31, 2000, the
Company will record a non-cash Preferred Stock dividend of $4.2 million to
reflect the beneficial conversion ratio as a result of the difference between
the price of the Series G and $13.00, the estimated fair value of the
Company's Common Stock.
2000 Stock Plans
In January 2000, the Company's Board of Directors approved the 2000
Directors' Stock Option Plan (the "2000 Directors' Plan") and the 2000
Employee Stock Purchase Plan (the "2000 ESPP"), which will
F-19
<PAGE>
REPLAYTV, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
become effective immediately prior to the completion of an initial public
offering. Under the 2000 Directors' Plan, a total of 300,000 shares have been
reserved for future issuance to nonemployee directors. The shares reserved
under the 2000 Directors' Plan will be automatically reset to 300,000 shares
on the first day of each fiscal year beginning in 2001. Under the 2000 ESPP, a
total of 1,000,000 shares have been reserved for future issuance. The shares
reserved will be subject to automatic annual increases on the first day of the
fiscal year beginning in 2001, equal to the lesser of 500,000 shares, 2% of
the outstanding Common Stock on the last day of the immediately preceding
fiscal year, or a lesser number of shares as determined by the board of
directors.
F-20
<PAGE>
[REPLAYTV LOGO]
<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 and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
SEC registration fee........................................... $ 39,600
NASD filing fee................................................ 15,500
Nasdaq National Market listing fee............................. 95,000
Printing and engraving expenses................................ 200,000
Legal fees and expenses........................................ 400,000
Accounting fees and expenses................................... 300,000
Blue Sky qualification fees and expenses....................... 10,000
Transfer Agent and Registrar fees.............................. 2,000
Miscellaneous fees and expenses................................ 37,900
----------
Total........................................................ $1,100,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's Board of Directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article XIV of our certificate of
incorporation (Exhibit 3.2 hereto) and Article VI of our bylaws (Exhibit 3.4
hereto) provide for indemnification of our directors, officers, employees and
other agents to the maximum extent permitted by Delaware Law. In addition, we
have entered into Indemnification Agreements (Exhibit 10.2 hereto) with our
officers and directors. The Underwriting Agreement (Exhibit 1.1) also provides
for cross-indemnification among ReplayTV and the underwriters with respect to
certain matters, including matters arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
Since our incorporation in August 1997, we have issued and sold the
following securities:
1. On September 15, 1997, we sold 7,862,770 shares of common stock for
an aggregate purchase price of $3,931 to two founders.
2. On November 26, 1997, we sold 2,494,070 shares of Series A preferred
stock for an aggregate purchase price of $274,348 to two accredited
investors.
3. On March 11, 1998, we issued a promissory note in the aggregate
principal amount of $100,000 to one accredited investor.
4. On April 10, 1998, we sold 1,451,610 shares of Series B preferred
stock for an aggregate purchase price of $450,000, including cancellation
of the $100,000 note described in 3 above, to four accredited investors.
5. On June 29, 1998, we sold 806,448 shares of Series B preferred stock
for an aggregate purchase price of $250,000 to four accredited investors.
II-1
<PAGE>
6. On September 11, 1998, September 14, 1998, September 28, 1998,
October 6, 1998, October 15, 1998 and October 27, 1998 we issued six
promissory notes in the aggregate principal amount of $570,000 to one
founder.
7. On November 5, 1998, we sold 1,818,488 shares of Series C preferred
stock for an aggregate purchase price of $1,150,000 to three accredited
investors.
8. On November 19, 1998, we sold 1,344,096 shares of Series C preferred
stock for an aggregate purchase price of $850,000 to six accredited
investors.
9. On February 12, 1999, February 22, 1999 and March 11, 1999, we issued
three promissory notes in the aggregate principal amount of $1,500,000 to
one accredited investor.
10. On March 24, 1999, we sold 10,193,544 shares of Series D preferred
stock for an aggregate purchase price of $7,900,000, including cancellation
of $80,000 of the notes described in 6 above and cancellation of the notes
described in 9 above, to 12 accredited investors.
11. On May 31, 1999, we issued a warrant to purchase 6,666 shares of
Series E preferred stock to a lender in connection with a line of credit.
12. On July 16, 1999 and July 19, 1999, we issued two promissory notes
in the aggregate principal amount of $600,000 to two accredited investors.
13. On July 30, 1999, we sold 6,886,663 shares of Series E preferred
stock for an aggregate purchase price of $52,249,973, including
cancellation of the notes described in 12 above, to 41 accredited and/or
institutional investors.
14. On August 16, 1999, we sold 666,666 shares of Series E preferred
stock for an aggregate purchase price of $5,000,000 to one accredited
and/or institutional investor.
15. On January 25, 2000, we sold 5,627,267 shares of Series F preferred
stock for an aggregate price of $61,899,937 to 12 accredited and/or
institutional investors.
16. On March 10, 2000, we sold 2,090,907 shares of Series G preferred
stock for an aggregate price of $22,999,977 to three qualified
institutional buyers and two large institutional accredited investors.
17. From April 28, 1999 to December 31, 1999, we issued an aggregate of
322,507 shares of common stock to one director and 14 consultants outside
of our stock plans.
18. From November 19, 1997 to December 31, 1999, we issued options to
purchase an aggregate of 9,545,522 shares of common stock to employees,
directors and consultants pursuant to the 1997 stock option plan.
19. From August 26, 1999 to December 31, 1999, we issued options to
purchase an aggregate of 4,230,000 shares of common stock to employees,
directors and consultants pursuant to the 1999 stock plan.
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of such
Securities Act as transactions by an issuer not involving any public offering.
In addition, certain issuances described in Items 1 and 18 were deemed exempt
from registration under the Securities Act in reliance upon Rule 701
promulgated under the Securities Act. The recipients of securities in each
such transaction represented their intentions 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 warrants issued in such transactions. All recipients had
adequate access, through their relationships with us, to information about us.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
--------- -----------
<C> <S>
1.1** Form of Underwriting Agreement.
3.1** Sixth Amended and Restated Articles of Incorporation of ReplayTV.
3.2** Amended and Restated Certificate of Incorporation of ReplayTV (as
proposed).
3.3** Amended and Restated Bylaws of ReplayTV.
3.4** Amended and Restated Bylaws of ReplayTV (as proposed).
3.5 Seventh Amended and Restated Articles of Incorporation of ReplayTV.
4.1 Specimen Stock Certificate.
4.2** Warrant dated May 31, 1999 issued by the Company to Imperial
Bancorp.
5.1* Opinion of Venture Law Group regarding the legality of the common
stock being registered.
10.1** Sixth Amended and Restated Investors' Rights Agreement dated January
25, 2000 among ReplayTV and certain investors.
10.1A Seventh Amended and Restated Investors' Rights Agreement dated March
10, 2000.
10.2** Form of Indemnification Agreement between ReplayTV and each of its
executive officers and directors.
10.3** 1997 Stock Option Plan (as amended) and forms of Stock Option
Agreements.
10.4*** 1999 Stock Plan and forms of Stock Option Agreement and Restricted
Stock Purchase Agreement.
10.5** 2000 Employee Stock Purchase Plan and form of Subscription
Agreement.
10.6** 2000 Directors' Stock Option Plan and form of Stock Option
Agreement.
10.7** Offer Letter with Earle H. "Kim" LeMasters, III.
10.8** Offer Letter with Anthony J. Wood.
10.9** Offer Letter with Craig W. Dougherty.
10.10** Offer Letter with Bruce L. Kaplan.
10.11** Offer Letter with Alexander Gray.
10.12** Offer Letter with Layne L. Britton.
10.13***+ Master Collaboration Agreement dated December 20, 1999 between
ReplayTV and Matsushita-Kotobuki Electronics Industries, Ltd.
10.14***+ OEM Distribution Agreement dated December 20, 1999 between ReplayTV
and Matsushita-Kotobuki Electronics Industries, Ltd.
10.15***+ Manufacturing Agreement dated November 3, 1998 between ReplayTV and
Flextronics International USA, Inc.
10.16***+ Television Listings Agreement dated June 1, 1998, as amended October
26, 1998, between ReplayTV and Tribune Media Services, Inc.
10.17***+ Agreement dated February 1, 1999 between ReplayTV and Showtime
Networks Inc.
10.18***+ Agreement dated July 30, 1999 between ReplayTV and National
Broadcasting Company, Inc.
10.19***+ Network Service Agreement dated July 30, 1999 among ReplayTV, Turner
Broadcasting System, Inc. and Time Warner, Inc, as amended February
10, 2000.
10.20** Common Stock Purchase Agreement dated September 15, 1997 between
ReplayTV and Anthony J. Wood.
10.21** Consulting Agreements between ReplayTV and Kevin Bohren.
10.22** Lease Agreement dated January 27, 1999 between John Arrillaga,
Trustee, or his Successor Trustee, UTA dated July 20, 1977 (John
Arrillaga Survivor's Trust) as amended, and Richard T. Perry,
Trustee, or his Successor Trustee, UTA dated July 20, 1977 (Richard
T. Perry Separate Property Trust) as amended, and ReplayTV, as
amended.
10.23+ Replay Network Service Agreement dated March 2000 between ReplayTV
and Fox Broadcasting Company.
10.24 Offer Letter with Robert Kenneally.
10.25 Offer Letter with Dan Levin.
23.1 Independent Accountants' Consent.
23.2 Consent of Attorney (see Exhibit 5.1).
24.1** Power of Attorney (see page II-5).
27.1*** Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
** Previously filed.
*** Supersedes previously filed Exhibit.
+ Confidential treatment requested as to certain portions of this Exhibit.
II-3
<PAGE>
(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
The undersigned registrant hereby undertakes 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 for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant 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 of 1933 and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, 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 the registrant 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 of 1933, 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to Registration Statement on Form S-1 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
city of Mountain View, State of California on March 28, 2000.
REPLAYTV, INC.
By: /s/ Craig W. Dougherty
---------------------------------
Craig W. Dougherty
Executive Vice President, Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and March 28, 2000
____________________________________ Chairman (Principal
Earle H. "Kim" LeMasters, III Executive Officer)
/s/ Craig W. Dougherty Executive Vice President, March 28, 2000
____________________________________ Finance and Chief Financial
Craig W. Dougherty Officer (Principal
Financial and Accounting
Officer)
* Director March 28, 2000
____________________________________
Jeffrey Berg
* Director March 28, 2000
____________________________________
Kevin L. Bohren
* Director March 28, 2000
____________________________________
Sky D. Dayton
* Director March 28, 2000
____________________________________
William R. Hearst III
* Director March 28, 2000
____________________________________
Anthony J. Wood
</TABLE>
* Power of Attorney
/s/ Craig W. Dougherty
By:____________________________
Craig W. Dougherty
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
--------- -----------
<C> <S>
1.1** Form of Underwriting Agreement.
3.1** Sixth Amended and Restated Articles of Incorporation of ReplayTV.
3.2** Amended and Restated Certificate of Incorporation of ReplayTV (as
proposed).
3.3** Amended and Restated Bylaws of ReplayTV.
3.4** Amended and Restated Bylaws of ReplayTV (as proposed).
3.5 Seventh Amended and Restated Articles of Incorporation of ReplayTV.
4.1 Specimen Stock Certificate.
4.2** Warrant dated May 31, 1999 issued by the Company to Imperial
Bancorp.
5.1* Opinion of Venture Law Group regarding the legality of the common
stock being registered.
10.1** Sixth Amended and Restated Investors' Rights Agreement dated January
25, 2000 among ReplayTV and certain investors.
10.1A Seventh Amended and Restated Investors' Rights Agreement dated March
10, 2000.
10.2** Form of Indemnification Agreement between ReplayTV and each of its
executive officers and directors.
10.3** 1997 Stock Option Plan (as amended) and forms of Stock Option
Agreements.
10.4*** 1999 Stock Plan and forms of Stock Option Agreement and Restricted
Stock Purchase Agreement.
10.5** 2000 Employee Stock Purchase Plan and form of Subscription
Agreement.
10.6** 2000 Directors' Stock Option Plan and form of Stock Option
Agreement.
10.7** Offer Letter with Earle H. "Kim" LeMasters, III.
10.8** Offer Letter with Anthony J. Wood.
10.9** Offer Letter with Craig W. Dougherty.
10.10** Offer Letter with Bruce L. Kaplan.
10.11** Offer Letter with Alexander Gray.
10.12** Offer Letter with Layne L. Britton.
10.13***+ Master Collaboration Agreement dated December 20, 1999 between
ReplayTV and Matsushita-Kotobuki Electronics Industries, Ltd.
10.14***+ OEM Distribution Agreement dated December 20, 1999 between ReplayTV
and Matsushita-Kotobuki Electronics Industries, Ltd.
10.15***+ Manufacturing Agreement dated November 3, 1998 between ReplayTV and
Flextronics International USA, Inc.
10.16***+ Television Listings Agreement dated June 1, 1998, as amended October
26, 1998, between ReplayTV and Tribune Media Services, Inc.
10.17***+ Agreement dated February 1, 1999 between ReplayTV and Showtime
Networks Inc.
10.18***+ Agreement dated July 30, 1999 between ReplayTV and National
Broadcasting Company, Inc.
10.19***+ Network Service Agreement dated July 30, 1999 among ReplayTV, Turner
Broadcasting System, Inc. and Time Warner, Inc, as amended February
10, 2000.
10.20** Common Stock Purchase Agreement dated September 15, 1997 between
ReplayTV and Anthony J. Wood.
10.21** Consulting Agreements between ReplayTV and Kevin Bohren.
10.22** Lease Agreement dated January 27, 1999 between John Arrillaga,
Trustee, or his Successor Trustee, UTA dated July 20, 1977 (John
Arrillaga Survivor's Trust) as amended, and Richard T. Perry,
Trustee, or his Successor Trustee, UTA dated July 20, 1977 (Richard
T. Perry Separate Property Trust) as amended, and ReplayTV, as
amended.
10.23+ Replay Network Service Agreement dated March 2000 between ReplayTV
and Fox Broadcasting Company.
10.24 Offer Letter with Robert Kenneally.
10.25 Offer Letter with Dan Levin.
23.1 Independent Accountants' Consent.
23.2 Consent of Attorney (see Exhibit 5.1).
24.1** Power of Attorney (see page II-5).
27.1*** Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
** Previously filed.
***Supersedes previously filed Exhibit.
+Confidential treatment requested as to certain portions of this Exhibit.
<PAGE>
Exhibit 3.5
SEVENTH AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
REPLAYTV, INC.
The undersigned, Earle H. LeMasters III and Mark A. Medearis, hereby
certify that:
1. They are the duly elected and acting Chief Executive Officer and
Secretary, respectively, of ReplayTV, Inc., a California corporation.
2. The Articles of Incorporation of this corporation shall be amended and
restated to read in full as follows:
ARTICLE I
The name of this corporation is ReplayTV, Inc. (the "Corporation").
-----------
ARTICLE II
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
(A) Classes of Stock. The Corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
------------ ---------------
The total number of shares which the Corporation is authorized to issue is
110,077,301 shares, each with a par value of $0.001 per share. 75,000,000
shares shall be Common Stock and 35,077,301 shares shall be Preferred Stock.
(B) Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by these Seventh Amended and Restated Articles of
Incorporation may be issued from time to time in one or more series. The first
series of Preferred Stock shall be designated "Series A Preferred Stock" and
------------------------
shall consist of 2,494,070 shares. The second series of Preferred Stock shall be
designated "Series B Preferred Stock" and shall consist of 2,580,644 shares. The
------------------------
third series of Preferred Stock shall be designated "Series C Preferred Stock"
------------------------
and shall consist of 3,162,592 shares. The fourth series of Preferred Stock
shall be designated "Series D Preferred Stock" and shall consist of 10,200,000
------------------------
shares. The fifth series of Preferred Stock shall be designated "Series E
--------
Preferred Stock" and shall consist of 7,639,995 shares. The sixth series of
- ---------------
Preferred Stock shall be designated "Series F Preferred Stock" and shall consist
------------------------
of 5,627,267 shares. The seventh series of Preferred Stock shall be designated
"Series G Preferred Stock" and
------------------------
<PAGE>
shall consist of 3,372,733 shares. The rights, preferences, privileges and
restrictions granted to and imposed on 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 and Series G Preferred Stock are as
set forth below in this Article III(B).
1. Dividend Provisions. Subject to the rights of series of Preferred
-------------------
Stock that may from time to time come into existence, the holders of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and
Series G 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 the Corporation) on the
Common Stock of the Corporation, on a pro rata basis at the rate of (i) $0.00884
per share (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares) per annum on each
outstanding share of Series A Preferred Stock, (ii) $0.0248 per share (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares) per annum on each outstanding share of
Series B Preferred Stock, (iii) $0.0505915 per share (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares) per annum on each outstanding share of Series C Preferred Stock,
(iv) $0.062 per share (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares) per annum on
each outstanding share of Series D Preferred Stock, (v) $0.60 per share (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares) per annum on each outstanding share of
Series E Preferred Stock and (vi) $0.88 per share (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares) per annum on each outstanding share of Series F Preferred Stock and
Series G Preferred Stock, payable quarterly when, as and if declared by the
Board of Directors. No dividends shall be paid in any calendar year on any share
of Common Stock unless a full dividend pursuant to the above provisions of this
Section 1 is paid in such year with respect to all outstanding shares of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock in an amount for each such share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
together with an amount equal to or greater than the aggregate amount of such
dividends for all shares of Common Stock into which each such share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock could then be converted. Such dividends shall not be
cumulative.
2. Liquidation.
-----------
(a) Preference. In the event of any liquidation, dissolution or
----------
winding up of the Corporation, either voluntary or involuntary, subject to the
rights of series of Preferred Stock that may from time to time come into
existence in accordance herewith, the holders of the
-2-
<PAGE>
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets of the Corporation to the holders of
Common Stock by reason of their ownership thereof, an amount per share equal to
(i) $0.1105 per share (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares) for each
share of Series A Preferred Stock then held by them, (ii) $0.31 per share (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares) for each share of Series B Preferred Stock
then held by them, (iii) $0.6323925 per share (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares) for each share of Series C Preferred Stock then held by them, (iv)
$0.775 per share (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares) for each share of
Series D Preferred Stock then held by them, (v) $7.50 per share (as adjusted for
any stock dividends, combinations, splits, recapitalizations and the like with
respect to such shares) for each share of Series E Preferred Stock held by them
and (vi) $11.00 per share (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares) for each
share of Series F Preferred Stock and Series G Preferred Stock held by them,
plus declared but unpaid dividends. If, upon the occurrence of such event, the
assets and funds thus distributed among the holders of 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 and Series G 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 in accordance
herewith, the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of 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 and Series G
Preferred Stock in proportion to the preferential amount each such holder is
otherwise entitled to receive.
(b) Remaining Assets. Upon the completion of the distribution
----------------
required by Section 2(a) above and any other distribution that may be required
with respect to series of Preferred Stock that may from time to time come into
existence in accordance herewith, if assets remain in the Corporation, the
holders of the Common Stock of the Corporation shall receive all of the
remaining assets of the Corporation pro rata based on the number of shares of
Common Stock held by each.
(c) Certain Acquisitions.
--------------------
(i) Deemed Liquidation. For purposes of this Section 2, a
------------------
liquidation, dissolution or winding up of the Corporation shall be deemed to be
occasioned by, or to include, (A) the acquisition of the Corporation by another
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation, but excluding
any merger effected exclusively for the purpose of changing the domicile of the
Corporation); or (B) a sale, lease, license or other conveyance of all or
substantially all of the assets of the Corporation, unless the Corporation's
------
shareholders of record
-3-
<PAGE>
as constituted immediately prior to such acquisition or sale will, immediately
after such acquisition or sale (by virtue of securities issued as consideration
in the acquisition or sale or otherwise) hold at least 50% of the voting power
of the surviving or acquiring entity in approximately the same relative
percentages after such acquisition or sale as before such acquisition or sale.
(ii) Valuation of Consideration. In the event of a deemed
--------------------------
liquidation as described in Section 2(c)(i) above, if the consideration received
by the 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 the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three days prior to the closing;
(2) If 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-day period in which sales actually occur ending
three days prior to the closing; and
(3) If there is no public market, the value shall
be the fair market value thereof, as mutually determined by the 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 shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in Section 2(c)(ii)(A) to reflect the approximate fair
market value thereof, as mutually determined by the Corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
Preferred Stock.
(iii) Notice of Transaction. The Corporation shall give
---------------------
each holder of record of Preferred Stock written notice of such impending
transaction not later than twenty (20) days prior to the shareholders' 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,
the record date for determining shareholders entitled to vote (if applicable)
and the provisions of this Section 2, and the 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 the Corporation has given
the first notice provided for herein or sooner than ten (10) days after the
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
-4-
<PAGE>
such notice rights and that represent at least a majority of the voting power of
all then outstanding shares of such Preferred Stock.
(iv) Effect of Noncompliance. In the event the requirements
-----------------------
of this Section 2(c) are not complied with, the Corporation shall forthwith
either cause the closing of the transaction to be postponed until such
requirements have been complied with, or cancel such transaction, in which event
the rights, preferences and privileges of the holders of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock, Series F Preferred Stock and Series G 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
Section 2(c)(iii) hereof.
3. Redemption.
----------
(a) Date and Amount. On or at any time after (i) February 15,
---------------
2004, or (ii) the receipt by the Corporation in writing from the holders of not
less than 66 2/3% of the Preferred Stock then outstanding of their consent to
redemption hereunder, the Corporation may at any time it may lawfully do so, at
the option of the Board of Directors, redeem in whole or in part the Preferred
Stock by paying in cash therefor (i) $0.1105 per share for each share of Series
A Preferred Stock then outstanding (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares), (ii) $0.31 per share for each share of Series B Preferred Stock then
outstanding (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares), (iii) $0.6323925
per share for each share of Series C Preferred Stock then outstanding (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares), (iv) $0.775 per share for each share of
Series D Preferred Stock then outstanding (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares), (v) $7.50 per share for each share of Series E Preferred Stock then
outstanding (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares) and (vi) $11.00 per
share for each share of Series F Preferred Stock and Series G Preferred Stock
then outstanding (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares), plus in each case
an amount equal to all declared but unpaid dividends on the outstanding shares
of such Preferred Stock (such total amount per share is hereinafter referred to
as the "Redemption Price").
----------------
(b) Partial Redemption. In the event of any redemption of only
------------------
a part of the then outstanding shares of the Preferred Stock, the Corporation
shall effect such redemption pro rata among all the holders of Preferred Stock
(as to the number of shares, series by series, held on the date of notice of
redemption).
(c) Notice and Procedure. At least 45 days prior to the date
--------------------
fixed for any redemption of the Preferred Stock (hereinafter referred to as the
"Redemption Date"), written notice shall be mailed, postage prepaid, to each
---------------
holder of record of the Preferred Stock, at the holder's post office address
last shown on the records of the Corporation (provided, however, that in the
-------- -------
case of non-domestic investors, written notice shall instead be delivered by
confirmed
-5-
<PAGE>
fax at the holder's fax number last shown on the records of the Corporation
within the same time period), notifying such holder of the election of the
Corporation to redeem such shares, specifying the Redemption Date and the date
on which such holder's Conversion Rights (as hereinafter defined) as to such
shares terminate, which date shall be no earlier than five business days prior
to the Redemption Date, and calling upon such holder to surrender to the
Corporation, in the manner and at the place designated, the holder's certificate
or certificates representing the shares to be redeemed (such notice is
hereinafter referred to as the "Redemption Notice"). On or prior to the
-----------------
Redemption Date, each holder of the Preferred Stock to be redeemed shall
surrender his or her certificate or certificates representing such shares to the
Corporation, in the manner and at the place designated in the Redemption Notice,
and thereupon the aggregate Redemption Price (the Redemption Price per share to
be redeemed multiplied by the number of shares to be redeemed) for the shares to
be redeemed shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In calculating the aggregate Redemption Price,
the number of shares shall be reduced by the number of shares which have been
converted pursuant to Section 4 hereof between the date of notice of redemption
and the date on which Conversion Rights to such shares terminate. In the event
less than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares. From and after
the Redemption Date, unless there shall have been a default in payment of the
aggregate Redemption Price for shares to be redeemed (whether because there is
no source of funds legally available for such redemption or because such funds
shall not be paid or made available for payment), all rights of the holders of
the Preferred Stock designated for redemption in the Redemption Notice as
holders of such series of the Preferred Stock of the Corporation (except the
right to receive the aggregate Redemption Price without interest upon surrender
of their certificate or certificates) shall cease with respect to such shares,
and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
(d) Payment. On or prior to the Redemption Date, the
-------
Corporation shall deposit the aggregate Redemption Price of all shares of
Preferred Stock designated for redemption in the Redemption Notice and not yet
redeemed with a bank or trust company having aggregate capital and surplus in
excess of $100,000,000 as a trust fund for the benefit of the respective holders
of the shares designated for redemption and not yet redeemed, with irrevocable
instructions and authority to the bank or trust company to pay the Redemption
Price for such shares to their respective holders on or after the Redemption
Date upon receipt of notification from the Corporation that such holder has
surrendered his or her share certificate to the Corporation pursuant to Section
3(c) above. Such instructions shall also provide that any monies deposited by
the Corporation pursuant to this Section 3(d) for the redemption of shares
thereafter converted into shares of the Corporation's Common Stock pursuant to
Section 4 hereof no later than the fifth day preceding the Redemption Date shall
be returned to the Corporation forthwith upon such conversion. The balance of
any monies deposited by the Corporation pursuant to this Section 3(d) remaining
unclaimed at the expiration of two years following the Redemption Date shall
thereafter be returned to the Corporation upon its request expressed in a
resolution of its Board of Directors.
-6-
<PAGE>
4. Conversion. The holders of 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 and Series G Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
-----------------
(a) Right to Convert. Subject to Section 4(d), each share of
----------------
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and
Series G 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
the Corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing (i)
$0.1105 in the case of the Series A Preferred Stock, (ii) $0.31 in the case of
the Series B Preferred Stock, (iii) $0.6323925 in the case of the Series C
Preferred Stock, (iv) $0.775 in the case of the Series D Preferred Stock, (v)
$7.50 in the case of the Series E Preferred Stock and (vi) $11.00 in the case of
the Series F Preferred Stock and the Series G Preferred Stock by the Conversion
Price applicable to such share, determined as hereinafter provided, in effect on
the date the certificate is surrendered for conversion. The initial "Conversion
----------
Price" per share shall be $0.1105 for shares of Series A Preferred Stock, $0.31
- -----
for shares of Series B Preferred Stock, $0.6323925 for shares of Series C
Preferred Stock, $0.775 for shares of Series D Preferred Stock, $7.50 for shares
of Series E Preferred Stock and $11.00 for shares of Series F Preferred Stock
and Series G Preferred Stock. Such initial Conversion Prices shall be subject to
adjustment as set forth in Section 4(d) below. In the event that all shares of
Preferred Stock are automatically converted pursuant to Section 4(b) in
connection with the Corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), in which the Offering
--------------
Price (as defined below) is less than the Conversion Price of the Series E
Preferred Stock, Series F Preferred Stock or Series G Preferred Stock then in
effect (appropriately adjusted for any stock split, dividend, combination or
other recapitalization), then the Conversion Price of the Series E Preferred
Stock, Series F Preferred Stock and/or Series G Preferred Stock, as the case may
be, shall be adjusted, effective immediately prior to the closing of such
offering, such that the Conversion Price after such adjustment (and after
appropriate adjustments for stock splits, combinations and the like) shall be
equal to the Offering Price. The "Offering Price" is defined as the price per
--------------
share at which shares of the Corporation's Common Stock are initially sold by
the Corporation to the public in such offering.
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such share immediately upon the earlier of (i) except
as provided below in Section 4(c), the Corporation's sale of its Common Stock in
a firm commitment underwritten public offering pursuant to a registration
statement under the Securities Act, the public offering price of which is not
less than $7.50 per share (appropriately adjusted for any stock split, dividend,
combination or other recapitalization) or (ii) as to any particular series of
Preferred Stock, the date specified by written consent or agreement of the
holders of at least 66 2/3% of the then outstanding shares of such series of
Preferred Stock, voting together as a class.
-7-
<PAGE>
(c) Mechanics of Conversion. Before any holder of Series A
-----------------------
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock or Series G
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for such
series of Preferred Stock, and shall give written notice to the 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. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
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 such series of Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversion is in connection
with an underwritten offering of securities registered pursuant to the
Securities Act the conversion may, at the option of any holder tendering such
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 person(s) entitled to receive Common Stock upon conversion of such Preferred
Stock shall not be deemed to have converted such 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 Prices of 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 and
Series G Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) Issuance of Additional Stock below Purchase Price. If
-------------------------------------------------
the Corporation shall issue, after the date upon which any shares of Series G
Preferred Stock were first issued (the "Purchase Date"), 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 automatically be adjusted
as set forth in this Section 4(d)(i), unless otherwise provided in this Section
4(d)(i).
(A) Adjustment Formula. Whenever the Conversion Price
------------------
is adjusted pursuant to this Section 4(d)(i), the new Conversion Price for any
series shall be a price equal to the quotient obtained by dividing the total
computed under clause (x) below by the total computed under clause (y) below as
follows:
(x) an amount equal to the sum of
-8-
<PAGE>
(1) the aggregate purchase price of the shares of
such series sold pursuant to the agreement pursuant to which shares of such
series were first issued (the "Series Purchase Price" with respect to such
---------------------
series), plus
(2) the aggregate consideration, if any, received
by the Corporation for all Additional Stock issued on or after the Purchase
Date;
(y) an amount equal to the sum of:
(1) the Series Purchase Price for such series
divided by the initial Conversion Price for such series (or such higher or lower
Conversion Price as results from the application of Sections 4(d)(ii) and (iii)
hereof), plus
(2) the number of shares of Additional Stock
issued on or after the Purchase Date (as adjusted pursuant to Sections 4(d)(ii)
and (iii) hereof, if applicable).
(B) Definition of "Additional Stock". For purposes of this
-------------------------------
Section 4(d)(i), "Additional Stock" shall mean any shares of Common Stock or
----------------
capital stock, securities, options, warrants to purchase or other instruments of
similar effect convertible into or exchangeable for Common Stock issued (or
deemed to have been issued pursuant to Section 4(d)(i)(E)) by the Corporation
after the Purchase Date other than
(1) Common Stock issued pursuant to a transaction
described in Section 4(d)(ii) hereof,
(2) Shares of Common Stock issuable or issued to
employees, consultants or directors of the Corporation directly or pursuant to a
stock option plan or restricted stock plan or agreement approved by the Board of
Directors of the Corporation,
(3) Up to 100,000 shares of Common Stock issuable or
issued to vendors of the Corporation,
(4) Capital stock, or options or warrants to purchase
capital stock, issued to financial institutions or lessors in connection with
commercial credit arrangements, equipment financings or similar transactions,
the terms of which are approved by the Board of Directors of the Corporation,
(5) Capital stock or warrants or options to purchase
capital stock issued in connection with bona fide acquisitions, mergers or
similar transactions, the terms of which are approved by the Board of Directors
of the Corporation,
(6) Shares of Common Stock issued or issuable upon
conversion of the Preferred Stock authorized for issuance as of the date hereof,
and
-9-
<PAGE>
(7) Shares of Common Stock issued or issuable in a
public offering prior to or in connection with which all outstanding shares of
Preferred Stock will be converted to Common Stock.
(C) No Fractional Adjustments. No adjustment of the
-------------------------
Conversion Price for 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 or Series G Preferred Stock shall be made in an amount
less than one cent per share, provided that any adjustments which 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 years from the date of the event giving rise to the adjustment being
carried forward, or shall be made at the end of three years from the date of the
event giving rise to the adjustment being carried forward.
(D) Determination of Consideration. 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 and actual
discounts, commissions, compensations or concessions allowed, paid or incurred
by the Corporation for any underwriting in connection with the issuance and sale
thereof but without deduction of any expenses paid by the Corporation. In the
case of the issuance of 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 in good faith by the Board of Directors
irrespective of any accounting treatment.
(E) Deemed Issuances of Common Stock. In the case of
--------------------------------
the issuance (whether before, on or after the 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 Section 4(d)(i):
(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) 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 Section
4(d)(i)(D)), if any, received by the 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 (assuming the satisfaction
of any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) 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
-10-
<PAGE>
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 the 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 the 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 Section 4(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 the
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, the
Conversion Price of each of 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 and Series G Preferred Stock, to the extent in
any way affected by or computed using such options, rights or securities, shall
be recomputed to reflect such change, but no further adjustment shall be made
for the actual issuance of Common Stock or any payment of such consideration
upon the exercise of any such options or rights or the conversion or exchange of
such securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of each of 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 and Series G 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, shall be recomputed
to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which 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 Sections
4(d)(i)(E)(1) and 4(d)(i)(E)(2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either Section
4(d)(i)(E)(3) or 4(d)(i)(E)(4).
(F) No Increased Conversion Price. Notwithstanding any
-----------------------------
other provisions of this Section (4)(d)(i), except to the limited extent
provided for in Sections 4(d)(i)(E)(3) and 4(d)(i)(E)(4), no adjustment of the
Conversion Price pursuant to this Section 4(d)(i) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect immediately
prior to such adjustment.
(ii) Stock Splits and Dividends. In the event the
--------------------------
Corporation should at any time or from time to time after the Purchase Date fix
a record date for the
-11-
<PAGE>
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 each of 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 and Series G 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 with the number of shares
issuable with respect to Common Stock Equivalents determined from time to time
in the manner provided for deemed issuances in Section 4(d)(i)(E).
(iii) Reverse Stock Splits. 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 each of 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 shall be appropriately increased so that
the number of shares of Common Stock issuable on conversion of each share of
such series shall be decreased in proportion to such decrease in outstanding
shares.
(e) Other Distributions. In the event the Corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 4(d)(ii), then, in
each such case for the purpose of this Section 4(e), the holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series G
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 the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time
-----------------
there shall be a recapitalization, reclassification, combination, subdivision,
merger, transfer, exchange, sale or other disposition of assets, stock split,
stock dividend, reverse stock split or other distribution in respect of the
Common Stock (other than a subdivision, combination or merger or sale of assets
transaction provided for elsewhere in this Section 4 or in Section 2) provision
shall be made so that the holders of 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 and Series G Preferred Stock shall
thereafter be entitled to receive upon conversion of such Preferred
-12-
<PAGE>
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 4 with respect to the rights of the holders of such Preferred Stock
after the recapitalization to the end that the provisions of this Section 4
(including adjustment of the Conversion Price then in effect and the number of
shares purchasable upon conversion of such Preferred Stock) shall be applicable
after that event and be as nearly equivalent as practicable.
(g) No Impairment. The Corporation will not, by amendment of its
-------------
Articles 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 the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 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 Preferred Stock against impairment and dilution consistent with the
terms hereof.
(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 Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock or Series G Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share (with one-half being rounded upward). The number of shares issuable
upon such conversion shall be determined on the basis of the total number of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock or Series G Preferred Stock the holder is at the time converting into
Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock or Series G Preferred Stock pursuant
to this Section 4, the 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 such Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock or Series G 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 which at the time would be
received upon the conversion of a share of such series of Preferred Stock.
-13-
<PAGE>
(i) Notices of Record Date. In the event of any taking by the
----------------------
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, the Corporation
shall mail to each holder of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock or Series G Preferred Stock, at least ten (10) 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. The
---------------------------------------------
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 Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock, Series F Preferred Stock and Series G 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 such series of 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
such series of Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Preferred Stock, the 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 shareholder approval of any necessary
amendment to these articles.
(k) Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock or Series G Preferred Stock
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or, in the case
of domestic recipients, five (5) business days after being deposited in the
United States mail as certified or registered mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
(l) Taxes. The Corporation will pay all taxes (other than
-----
taxes based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion of
the Preferred Stock, excluding any tax or other charge imposed in connection
with any transfer involved in the issue and delivery of shares of Common Stock
in a name other than that in which the shares of the converted Preferred Stock
were registered.
5. Voting Rights. The holders of the Preferred Stock shall have
-------------
voting rights as follows:
-14-
<PAGE>
(a) In General. Subject to subsection (b) hereof, the holder
----------
of each share of Preferred Stock shall have the right to one vote for each share
of Common Stock into which such 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 the 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 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 Board of Directors. The holders of shares of
-----------------------------
Series D Preferred Stock, voting together as a single class, shall elect one
member of the Board of Directors of the Corporation. Additional members of the
Board of Directors, if any, shall be elected by the holders of shares of Common
Stock and Preferred Stock, voting together as a single class and on an as-
converted basis.
6. Protective Provisions.
---------------------
(a) So long as any shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock or Series G Preferred Stock are outstanding, the Corporation
shall not 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, Series B Preferred Stock, Series C Preferred
Stock, Series E Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock, voting together as a class:
(i) effect (A) the acquisition of the Corporation by
another entity by means of any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation, but
excluding any merger effected exclusively for the purpose of changing the
domicile of the Corporation); or (B) a sale, lease, license or other conveyance
of all or substantially all of the assets of the Corporation, unless the
------
Corporation's shareholders of record as constituted immediately prior to such
acquisition or sale will, immediately after such acquisition or sale (by virtue
of securities issued as consideration in the acquisition or sale or otherwise)
hold at least 50% of the voting power of the surviving or acquiring entity in
approximately the same relative percentages after such acquisition or sale as
before such acquisition or sale;
(ii) alter or change the rights, preferences or privileges
of the shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock or Series G
Preferred Stock so as to affect adversely the shares of such series;
(iii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series A Preferred Stock,
Series B Preferred
-15-
<PAGE>
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock, Series F Preferred Stock or Series G Preferred Stock;
(iv) authorize, issue or reclassify, or obligate itself to
issue or reclassify, 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 Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock or Series G Preferred Stock with
respect to voting, dividends, conversion rights or upon liquidation;
(v) redeem, purchase or otherwise acquire (or pay into or
set funds 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 the redemption of shares of Preferred Stock pursuant to Section 3
hereof or to the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for the Company or
any subsidiary pursuant to agreements under which the Company has the option to
repurchase such shares at cost or at fair market value upon the occurrence of
certain events, such as the termination of employment or a proposed transfer of
such shares; or
(vi) consummate a transaction subject to Section 305 of
the Internal Revenue Code of 1986, as amended.
(b) Subject to the rights of series of Preferred Stock which may
from time to time come into existence in accordance herewith, so long as any
shares of Series D Preferred Stock are outstanding, the Corporation shall not
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 separate class:
(i) effect (A) the acquisition of the Corporation by
another entity by means of any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation, but
excluding any merger effected exclusively for the purpose of changing the
domicile of the Corporation); or (B) a sale, lease, license or other conveyance
of all or substantially all of the assets of the Corporation, unless the
------
Corporation's shareholders of record as constituted immediately prior to such
acquisition or sale will, immediately after such acquisition or sale (by virtue
of securities issued as consideration in the acquisition or sale or otherwise)
hold at least 50% of the voting power of the surviving or acquiring entity in
approximately the same relative percentages after such acquisition or sale as
before such acquisition or sale;
(ii) alter or change the rights, preferences or privileges
of the shares of Series D Preferred Stock so as to affect adversely the shares
of such series;
(iii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series D Preferred Stock;
-16-
<PAGE>
(iv) authorize, issue or reclassify, or obligate itself to
issue or reclassify, any other equity security convertible into or exercisable
for any equity security having a preference over, or being on a parity with, the
Series D Preferred Stock with respect to voting, dividends, conversion rights or
upon liquidation;
(v) redeem, purchase or otherwise acquire (or pay into or
set funds 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 the redemption of shares of Preferred Stock pursuant to Section 3
hereof or to the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for the Company or
any subsidiary pursuant to agreements under which the Company has the option to
repurchase such shares at cost or at fair market value upon the occurrence of
certain events, such as the termination of employment or a proposed transfer of
such shares;
(vi) amend or repeal any provision of, or add any
provision to, the Corporation's Articles of Incorporation or Bylaws if such
action would alter or change the rights, preferences, privileges or restrictions
of the shares of Series D Preferred Stock so as to affect adversely the shares
of such series; or
(vii) consummate a transaction subject to Section 305 of
the Internal Revenue Code of 1986, as amended.
(c) Notwithstanding the foregoing, with respect to any series of
Preferred Stock, the Corporation shall not, 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 such series of Preferred Stock,
voting as a separate class, amend or repeal any provision of, or add any
provision to, the Corporation's Articles of Incorporation if such action
adversely affects such series in a different manner than other series of
Preferred Stock.
7. Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to Section 4 hereof, the shares so converted
shall be canceled and shall not be issuable by the Corporation. The Articles of
Incorporation of the Corporation shall be appropriately amended to effect the
corresponding reduction in the Corporation's authorized capital stock.
8. Repurchase of Shares. In connection with repurchases by the
--------------------
Corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof, Sections 502 and 503 of the California General Corporation Law
shall not apply in whole or in part with respect to such repurchases.
(C) Common Stock.
------------
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
-17-
<PAGE>
assets of the 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 the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Division (B) of this Article III.
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, and shall be entitled to notice of any shareholders'
meeting in accordance with the bylaws of the Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE IV
(A) The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
(B) The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) to the fullest
extent permissible under California law.
(C) Any amendment or repeal or modification of the foregoing provisions of
this Article IV by the shareholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification."
* * *
-18-
<PAGE>
3. The foregoing amendment has been approved by the Board of Directors of
this corporation.
4. The foregoing amendment was approved by the holders of the requisite
number of shares of this corporation in accordance with Sections 902 and 903 of
the California General Corporation Law. The total number of outstanding shares
entitled to vote with respect to the foregoing amendment was 9,720,943 shares of
Common Stock, 2,494,070 shares of Series A Preferred Stock, 2,258,058 shares of
Series B Preferred Stock, 3,162,584 shares of Series C Preferred Stock,
10,193,544 shares of Series D Preferred Stock, 7,633,329 shares of Series E
Preferred Stock and 5,627,267 shares of Series F Preferred Stock. The number of
shares voting in favor of the foregoing amendment equaled or exceeded the vote
required. The percentage vote required was (i) a majority of the outstanding
shares of Common Stock, (ii) a majority of the outstanding shares of Preferred
Stock, (iii) a majority of the outstanding shares of Series A, Series B, Series
C, Series E and Series F Preferred Stock, voting together as a single class,
(iv) a majority of the Series D Preferred Stock voting as a single class, and
(v) a majority of the outstanding shares of Common Stock and Preferred Stock,
voting together as a class.
-19-
<PAGE>
The undersigned certify under penalty of perjury under the laws of the
State of California that the matters set forth in these Articles of
Incorporation are true and correct of our own knowledge.
Executed at Mountain View, California, on March 3, 2000.
/s/ Earle H. LeMasters III
-------------------------------
Earle H. LeMasters III,
Chief Executive Officer
/s/ Mark A. Medearis
-------------------------------
Mark A. Medearis, Secretary
-20-
<PAGE>
EXHIBIT 4.1
RTV
COMMON STOCK COMMON STOCK INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
CUSIP 759943 10 3
SEE REVERSE FOR CERTAIN RESTRICTIONS
fully paid and nonassessable shares of common stocK, par value $0.001 PER SHARE,
of
REPLAYTV, INC.
The shares represented by this certificate are transferable on the stock
transfer books of the Corporation by the holder of record hereof, or by duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to bear the
facsimile signatures of its duly authorized officers and to be sealed with the
facsimile of its corporate seal.
Dated:
TREASURER AND CHIEF FINANCIAL OFFICER
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
REPLAYTV, INC.
ReplayTV, Inc. will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Any such request should be addressed to the Secretary of the Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM
TEN ENT
JT TEN
D as tenants in common
D as tenants by the entireties
D as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT D Custodian
(Cust)
(Minor)
under Uniform Gifts to Minors
Act
(State)
UNIF TRANS MIN ACT D Custodian
(Cust)
(Minor)
under Uniform Transfers to Minors
Act
(State)
Additional abbreviations may also be used though not in the above list.
For value received,
hereby sell(s), assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
share
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
NOTICE:
<PAGE>
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED
By
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION,
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) WITH
MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO S.E.C. RULE
17Ad-15.
<PAGE>
Exhibit 10.1A
REPLAYTV, INC.
SEVENTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
--------------------------------------------------------
This Seventh Amended and Restated Investors' Rights Agreement (the
"Agreement") is entered into as of the 10th day of March, 2000, by and among
---------
ReplayTV, Inc., a California corporation (the "Company"), persons holding at
-------
least a majority of the Registrable Securities under the Sixth Amended and
Restated Investors' Rights Agreement dated January 25, 2000 (the "Existing
--------
Rights Agreement") (as "Registrable Securities" is defined under the Existing
- ---------------- ----------------------
Rights Agreement) (the "Prior Holders") and the Purchasers under the Series G
-------------
Preferred Stock Purchase Agreement (the "Series G Agreement") of even date
------------------
herewith (the "Series G Purchasers" and collectively with the Prior Holders, the
-------------------
"Investors").
---------
RECITALS
WHEREAS, the Company wishes to raise additional capital by issuing Series G
Preferred Stock with the rights, privileges and preferences set forth in the
Seventh Amended and Restated Articles of Incorporation attached to the Series G
Agreement.
WHEREAS, pursuant to Section 3.7 of the Existing Rights Agreement, the
Existing Rights Agreement may be amended by written consent of the holders of a
majority of the outstanding shares of the Registrable Securities and the
Company; and
WHEREAS, a condition to the Series G Purchasers' obligations under the
Series G Agreement is that the Company and the Investors enter into this
Agreement in order to provide the Series G Purchasers with (i) certain rights to
register shares of the Company's Common Stock issuable upon conversion of the
Series G Preferred Stock purchased by the Series G Purchasers, (ii) certain
rights to receive or inspect information pertaining to the Company, and (iii) a
right of first offer with respect to certain issuances by the Company of its
securities. The Company and the Investors each desire to induce the Series G
Purchasers to purchase shares of Series G Preferred Stock pursuant to the Series
G Agreement by agreeing to the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereby agree that the Existing Rights Agreement
is amended and restated in its entirety as follows:
AGREEMENT
---------
1. Registration Rights. The Company and the Investors covenant and agree
-------------------
as follows:
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The terms "register," "registered," and "registration"
-------- ---------- ------------
refer to a registration effected by preparing and filing a registration
statement or similar document in
<PAGE>
compliance with the Securities Act of 1933, as amended (the "Act"), and the
---
declaration or ordering of effectiveness of such registration statement or
document;
(b) The term "Registrable Securities" means (i) the shares
----------------------
of Common Stock issuable or issued upon conversion of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock (including any such shares of Series E Preferred
Stock that may be issued upon exercise of outstanding warrants to purchase
Series E Preferred Stock held by Imperial Bancorp (the "Warrant Stock")), Series
-------------
F Preferred Stock and Series G Preferred Stock (such shares of Common Stock are
collectively referred to hereinafter as the "Stock"); provided, however, that,
----- -------- -------
for the purposes of Sections 1.2, 1.4 or 1.13 hereof, the Warrant Stock (and the
Common Stock issuable upon conversion thereof) shall not be deemed Registrable
Securities or Stock and a holder of Warrant Stock shall not be deemed a Holder,
and (ii) any other shares of Common Stock of the Company issued as (or issuable
upon the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, the Stock; provided, however, that the foregoing
-------- -------
definition shall exclude in all cases any Registrable Securities sold by a
person in a transaction in which his or her rights under this Agreement are not
assigned. Notwithstanding the foregoing, Common Stock or other securities shall
only be treated as Registrable Securities if and so long as they have not been
(A) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (B) sold in a transaction
exempt from the registration and prospectus delivery requirements of the Act
under Section 4(1) thereof so that all transfer restrictions, and restrictive
legends with respect thereto, if any, are removed upon the consummation of such
sale;
(c) The number of shares of "Registrable Securities then
---------------------------
outstanding" shall be determined by the number of shares of Common Stock
- -----------
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "Holder" means any person owning or having the
------
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.12 hereof;
(e) The term "Form S-3" means such form under the Act as in
--------
effect on the date hereof or any successor form under the Act; and
(f) The term "SEC" means the Securities and Exchange
---
Commission.
1.2 Request for Registration .
--------------------------
(a) If the Company shall receive at any time after the
earlier of (i) February 1, 2003, or (ii) six (6) months after the effective date
of the first registration statement for a public offering of securities of the
Company (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option,
-2-
<PAGE>
stock purchase or similar plan or an SEC Rule 145 transaction pursuant to which
the Company's securities are not listed on a national exchange or an over-the-
counter market), a written request from Holders of not less than 35% of the
Registrable Securities then outstanding that the Company file a registration
statement under the Act covering the registration of Registrable Securities with
an anticipated aggregate offering price, net of underwriting discounts and
commissions, of not less than $5,000,000, then the Company shall, within ten
(10) days of the receipt thereof, give written notice of such request to all
Holders and shall, subject to the limitations of subsection 1.2(b), use its best
efforts to effect as soon as practicable, and in any event within sixty (60)
days of the receipt of such request, the registration under the Act of all
Registrable Securities which the Holders request to be registered within twenty
(20) days of the mailing of such notice by the Company in accordance with
Section 3.5.
(b) If the Holders initiating the registration request
hereunder ("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
subsection 1.2(a). The underwriter will be selected by a majority in interest of
the Initiating Holders and shall be reasonably acceptable to the Company. In
such event, the right of any Holder to include his or her 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
(together with the Company as provided in subsection 1.5(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities
requested for inclusion in the registration by each Holder; provided, however,
-------- -------
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
In the event that the underwriter informs the Initiating
Holders that marketing factors require a reduction in the number of shares to be
underwritten of greater than 50% of the aggregate number of shares requested for
inclusion by the Initiating Holders, then a majority in interest of the
Initiating Holders may notify the Company and the underwriters in writing that
they elect to withdraw their request for registration, provided that such notice
--------
is given no later than 10 business days following the underwriter's written
notice of the reduction in the number of shares to be registered. In the event
of such withdrawal, the request for registration shall not be considered as a
request for registration for purposes of Sections 1.2(d) and 1.7(a).
-3-
<PAGE>
(c) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
1.2, a certificate signed by the President 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 shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 90 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
-------- -------
right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 1.2:
(i) After the Company has effected two (2)
registrations pursuant to this Section 1.2 and such registrations have been
declared or ordered effective;
(ii) During the period starting with the date thirty
(30) days prior to the Company's good faith estimate of the date of filing of,
and ending on a date one hundred eighty (180) days after the effective date of,
a registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of
shares of Registrable Securities, all of which may be immediately registered on
Form S-3 pursuant to a request made pursuant to Section 1.4 below.
1.3 Company Registration. If (but without any obligation to do
--------------------
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock under the Act in connection with the public offering of such securities
solely for cash (other than a registration relating solely to the sale of
securities to participants in a Company stock plan or a transaction covered by
Rule 145 under the Act, a registration in which the only stock being registered
is Common Stock issuable upon conversion of debt securities which are also being
registered, or any registration on any form which 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), 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 after
mailing of such notice by the Company in accordance with Section 3.5, the
Company shall, subject to the provisions of Section 1.8, cause to be registered
under the Act all of the Registrable Securities that each such Holder has
requested to be registered. If shares are withdrawn from the registration, the
Company shall then offer to all persons who have retained the right to include
securities in the registration the right to include additional securities in the
registration in an aggregate amount equal to the number of shares so withdrawn,
with such shares to be allocated among the persons requesting additional
inclusion in accordance with Section 1.8 hereof.
-4-
<PAGE>
1.4 Form S-3 Registration. In case the Company shall receive
---------------------
from any Holder or Holders of not less than 20% of the Registrable Securities
then outstanding 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 will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect 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
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within 15 days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.4: (1) if
Form S-3 is not available for such offering by the Holders; (2) 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 of less than
$500,000; (3) if the Company shall furnish to the Holders a certificate signed
by the President 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 shareholders 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 ninety (90)
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; (4) if the Company has, within the twelve (12)
month period preceding the date of such request, already effected two (2)
registrations on Form S-3 for the Holders pursuant to this Section 1.4; or (5)
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 but not more than sixty (60) days after the
receipt of such request. Registrations effected pursuant to this Section 1.4
shall not be counted as demands for registration or registrations effected
pursuant to Sections 1.2 or 1.3, respectively.
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 its best efforts to cause
such registration statement
-5-
<PAGE>
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 up to one hundred twenty (120) days, provided, however, that (1)
such 120-day period shall be extended for a period of time equal to the period
the Holder refrains from selling any securities included in such registration at
the request of the underwriter or the Company; (2) such 120-day period shall be
extended to the extent reasonably necessary to respond to or incorporate
comments provided by counsel to the Holders, as set forth below, and (3) in the
case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Securities Act, permits an offering on a continuous or
delayed basis. Prior to filing such registration statement or any amendment
thereto, if requested in writing by the Holders, the Company shall also deliver
copies of the registration statement to one special counsel designated by the
Holders and permit a reasonable opportunity for such counsel to provide comments
prior to filing.
(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.
The Company shall also make available to the Holders copies of the registration
statement and any amendments thereto.
(d) Use its best 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. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(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 of 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.
-6-
<PAGE>
(g) Cause all such Registrable Securities registered
pursuant hereto to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereto and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
(i) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering.
1.6 Furnish Information. 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. The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement
if, as a result of any Holder or Holders failing to provide the information set
forth in the preceding sentence, the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsection 1.2(a) or subsection
1.4(b)(2), whichever is applicable.
1.7 Expenses of Registration.
------------------------
(a) Demand Registration. All expenses other than stock
-------------------
transfer taxes and underwriting discounts and commissions incurred in connection
with registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one (1) counsel for the selling Holders
selected by them with the approval of the Company, which approval shall not be
unreasonably withheld, shall be borne by the Company; provided, however, that
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
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<PAGE>
majority of the Registrable Securities to be registered (in which case all
withdrawing Holders shall bear such expenses), unless (i) the Holders of a
majority of the Registrable Securities agree to forfeit their right to one (1)
demand registration pursuant to Section 1.2 (ii) the withdrawal is due to the
occurrence of a material adverse effect regarding the Company or its business
which was not known by the Initiating Holders prior to their request for
registration, (iii) the withdrawal is due to the Company exercising its right to
defer the registration pursuant to Section 1.2(c), Section 1.2(d)(ii) or Section
1.4(b)(3), or (iv) the Initiating Holders withdraw the registration following a
limitation by the underwriter in the number of shares to be underwritten
pursuant to Section 1.2(b).
(b) Company Registration. The Company shall bear and pay
--------------------
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.12), including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees relating or apportionable
thereto and the reasonable fees and disbursements of one (1) counsel for the
selling Holders selected by them with the approval of the Company, which
approval shall not be unreasonably withheld, but excluding stock transfer taxes
and underwriting discounts and commissions relating to Registrable Securities.
(c) Registration on Form S-3. All expenses incurred in
------------------------
connection with a registration requested pursuant to Section 1.4, including
(without limitation) all registration, filing, qualification, printers' and
accounting fees and the reasonable fees and disbursements of one counsel for the
selling Holder or Holders selected by them with the approval of the Company,
which approval shall not be unreasonably withheld, and counsel for the Company,
and any underwriters' discounts or commissions associated with Registrable
Securities, shall be borne, for the first two registrations pursuant to Section
1.4, by the Company, and for any registrations pursuant to Section 1.4
thereafter, pro rata by the Holder or Holders participating in the Form S-3
Registration.
1.8 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 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 then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities and shares of Common Stock of the
Company with registration rights (if any), requested by shareholders 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, which 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 shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other
-8-
<PAGE>
proportions as shall mutually be agreed to by such selling shareholders) but in
no event shall (i) the amount of securities of the selling Holders included in
the offering be reduced below twenty-five percent (25%) 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 shareholders may
be excluded if the underwriters make the determination described above and no
other shareholder's securities are included or (ii) notwithstanding (i) above,
any shares being sold by a shareholder exercising a demand registration right
similar to that granted in Section 1.2 be excluded from such offering. For
purposes of the preceding provision concerning apportionment, for any selling
shareholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and shareholders 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 shareholder," and any pro-rata reduction with
-------------------
respect to such "selling shareholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling shareholder," as defined in this sentence. With
further regard to allocation, if any Holder or other selling shareholder does
not request inclusion of the maximum number of shares of Registrable Securities
and other shares of Common Stock with registration rights allocated to him
pursuant to the above-described procedure, the remaining portion of his
allocation shall be reallocated among those requesting Holders and other selling
shareholders whose allocation did not satisfy their requests pro rata on the
basis of the number of shares of Registrable Securities and other shares of
Common Stock with registration rights which would be held by such Holders and
other selling shareholders, assuming conversion, and this procedure shall be
repeated until all of the shares of Registrable Securities and other shares of
Common Stock with registration rights which may be included in the registration
on behalf of the Holders and other selling shareholders have been so allocated.
1.9 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.
1.10 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, each of such Holder's officers,
directors, partners and agents, 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 Securities Exchange Act of 1934, as amended (the
"Exchange Act"), against any losses, claims, damages or liabilities (joint or
------------
several) to which they may become subject under the Act, the Exchange Act or
other federal or state law, 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
-9-
<PAGE>
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 Exchange Act, any
state securities law or any rule or regulation promulgated under the Act, the
Exchange Act or any state securities law; and the Company will pay to each such
Holder, underwriter or controlling person, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating, defending
and settling any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this subsection 1.10(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 which
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.
(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, its agents, each person, if
any, who controls the Company within the meaning of the Act, 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 Exchange Act or other federal or
state law, 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 pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 1.10(b) in connection with
investigating, defending and settling any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
subsection 1.10(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 1.10(b)
exceed the net proceeds from the offering received by such Holder, except in the
case of willful fraud by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.10 of notice of the commencement of any action (including any
governmental action) or the receipt of actual knowledge of any claim as to which
indemnity may be sought, such indemnified party will, if a claim for
indemnification in respect thereof is to be made against any indemnifying party
under this Section 1.10, 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 which may
be represented without conflict by one counsel) shall have the right to retain
one separate
-10-
<PAGE>
counsel, with the reasonable 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 1.10, 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 1.10.
(d) If the indemnification provided for in this Section 1.10
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
therein, 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; provided, that, in no event shall any contribution by a Holder
under this subsection 1.10(d) exceed the net proceeds from the offering received
by such Holder, except in the case of willful fraud by such Holder. 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 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 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 following the
effective date of the first
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<PAGE>
registration statement under the Act filed by the Company for the offering of
its securities to the general public;
(b) take such action, including the voluntary registration
of its Common Stock under Section 12 of the Exchange Act, as is necessary to
enable the Holders to utilize Form S-3 for the sale of their Registrable
Securities, such action to be taken as soon as practicable after the end of the
fiscal year in which the first registration statement filed by the Company for
the offering of its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the Exchange Act; and
(d) 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 following the effective date of the first registration statement filed
by the Company), the Act and the Exchange 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 which permits the selling of any such
securities without registration or pursuant to such form.
1.12 Assignment of Registration Rights. The rights to cause the
---------------------------------
assigned (but only with all related obligations) by a Holder to (i) any partner
or retired partner of any Holder that is a partnership, (ii) any member or
former member of any Holder that is a limited liability company, (iii) any
family member or trust or other entity primarily for the benefit of any
individual Holder (iv) any transferee or assignee that controls, is controlled
by or is under common control with any Holder that is a corporation or a limited
liability company (with "control" defined for the purposes of this Section 1.12
as beneficial ownership of voting securities that constitute at least 50% of the
voting power of the entity), or (v) a transferee or assignee of at least 100,000
shares (as appropriately adjusted for stock splits, stock dividends,
combinations and the like) of such securities, provided 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; and provided, further, that
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. The provisions of Section 3.9 of this Agreement shall
govern for the purposes of determining the number of shares of Registrable
Securities held by a transferee or assignee; provided that all assignees and
transferees who would not qualify individually for assignment of registration
rights shall have a single attorney-in-fact for the purpose of exercising any
rights, receiving notices or taking any action under Section 1.
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<PAGE>
1.13 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 outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2 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 his or her securities will not reduce the amount of the
Registrable Securities of the Holders which is included or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in subsection
1.2(a) or within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 1.2.
1.14 "Market Stand-Off" Agreement. Each Holder hereby agrees
---------------------------
that, during the period of duration (up to, but not exceeding, 180 days)
specified by the Company and an underwriter of Common Stock or other securities
of the Company, following the effective date of a registration statement of the
Company filed under the Act, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it at any
time during such period except Common Stock included in such registration;
provided, however, that:
(a) such agreement shall be applicable only to the first
such registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) all officers and directors of the Company and all one-
percent (1%) securityholders are bound by and have entered into similar
agreements; and
(c) to the extent that the Company and the underwriter of
the Company's Common Stock or other securities of the Company releases any
Registrable Securities from the obligations of this Section 1.14, such release
shall apply on a pro-rata basis such that each Holder is entitled to release
from the restrictions imposed by this Section 1.14 that number of Registrable
Securities obtained by multiplying (i) the proportion of Registrable Securities
held by such Holder to the total number of Registrable Securities then
outstanding by (ii) the aggregate number of Registrable Securities released.
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, and each Holder agrees
that, if so requested, such Holder will execute an agreement in the form
provided by the underwriter containing terms which are essentially consistent
with the provisions of this Section 1.14.
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<PAGE>
Notwithstanding the foregoing, the obligations described in this
Section 1.14 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to an SEC Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.
1.15 Termination of Registration Rights. No Holder shall be
----------------------------------
entitled to exercise any right provided for in this Section 1 after the earlier
of (i) five (5) years following the consummation of the sale of securities
pursuant to a registration statement filed by the Company under the Act in
connection with the initial firm commitment underwritten offering of its
securities to the general public, or (ii) such time as Rule 144 or another
similar exemption under the Act is available for the sale of all of such
Holder's shares during a three (3)-month period without registration.
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements. The Company shall deliver
--------------------------------
to each Investor holding not less than 200,000 shares of Registrable Securities
(as determined in accordance with Section 3.9 of this Agreement and as adjusted
for recapitalizations, stock splits, stock dividends and the like):
(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
shareholder'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 an independent public accounting firm of nationally
recognized standing selected by the Company;
(b) as soon as practicable, but in any event within forty-
five (45) days after the end of each of the first three (3) quarters of each
fiscal year of the Company, an unaudited profit or loss statement, a statement
of cash flows for such fiscal quarter and an unaudited balance sheet as of the
end of such fiscal quarter; and
(c) with respect to the financial statements called for in
subsection (b) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operations for the period specified, subject to year-end audit
adjustment, provided that the foregoing shall not restrict the right of the
Company to change its accounting principles consistent with GAAP, if the Board
of Directors determines that it is in the best interest of the Company to do so.
2.2 Additional Information. As long as an Investor holds not
----------------------
less than 200,000 shares of Registrable Securities (as determined in accordance
with Section 3.9 of
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<PAGE>
this Agreement), as adjusted for recapitalizations, stock splits, stock
dividends and the like, upon request, the Company will deliver the following
reports to such Investor:
(a) as soon as practicable after the end of each fiscal month,
and in any event within thirty (30) days thereafter, an unaudited consolidated
balance sheet of the Company as at the end of such month, and unaudited
consolidated statements of income and unaudited consolidated statements of cash
flows for such month and for the current fiscal year to date. Such financial
statements shall be prepared in accordance with generally accepted accounting
principles consistently applied (other than accompanying notes), all in
reasonable detail and shall include a comparison against plan;
(b) as soon as practicable, but in any event prior to the end of
each fiscal year, a budget 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;
(c) 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 reasonably request (including,
without limitation, making available copies of registration statements on Form
S-1 filed by the Company), provided, however, that the Company shall not be
obligated under this subsection (c) to provide information which it deems in
good faith to be a trade secret or similar confidential information.
2.3 Inspection. The Company shall permit each Investor who holds
----------
not less than 200,000 shares of Registrable Securities (as determined in
accordance with Section 3.9 of this Agreement and as adjusted for
recapitalizations, stock splits, stock dividends and the like), at such
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Investor; provided, however, that the Company shall not be obligated
pursuant to this Section 2.3 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
2.4 Termination of Information and Inspection Covenants. The
---------------------------------------------------
covenants set forth in Sections 2.1, 2.2 and 2.3 shall terminate as to Investors
and be of no further force or effect upon the earlier of (i) the consummation
of the Company's sale of its Common Stock in an underwritten public offering
pursuant to an effective registration statement filed under the Securities Act
or (ii) the registration by the Company of a class of its equity securities
under Section 12(b) or 12(g) of the Exchange Act.
2.5 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this Section 2.5, 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 2.5, a "Major Investor" shall mean any person who holds at least 200,000
--------------
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock or
-15-
<PAGE>
Series G Preferred Stock (or the Common Stock issued upon conversion thereof)
(as determined in accordance with Section 3.9 of this Agreement and as adjusted
for recapitalizations, stock splits, stock dividends and the like). A Major
Investor who chooses to exercise the right of first offer may designate as
purchasers under such right itself or its partners or affiliates in such
proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into 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 by confirmed fax or
by overnight courier ("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, if any, upon which it proposes to offer such
Shares.
(b) Within twenty (20) calendar days after delivery 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 which
equals the proportion that the number of shares of Common Stock issued and held,
or issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Major Investor bears to the total number of shares
of Common Stock then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities). The Company shall promptly, in writing,
inform each Major Investor that purchases all the shares available to it (each,
a "Fully-Exercising Investor") of any other Major Investor's failure to do
-------------------------
likewise. During the ten (10)-day period commencing after receipt of such
information, each Fully-Exercising Investor shall be entitled to obtain 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 Common Stock issued and held, or
issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Fully-Exercising Investor bears to the total
number of shares of Common Stock then held by all Fully-Exercising Investors
(assuming full conversion and exercise of all convertible or exercisable
securities).
(c) The Company may, during the 45-day period following the
expiration of the period provided in subsection 2.5(b) hereof, offer the
remaining unsubscribed portion of the 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 sixty (60) 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 2.5 shall not
be applicable (i) to the issuance or sale of securities (or options therefor) to
employees, consultants or directors pursuant to plans or agreements approved by
the Board of Directors for the primary
-16-
<PAGE>
purpose of soliciting or retaining their services, (ii) to the issuance of up to
100,000 shares of Common Stock to vendors of the Company, (iii) to the issuance
of securities in connection with strategic partnering arrangements approved by
the Board of Directors (iv) to or after consummation of a bona fide, firmly
underwritten public offering of shares of Common Stock registered under the Act
pursuant to a registration statement, (v) to the issuance of securities pursuant
to the conversion or exercise of convertible or exercisable securities
previously subject to, or exempt from, this Section 2.5, (vi) to the issuance of
securities 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, the terms of which are approved by the Board of Directors of
the Company, (vii) to the issuance of securities to financial institutions or
lessors in connection with commercial credit arrangements, equipment financings
or similar transactions, the terms of which are approved by the Board of
Directors of the Company, (viii) to the issuance or sale of the Series G
Preferred Stock or Common Stock issued upon conversion of the Preferred Stock,
(ix) to the issuance of securities that, with unanimous approval of the Board of
Directors of the Company (including a director elected by the holders of Series
D Preferred Stock), are not offered to any existing shareholder of the Company,
or (x) to stock splits, stock dividends or like transactions.
2.6. Lock-Up Agreements. The Company covenants that it will,
------------------
subsequent to the Closing (as defined in the Series G Agreement), use its best
efforts to have all officers and directors of the Company, and all one-percent
(1%) securityholders, enter into lock-up agreements with Morgan Stanley & Co.
Incorporated, substantially in the form attached to the Series G Agreement as
Exhibit G.
3. Miscellaneous.
-------------
3.1 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 of the Preferred Stock or any Common Stock issued upon
conversion thereof). 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.
3.2 Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto shall be governed, construed and interpreted in accordance with
the laws of the State of California, without giving effect to principles of
conflicts of laws.
3.3 Counterparts. This Agreement may be executed in two (2) or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 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.
-17-
<PAGE>
3.5 Notices. Unless otherwise provided, any notice required or
-------
permitted by this Agreement shall be in writing and shall be deemed sufficient
upon delivery, when delivered personally or by overnight courier or sent by
telegram or confirmed fax, or (in the case of domestic recipients) five business
days after being deposited in the U.S. mail, as certified or registered mail,
with postage prepaid, and addressed to the party to be notified at such party's
address as set forth below or on Exhibit A hereto or as subsequently modified by
---------
written notice.
3.6 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.
3.7 Entire Agreement; Amendments and Waivers. This Agreement
----------------------------------------
(including the Exhibits hereto) constitutes the full and entire understanding
and agreement between the parties with respect to the subjects hereof and
thereof. 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 then outstanding. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any Registrable Securities
then outstanding, each future holder of all such Registrable Securities and the
Company, but in no event shall the obligations or rights of any Holder hereunder
be materially increased or decreased, as applicable, in a manner different from
all other Holders, except upon written consent of such Holder.
3.8 Severability. If one or more provisions of this Agreement
------------
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision, then
(x) such provision shall be excluded from this Agreement, (y) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (z) the
balance of the Agreement shall be enforceable in accordance with its terms.
3.9 Aggregation of Stock. For the purpose of determining the
--------------------
availability of any rights under this Agreement, the number of shares of
Preferred Stock or Registrable Securities held by (i) affiliated entities or
persons, (ii) any partner or retired partner of any Holder or Investor that is a
partnership, (iii) any member or former member of any Holder or Investor that is
a limited liability company, or (iv) any family member or trust or other entity
primarily for the benefit of any individual Holder or Investor, shall be
aggregated together.
3.10 Indemnification. The Company will indemnify members of the
---------------
Board of Directors to the broadest extent permitted by applicable law and will
indemnify each Investor for any claims brought against such Investor by any
third party (including any other shareholder of the Company) as a result of the
Company's Series E Preferred Stock financing, Series F Preferred Stock financing
or Series G Preferred Stock financing.
-18-
<PAGE>
3.11 Waiver of Right of First Offer. By execution of this
------------------------------
Agreement below, the holders of the Company's Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock, and each of them, hereby consent
to the issuance of the shares of Series G Preferred Stock to the Series G
Purchasers as contemplated by the Series G Agreement and waive any rights to
notice or to acquire shares of Series G Preferred Stock to which they may be
entitled, including but not limited to those provided in Section 2.5 of the
Existing Rights Agreement (such waiver intended to apply to all holders of
Registrable Securities under the Existing Rights Agreement).
3.12 Waiver of Registration Rights for Proposed Initial Public
---------------------------------------------------------
Offering. By execution of this Agreement below, the Holders and each of them,
- ---------
hereby acknowledge that the Company is considering an underwritten initial
public offering of its Common Stock, which would involve the registration of a
certain number of shares of such Common Stock with the SEC (the "Proposed
--------
Offering"), and hereby agree and consent (such agreement and consent intended to
- --------
apply to all holders of Registrable Securities under this Agreement), provided
that the Proposed Offering is completed prior to June 30, 2000, to each of the
following matters:
(a) The Holder hereby elects not to register or sell any of
Holder's shares of Common Stock of the Company in connection with the Proposed
Offering;
(b) The Holder hereby agrees to waive any registration
rights and any notice requirements under Section 1.3 of this Agreement with
respect to, or arising out of the sale of, the shares of Common Stock proposed
to be offered by the Company in the Proposed Offering; and
(c) The Holder hereby agrees to waive any rights of first
offer and any notice requirements under Section 2.5 of this Agreement with
respect to, or arising out of the sale of, the shares of Common Stock proposed
to be offered by the Company in the Proposed Offering.
[Signature Page Follows]
-19-
<PAGE>
The parties have executed this Seventh Amended and Restated Investors'
Rights Agreement as of the date first above written.
COMPANY: INVESTORS:
REPLAYTV, INC.
__________________________________
(Investor)
By: /s/ Earle H. LeMasters, III By:_______________________________
---------------------------
Earle H. LeMasters III,
Chief Executive Officer Name:_____________________________
(print name of signatory)
Address:
Title:____________________________
1945 Charleston Road
Mountain View, CA 94043-1201
<PAGE>
EXHIBIT A
---------
Series G Investors
<TABLE>
<CAPTION>
Name/Address No. of Shares
------------ -------------
<S> <C>
News America Incorporated 454,545
1211 Avenue of the Americas
New York, NY 10036
Attn: Janet Nova (Fax 212-852-7214)
Steven Kuo (Fax 310-369-2443)
Adelphia Communications Corporation 454,545
One North Main Street
Coudersport, PA 16915
Attn: Colin Higgin
Facsimile: 814-274-6586
[email protected]
Comcast Interactive Capital, LP 454,545
1201 Market Street, Suite 2201
Wilmington, DE 19801
Telephone: 302-594-8700
Facsimile: 302-658-1600
Motorola, Inc. 272,727
Broadband Communications Sector
101 Tournament Drive
Horsham, PA 19044
Attn: Corporate Vice President and
Director Business Development
(Fax: 215-323-1111)
with a copy to General Counsel
(Fax: 215-323-1300)
CSK Venture Capital Co., Ltd. 454,545
7fl., Kenchiky-Kaikan Bldg., 5-6-20, Shiba,
Minato-ku, Tokyo 108, Japan
Telephone: 81-3-3457-5588
Facsimile: 81-3-3457-7070
With notice also to:
Sega of America Dreamcast, Inc.
650 Townsend Street
San Francisco, CA
Leonard Slootmaker
Facsimile: 415-701-6099
[email protected]
- ----------------
- ---------------------------------------------------------
TOTAL 2,090,907
</TABLE>
<PAGE>
Series A-F Investors
<TABLE>
<CAPTION>
Name/Address No. of Shares
------------ -------------
<S> <C>
Marc Andreessen or Michael Mohr, Trustees 1,265,036 (Series C)
The Andreessen 1996 Living Trust, 51,612 (Series D)
16615 Lark Avenue 26,667 (Series E)
Suite 101
Los Gatos, CA 95032
Benedek Family Trust dated 1/20/89 5,333 (Series E)
c/o Peter Benedek
United Talent Agency
9560 Wilshire Blvd.
Beverly Hills, CA 90212
James Berkus 5,333 (Series E)
United Talent Agency
9560 Wilshire Blvd.
Beverly Hills, CA 90212
Armyan Bernstein 6,667 (Series E)
c/o Tony LeWinter
LeWinter & Ross
16255 Ventura Blvd. Suite 600
Encino, CA 91436
Charles G. Betty 6,667 (Series E)
c/o Earthlink Network
3100 New York Drive
Pasadena, CA 91007
Kevin and Carol Bohren 645,160 (Series B)
P.O. Box 6632 395,324 (Series C)
Avon, CO 81620 51,612 (Series D)
Layne Leslie Britton 8,394 (Series E)
Replay Networks, Inc.
1945 Charleston Road
Mountain View, CA 94043-1201
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name/Address No. of Shares
------------ -------------
<S> <C>
John Mark Box, Trustee 80,644 (Series B)
Mark Box Living Trust U/A 12/5/95
125 Fawn Lane
Portola Valley, CA 94028
J. David Cabello 46,666 (Series E)
18207 Theiss Mail Rt. Rd.
Spring, TX 77379
Catalyst Investments L.L.C. 1,333,334 (Series E)
c/o Michael Dean
The Walt Disney Company
Vice President, Strategic Planning
500 S. Buena Vista Street
Burbank, CA 91521-0774
with a copy to:
David K. Thompson
The Walt Disney Company
500 S. Buena Vista Street
Burbank, CA 91521-0774
Gary Cosay 5,333 (Series E)
United Talent Agency
9560 Wilshire Blvd.
Beverly Hills, CA 90212
CTV Inc. 266,667 (Series E)
Attention: Henry Eaton
9 Channel Nine Court
Scarborough, Ontario, Canada
M1S 4B5
with a copy to: David Matlow (outside counsel)
Goodman Phillips & Vineberg
250 Yonge Street, Suite 2400
Toronto, Ontario, Canada
M5B 2M6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name/Address No. of Shares
------------ -------------
<S> <C>
Sky Dayton 790,648 (Series C)
c/o Earthlink Network 13,333 (Series E)
3100 New York Drive
Pasadena, CA 91107
The Endeavor Agency 26,666 (Series E)
Ari Emanuel
cc: Marty Adelstein
9701 Wilshire Blvd., 10th Floor
Beverly Hills, CA 90212
J. William Gurley 158,128 (Series C)
Benchmark Capital
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025
Kenneth B. Hertz 6,667 (Series E)
Hanson Jacobson Teller
450 N. Roxburty Drive 8th Floor
Beverly Hills, CA 90210
Tom Kartsotis 564,516 (Series B)
c/o Fossil Watch 26,667 (Series E)
2280 North Greenville
Richardson, TX 75082
Edward M. Kessler 453,470 (Series A)
14505 Arnerich Hill Road 80,644 (Series B)
Los Gatos, CA 95032 20,000 (Series E)
Anthony Kiedis 13,333 (Series E)
c/o Bill Vuylsteke
Provident Financial Management
10345 W. Olympic Blvd.
Los Angeles, CA 90064
KPCB Holdings Inc., as nominee 7,870,968 (Series D)
2750 Sand Hill Road
Menlo Park, CA 94025
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name/Address No. of Shares
------------ -------------
<S> <C>
Daniel J. Levin 13,333 (Series E)
Replay Networks, Inc.
1945 Charleston Road
Mountain View, CA 94043-1201
Liberty Media Corporation 533,334 (Series E)
c/o Joan Black
Sherman & Howard
633 Seventeenth Street, Suite 300
Denver, CO 80202
Matsushita-Kotobuki Electronics Industries 1,333,334 (Series E)
Ltd. 909,091 (Series F)
Takuji Oishi
Mitsutomi Matsumoto
8-1 Furujin-machi, Takamatsu
Kagawa 760-0025
Japan
(Fax: 0897 53-5598)
with a copy to (outside counsel):
Richard S. Millard
Weil, Gotshal & Manges
2882 Sand Hill Road
Suite 280
Menlo Park, CA 94025
Mark A. Medearis 7,906 (Series C)
Venture Law Group 933 (Series E)
2800 Sand Hill Road
Menlo Park, CA 94025
William Morris Agency, Inc. 33,333 (Series E)
Paul Bricault
cc: Jerry Katzman
151 South El Camino Drive
Beverly Hills, CA 90212-2775
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name/Address No. of Shares
------------ -------------
<S> <C>
Murdock Venture Partners 15,812 (Series C)
Attn.: Claire Martell 4,667 (Series E)
2041 Mission College Blvd., Suite 159
Santa Clara, CA 95054
NBC Multimedia, Inc. 666,666 (Series E)
Aviv Nevo 33,333 (Series E)
9440 Santa Monica Blvd. #600
Beverly Hills, CA 90210
Kevin O'Donnell 32,258 (Series D)
P.O. Box 10448 20,000 (Series E)
Beverly Hills, CA 90213
Guy Oseary 38,710 (Series D)
9348 Civic Center Drive 40,000 (Series E)
Beverly Hills, CA 90210
Ramsey Bierne Investment Partners, LLC 20,000 (Series E)
c/o James H. Chung
Ramsey Beirne Associates, Inc.
500 Executive Blvd.
Ossining, NY 10562
Theodore H. Schell 6,667 (Series E)
c/o Sprint
2330 Shawnee Mission Parkway
Westwood, KS 66205
Showtime Networks, Inc. 266,667 (Series E)
Tom Hayden
1633 Broadway
New York, NY 10019
with a copy to:
Viacom International Inc.
1515 Broadway
New York, NY 10036
Attn: General Counsel
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name/Address No. of Shares
------------ -------------
<S> <C>
Reed Slatkin 32,258 (Series D)
890 N. Kellogg Avenue
Santa Barbara, CA 93111
Robert W. Stearns 355,790 (Series C)
38 Palmer Woods Drive 25,806 (Series D)
The Woodlands, TX 77381 33,333 (Series E)
Nicholas Stevens 5,333 (Series E)
United Talent Agency
9560 Wilshire Blvd.
Beverly Hills, CA 90212
Time Warner Inc. 1,333,334 (Series E)
c/o Clarissa C. Weirich
4000 Warner Boulevard
Burbank, CA 91522
with a copy to: Kevin Tsujihara
Warner Brothers
4000 Warner Boulevard
Burbank, CA 91522
Tribune Company 645,160 (Series D)
Attn.: Lisa Wiersma 666,667 (Series E)
435 North Michigan Avenue, Suite 600
Chicago, IL 60610
with a copy to (inhouse counsel):
Daniel G. Kazan
Tribune Company
435 N. Michigan Avenue Suite 600
Chicago, IL 60611
United Television, Inc. 266,667 (Series E)
c/o John Siegel
650 California Avenue
7th Floor
San Francisco, CA 94108
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name/Address No. of Shares
------------ -------------
<S> <C>
VLG Investments 1998 7,906 (Series C)
Attn. Elias J. Blawie
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
VLG Investments 1999 2,667 (Series E)
Attn: Elias J. Blawie
Venture Law Group
2800 Sand Hill Road
Menlo Par, CA 94025
James R. Von Her 645,160 (Series B)
c/o Zyvex LLC 25,806 (Series D)
251 W. Renner Parkway, Suite 166 26,667 (Series E)
Richardson, TX 75080
Vulcan Ventures Incorporated 1,290,322 (Series D)
Attn: Ed Harris / Scott Falls 346,667 (Series E)
110--110/th/ Avenue, N.E. 245,454 (Series F)
Suite 650
Bellevue, WA 98004-5862
Bill Vuylsteke 6,667 (Series E)
Provident Financial Management
10345 W. Olympic Blvd.
Los Angeles, CA 90064
Happy David Walters 6,667 (Series E)
Immortal Records
1650 21st Street
Santa Monica, CA 90404
Anthony J. Wood 2,040,600 (Series A)
241,934 (Series B)
158,128 (Series C)
103,226 (Series D)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name/Address No. of Shares
------------ -------------
<S> <C>
Donald R. Woodward and Annette M. 10,000 (Series E)
Woodward, Trustees Under the Woodward
Family Trust dated 12/21/98
c/o Donald R. Woodward
610 Nandell Lane
Los Altos, CA 94024
Don Woodward 25,806 (Series D)
610 Nandell Lane
Los Altos, CA 94024
Barry Wood 1,582 (Series C)
Donna Wood 1,580 (Series C)
Grant Wood 1,580 (Series C)
Lynn Wood 1,582 (Series C)
Nicholas Wood 1,582 (Series C)
Jeremy Zimmer 5,333 (Series E)
United Talent Agency
9560 Wilshire Blvd.
Beverly Hills, CA 90212
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name/Address No. of Shares
------------ -------------
<S> <C>
862686 Alberta Ltd. 454,545 (Series F)
Attn.: President
c/o Shaw Communications Inc.
Suite 900, 630 - 3/rd/ Avenue S.W.
Calgary, Alberta, Canada
T2P 4L4
Fax No.: 403-750-4506
copy to:
General Counsel and Secretary
Fax. No.: 403-750-7466
At Home Corporation 454,545 (Series F)
440 Broadway Street
Redwood City, CA 94063
Attn: General Counsel
copy to:
At Home Corporation
Mark Stevens
Executive Vice President,
Business Development
450 Broadway Street
Redwood City, CA 94063
Communicade Inc. 272,727 (Series F)
Attn.: Chief Financial Officer
c/o Omnicom Group Inc.
437 Madison Avenue
New York, NY 10022
Echostar 909,090 (Series F)
5701 Santa Fe Drive
Littleton, CO 80120
Attn.: Mark Jackson
Ph.: 303-723-2600
Fax: 303-723-3902
[email protected]
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name/Address No. of Shares
------------ -------------
<S> <C>
Grey Ventures, Inc. 90,909 (Series F)
777 3/rd/ Avenue
New York, NY 10017
Attn.: Lance Maerov
The Interpublic Group of Companies, Inc. 272,727 (Series F)
1271 Avenue of the Americas
44/th/ Floor
New York, NY 10020
Attn: Nicholas Camera
Ph.: 212-399-8021
Fax: 212-399-8021
Gilbert Fuchsberg
Ph. 212-399-8134
Fax: 212-399-8285
Rogers Communications 454,544 (Series F)
c/o David Miller
333 Bloor Street East
Toronto Ontario
Canada
M4W1G9
Ph. 416-935-3546
Fax: 416-935-4600
[email protected]
Scientific-Atlanta, Inc. 200,000 (Series F)
One Technology Parkway
Norcross, GA 30092
Attn.: Chris Arndt
Sharp Electronics Corporation 454,545 (Series F)
P.O. Box 650
Sharp Plaza
Mahwah, NJ 07430-2135
Attention: Toshiyuki Tajima, Chairman of
the Board
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name/Address No. of Shares
------------ -------------
<S> <C>
Universal Music Group, Inc. 909,090 (Series F)
10 Universal City Plaza
Universal City, CA 91608
Attn.: President
Imperial Bancorp Warrant to Purchase 6,666 shares
2460 Sand Hill Road, Suite 102 of Series E Preferred Stock
Menlo Park, CA 94025
</TABLE>
<PAGE>
EXHIBIT 10.4
REPLAYTV, INC.
1999 STOCK PLAN
(As Amended January 21, 2000)
1. Purposes of the Plan. The purposes of this 1999 Stock Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants and
to promote the success of the Company's business. Options granted under the
Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined
by the Administrator at the time of grant of an Option and subject to the
applicable provisions of Section 422 of the Code and the regulations promulgated
thereunder. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or its Committee appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Affiliate" means an entity other than a Subsidiary (as defined
---------
below) in which the Company owns an equity interest or which, together with the
Company, is under common control of a third person or entity.
(c) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock option and restricted stock purchase plans under
applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any Stock Exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options or Stock
Purchase Rights are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time.
(d) "Board" means the Board of Directors of the Company.
-----
(e) "Change in Control" means a sale of all or substantially all of
-----------------
the Company's assets, or a merger, consolidation or other capital reorganization
of the Company with or into another corporation; provided however that a merger,
consolidation or other capital reorganization in which the holders of more than
50% of the shares of capital stock of the Company outstanding immediately prior
to such transaction continue to hold (either by the voting securities remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the total voting power represented by the voting
securities of the Company, or such surviving entity, outstanding immediately
after such transaction shall not constitute a Change in Control.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
----
(g) "Committee" means one or more committees or subcommittees of the
---------
Board appointed by the Board to administer the Plan in accordance with Section 4
below.
(h) "Common Stock" means the Common Stock of the Company.
------------
1
<PAGE>
(i) "Company" means ReplayTV, Inc., a California corporation.
-------
(j) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent, Subsidiary or Affiliate to render services
and is compensated for such services, and any director of the Company whether
compensated for such services or not.
(k) "Continuous Service Status" means the absence of any interruption
-------------------------
or termination of service as an Employee or Consultant. Continuous Service
Status shall not be considered interrupted in the case of: (i) sick leave; (ii)
military leave; (iii) any other leave of absence approved by the Administrator,
provided that such leave is for a period of not more than ninety (90) days,
unless reemployment upon the expiration of such leave is guaranteed by contract
or statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company, its Parents, Subsidiaries, Affiliates or their
respective successors. A change in status from an Employee to a Consultant or
from a Consultant to an Employee will not constitute an interruption of
Continuous Service Status.
(l) "Corporate Transaction" means a sale of all or substantially all
---------------------
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(m) "Director" means a member of the Board.
--------
(n) "Employee" means any person (including, if appropriate, any Named
--------
Executive, officer or Director) employed by the Company or any Parent,
Subsidiary or Affiliate of the Company, with the status of employment determined
based upon such minimum number of hours or periods worked as shall be determined
by the Administrator in its discretion, subject to any requirements of the Code.
The payment by the Company of a director's fee to a Director shall not be
sufficient to constitute "employment" of such Director by the Company.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(p) "Fair Market Value" means, as of any date, the fair market value
-----------------
of Common Stock as determined by the Administrator in good faith on such basis
as it deems appropriate and applied consistently with respect to Participants.
Whenever possible, the determination of Fair Market Value shall be based upon
the closing price for the Shares as reported in the Wall Street Journal for the
applicable date.
(q) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable Option Agreement.
(r) "Listed Security" means any security of the Company that is listed
---------------
or approved for listing on a national securities exchange or designated or
approved for designation as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
-2-
<PAGE>
(s) "Named Executive" means any individual who, on the last day of the
---------------
Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four most highly compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(t) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable Option
Agreement.
(u) "Option" means a stock option granted pursuant to the Plan.
------
(v) "Option Agreement" means a written document, the form(s) of which
----------------
shall be approved from time to time by the Administrator, reflecting the terms
of an Option granted under the Plan and includes any documents attached to or
incorporated into such Option Agreement, including, but not limited to, a notice
of stock option grant and a form of exercise notice.
(w) "Option Exchange Program" means a program approved by the
-----------------------
Administrator whereby outstanding Options are exchanged for Options with a lower
exercise price.
(x) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(y) "Optionee" means an Employee or Consultant who receives an Option.
--------
(z) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code, or any successor provision.
(aa) "Participant" means any holder of one or more Options or Stock
-----------
Purchase Rights, or the Shares issuable or issued upon exercise of such awards,
under the Plan.
(bb) "Plan" means this 1999 Stock Plan.
----
(cc) "Reporting Person" means an officer, Director, or greater than
----------------
ten percent stockholder of the Company within the meaning of Rule 16a-2 under
the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under
the Exchange Act.
(dd) "Restricted Stock" means Shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section 11 below.
(ee) "Restricted Stock Purchase Agreement" means a written document,
-----------------------------------
the form(s) of which shall be approved from time to time by the Administrator,
reflecting the terms of a Stock Purchase Right granted under the Plan and
includes any documents attached to such agreement.
(ff) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
----------
as amended from time to time, or any successor provision.
-3-
<PAGE>
(gg) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 14 of the Plan.
(hh) "Stock Exchange" means any stock exchange or consolidated stock
--------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(ii) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 below.
(jj) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
(kk) "Ten Percent Holder" means a person who owns stock representing
------------------
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary.
3. Stock Subject to the Plan. Subject to the provisions of Section 14 of
-------------------------
the Plan, the maximum aggregate number of Shares that may be sold under the Plan
is 9,700,000 Shares of Common Stock, plus (i) up to an aggregate of 7,600,000
Shares that (a) return to the Company's 1997 Stock Option Plan upon cancellation
of outstanding options issued under that plan and (b) were Shares issued under
the 1997 Stock Option Plan that the Company repurchases when the holder thereof
terminates his or her service relationship with the Company, and (ii) an annual
increase on the first day of each of the Company's fiscal years beginning in
2001 through 2009 equal to the greater of (x) 4,000,000 Shares, or (y) six
percent (6%) of the Shares outstanding on the last day of the immediately
preceding fiscal year. Notwithstanding the above, the maximum aggregate number
of Shares that may be sold under the Plan during its term (as set forth in
Section 6 below) is 62,300,000 Shares.
The Shares may be authorized, but unissued, or reacquired Common Stock. If
an award should expire or become unexercisable for any reason without having
been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares that were subject thereto shall, unless the Plan
shall have been terminated, become available for future grant under the Plan.
In addition, any Shares of Common Stock which are retained by the Company upon
exercise of an Option or Stock Purchase Right in order to satisfy the exercise
or purchase price for such Option or Stock Purchase Right or any withholding
taxes due with respect to such exercise or purchase shall be treated as not
issued and shall continue to be available under the Plan. Shares issued under
the Plan and later repurchased by the Company pursuant to any repurchase right
which the Company may have shall not be available for future grant under the
Plan.
4. Administration of the Plan.
--------------------------
(a) General. The Plan shall be administered by the Board or a
-------
Committee, or a combination thereof, as determined by the Board. The Plan may
be administered by different administrative bodies with respect to different
classes of Participants and, if permitted by the Applicable Laws, the Board may
authorize one or more officers to grant Options or Stock Purchase Rights to
Employees and Consultants.
-4-
<PAGE>
(b) Committee Composition. If a Committee has been appointed pursuant
---------------------
to this Section 4, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of any Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies (however caused) and remove all members of a Committee
and thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws and, in the case of a Committee administering the Plan in
accordance with the requirements of Rule 16b-3 or Section 162(m) of the Code, to
the extent permitted or required by such provisions.
(d) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(p) of the Plan;
(ii) to select the Employees and Consultants to whom Options and
Stock Purchase Rights or any combination thereof may from time to time be
granted;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted;
(iv) to determine the number of Shares of Common Stock to be
covered by each such award granted;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder, which terms and
conditions include but are not limited to the exercise or purchase price, the
time or times when Options or Stock Purchase Rights may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option,
Optioned Stock, Stock Purchase Right or Restricted Stock, based in each case on
such factors as the Administrator, in its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an Option
may be settled in cash under Section 10(f) instead of Common Stock;
(viii) to implement an Option Exchange Program on such terms and
conditions as the Administrator in its discretion deems appropriate, provided
however that no amendment or adjustment to an Option that would materially and
adversely affect the rights of any Optionee shall be made without the prior
written consent of the Optionee;
(ix) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such Stock
Purchase Rights;
-5-
<PAGE>
(x) to construe and interpret the terms of the Plan and awards
granted under the Plan, which constructions, interpretations, and decisions
shall be final and binding on all Participants; and
(xi) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
Participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs.
5. Eligibility.
-----------
(a) Recipients of Grants. Nonstatutory Stock Options and Stock
--------------------
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees, provided however that Employees of
Affiliates shall not be eligible to receive Incentive Stock Options.
(b) Type of Option. Each Option shall be designated in Option
--------------
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of the grant of such Option.
(c) No Employment Rights. The Plan shall not confer upon any
--------------------
Participant any right with respect to continuation of an employment or
consulting relationship with the Company, nor shall it interfere in any way with
such Participant's right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption by the
------------
Board. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided however that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement and provided further that, in the case of an
Incentive Stock Option granted to a person who at the time of such grant is a
Ten Percent Holder, the term of the Option shall be five (5) years from the date
of grant thereof or such shorter term as may be provided in the Option
Agreement.
8. Limitation on Grants to Employees. Subject to adjustment as provided
---------------------------------
in Section 14 below, the maximum number of Shares that may be subject to Options
and Stock Purchase Rights granted to any one Employee under the Plan during a
single fiscal year of the Company shall be 5,000,000.
-6-
<PAGE>
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per Share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be such price as is determined by
the Administrator and set forth in the Option Agreement, but shall be subject to
the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who at the time of grant is a Ten
Percent Holder, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant; or
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be such price as is determined by the Administrator;
provided however that in the case of a Nonstatutory Stock option granted to a
person who, at the time of the grant of such Option, is a Named Executive of the
Company, the per Share Exercise Price shall be no less than 100% of the Fair
Market Value on the date of grant if such Option is intended to qualify as
performance-based compensation under Section 162(m) of the Code and if not so
intended shall be such price as is determined by the Administrator.
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) Permissible Consideration. The consideration to be paid for the
-------------------------
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant) and may consist entirely of
(1) cash; (2) check; (3) delivery of Optionee's promissory note with such
recourse, interest, security and redemption provisions as the Administrator
determines to be appropriate (subject, if applicable, to the provisions of
Section 153 of the Delaware General Corporation Law); (4) cancellation of
indebtedness; (5) other Shares that (x) in the case of Shares acquired upon
exercise of an Option either have been owned by the Optionee for more than six
months on the date of surrender (or such other period as may be required to
avoid a charge to the Company's earnings) or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which the
Option is exercised; (6) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect exercise of the Option and prompt delivery
to the Company of the sale or loan proceeds required to pay the exercise price
and any applicable withholding taxes; or (7) any combination of the foregoing
methods of payment. In making its determination as to the type of consideration
to accept, the Administrator shall consider if acceptance of such consideration
may be reasonably expected to benefit the Company and the Administrator may
refuse to accept a particular form of consideration at the time of any Option
-7-
<PAGE>
exercise if, in its sole discretion, acceptance of such form of consideration is
not in the best interests of the Company at such time.
10. Exercise of Option.
------------------
(a) General.
-------
(i) Exercisability. Any Option granted hereunder shall be
--------------
exercisable at such times and under such conditions as determined by the
Administrator, consistent with the terms of the Plan, and reflected in the
Option Agreement, including vesting requirements and/or performance criteria
with respect to the Company and/or the Optionee. The Administrator shall have
the discretion to determine whether and to what extent the vesting of Options
shall be tolled during any unpaid leave of absence; provided that in the absence
of such determination, vesting shall be tolled during an unpaid leave.
(ii) Fractional Shares. An Option may not be exercised for a
-----------------
fraction of a Share.
(iii) Procedures for and Results of Exercise. An Option shall be
--------------------------------------
deemed exercised when written notice of such exercise has been given to the
Company in accordance with the terms of the Option by the person entitled to
exercise the Option and the Company has received full payment for the Shares
with respect to which the Option is exercised. Full payment may, as authorized
by the Administrator, consist of any consideration and method of payment
allowable under Section 9(b) of the Plan; provided that the Administrator may
refuse to accept any form of consideration if, at the time of exercise, the
Administrator determines in its sole discretion that acceptance of such form of
consideration is not in the best interests of the Company at that time.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(iv) Rights as Stockholder. Until the issuance (as evidenced by
---------------------
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 14 of the
Plan.
(b) Termination of Employment or Consulting Relationship. In the
----------------------------------------------------
event of termination of an Optionee's Continuous Service Status, such Optionee
may, but only within three (3) months (or such other period of time as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) after the
date of such termination (but in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise his or her
Option to the extent that the Optionee was entitled to exercise it at the date
of such termination. To the extent that the Optionee was not entitled to
exercise the Option at the date of such termination, or if the
-8-
<PAGE>
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate. No termination shall be deemed to
occur and this Section 10(b) shall not apply if (i) the Optionee is a Consultant
who becomes an Employee; or (ii) the Optionee is an Employee who becomes a
Consultant.
(c) Disability of Optionee. Notwithstanding Section 10(b) above, in
----------------------
the event of termination of an Optionee's Continuous Service Status as a result
of his or her total and permanent disability (within the meaning of Section
22(e)(3) of the Code), Optionee may, but only within twelve (12) months (or such
other period of time as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option made at the time of grant
of the Option) from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination. To the extent that Optionee was not entitled
to exercise the Option at the date of termination, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate.
(d) Death of Optionee. Notwithstanding Section 10(b) above, in the
-----------------
event of the death of an Optionee during the period of Continuous Service Status
since the date of grant of the Option, or within thirty (30) days following
termination of Optionee's Continuous Service Status, the Option may be
exercised, at any time within twelve (12) months (or such other period of time
as is determined by the Administrator, with such determination in the case of an
Incentive Stock Option made at the time of grant of the Option) following the
date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued at the date of
death or, if earlier, the date of termination of Optionee's Continuous Service
Status. To the extent that Optionee was not entitled to exercise the Option at
the date of death or termination, as the case may be, or if the person entitled
to exercise the Option does not exercise such Option to the extent so entitled
within the time specified herein, the Option shall terminate.
(e) Extension of Exercise Period. The Administrator shall have full
----------------------------
power and authority to extend the period of time for which an Option is to
remain exercisable following termination of an Optionee's Continuous Service
Status from the periods set forth in Sections 10(b), 10(c) and 10(d) above or in
the Option Agreement to such greater time as the Administrator shall deem
appropriate, provided that in no event shall such Option be exercisable later
than the date of expiration of the term of such Option as set forth in the
Option Agreement.
(f) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted under the Plan
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. After the Administrator determines that it
------------------
will offer Stock Purchase Rights under the Plan, it shall advise the offeree in
writing of the terms,
-9-
<PAGE>
conditions and restrictions related to the offer, including the number of Shares
that such person shall be entitled to purchase, the price to be paid, and the
time within which such person must accept such offer. The purchase price of
Shares subject to Stock Purchase Rights shall be as determined by the
Administrator in accordance with the Applicable Laws. The offer to purchase
Shares subject to Stock Purchase Rights shall be accepted by execution of a
Restricted Stock Purchase Agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment or consulting relationship with the Company for any
reason (including death or disability). The purchase price for Shares
repurchased pursuant to the Restricted Stock Purchase Agreement shall be the
original purchase price paid by the purchaser and may be paid by cash or
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at such rate as the Administrator may determine in accordance
with the Applicable Laws.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 14
of the Plan.
12. Taxes.
-----
(a) As a condition of the exercise of an Option or Stock Purchase
Right granted under the Plan, the Participant (or in the case of the
Participant's death, the person exercising the Option or Stock Purchase Right)
shall make such arrangements as the Administrator may require for the
satisfaction of any applicable federal, state, local or foreign withholding tax
obligations that may arise in connection with the exercise of Option or Stock
Purchase Right and the issuance of Shares. The Company shall not be required to
issue any Shares under the Plan until such obligations are satisfied. If the
Administrator allows the withholding or surrender of Shares to satisfy a
Participant's tax withholding obligations under this Section 12 (whether
pursuant to Section 12(c), (d) or (e), or otherwise), the Administrator shall
not allow Shares to be withheld in an amount that exceeds the minimum statutory
withholding rates for federal and state tax purposes, including payroll taxes.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option or Stock Purchase Right.
-10-
<PAGE>
(c) This Section 12(c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
exercise of the Option or Stock Purchase Right that number of Shares having a
Fair Market Value determined as of the applicable Tax Date (as defined below)
equal to the amount required to be withheld. For purposes of this Section 12,
the Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined under the
Applicable Laws (the "Tax Date").
--------
(d) If permitted by the Administrator, in its discretion, a
Participant may satisfy his or her tax withholding obligations upon exercise of
an Option or Stock Purchase Right by surrendering to the Company Shares that
have a Fair Market Value determined as of the applicable Tax Date equal to the
amount required to be withheld. In the case of Shares previously acquired from
the Company that are surrendered under this Section 12(d), such Shares must have
been owned by the Participant for more than six (6) months on the date of
surrender.
(e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 12(c) or (d) above
shall be irrevocable as to the particular Shares as to which the election is
made and shall be subject to the consent or disapproval of the Administrator.
Any election by a Participant under Section 12(d) above must be made on or prior
to the applicable Tax Date.
(f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Participant shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
13. Non-Transferability of Options and Stock Purchase Rights. Options and
--------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent or distribution; provided that the Administrator may in its discretion
and to the extent permitted by the Applicable Laws grant transferable
Nonstatutory Stock Options pursuant to Option Agreements specifying (i) the
manner in which such Nonstatutory Stock Options are transferable and (ii) that
any such transfer shall be subject to the Applicable Laws. The designation of a
beneficiary by an Optionee will not constitute a transfer. An Option or Stock
Purchase Right may be exercised, during the lifetime of the holder of Option or
Stock Purchase Right, only by such holder or a transferee permitted by this
Section 13.
14. Adjustments Upon Changes in Capitalization, Merger or Certain Other
-------------------------------------------------------------------
Transactions.
- ------------
-11-
<PAGE>
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of Shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, each of the Share numbers set
forth in Sections 3 and 8 above, and the number of Shares of Common Stock that
have been authorized for issuance under the Plan but as to which no Options or
Stock Purchase Rights have yet been granted or that have been returned to the
Plan upon cancellation or expiration of an Option or Stock Purchase Right, as
well as the price per Share of Common Stock covered by each such outstanding
Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued Shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination,
recapitalization or reclassification of the Common Stock, or any other increase
or decrease in the number of issued Shares of Common Stock effected without
receipt of consideration by the Company; provided however that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares of Common Stock subject to an Option
or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Corporate Transaction. In the event of a Corporate Transaction,
---------------------
each outstanding Option or Stock Purchase Right shall be assumed or an
equivalent option or right shall be substituted by the Company's successor
corporation or a parent or subsidiary of such successor corporation (the
"Successor Corporation"), unless the successor corporation does not agree to
- ----------------------
assume the Options or Stock Purchase Rights or to substitute an equivalent
option or right, in which case such Options or Stock Purchase Rights shall
terminate upon the consummation of the transaction.
For purposes of this Section 14(c), an Option or a Stock Purchase
Right shall be considered assumed, without limitation, if, at the time of
issuance of the stock or other consideration upon a Corporate Transaction or a
Change of Control, as the case may be, each holder of an Option or Stock
Purchase Right would be entitled to receive upon exercise of the award the same
number and kind of shares of stock or the same amount of property, cash or
securities as such holder would have been entitled to receive upon the
occurrence of the transaction if the holder had been, immediately prior to such
transaction, the holder of the number of Shares of Common Stock covered by the
award at such time (after giving effect to any adjustments in the number of
Shares covered by the Option or Stock Purchase Right as provided for in this
Section 14); provided that if such consideration received in the transaction is
not solely common stock of the Successor Corporation, the Administrator may,
with the consent of the Successor Corporation, provide for the consideration to
be received upon exercise of the award to be solely common stock of the
Successor Corporation equal to the Fair Market Value of the per Share
consideration received by holders of Common Stock in the transaction.
-12-
<PAGE>
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's stockholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
15. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator;
provided however that in the case of any Incentive Stock Option, the grant date
shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
16. Amendment and Termination of the Plan.
-------------------------------------
(a) Authority to Amend or Terminate. The Board may at any time amend,
-------------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation (other than an adjustment pursuant to Section 14 above) shall
be made that would materially and adversely affect the rights of any
Participant, without his or her consent. In addition, to the extent necessary
and desirable to comply with the Applicable Laws, the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall materially and adversely affect Options or Stock Purchase
Rights already granted, unless mutually agreed otherwise between the Participant
and the Administrator, which agreement must be in writing and signed by the
Participant and the Company.
17. Conditions Upon Issuance of Shares. Notwithstanding any other
----------------------------------
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the Applicable Laws, with such compliance determined
by the Company in consultation with its legal counsel. As a condition to the
exercise of an Option or Stock Purchase Right, the Company may require the
person exercising such Option or Stock Purchase Right to represent and warrant
at the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is required
by law.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
-13-
<PAGE>
19. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
Option Agreements and Restricted Stock Purchase Agreements, respectively, in
such form(s) as the Administrator shall from time to time approve.
20. Stockholder Approval. If required by the Applicable Laws, continuance
--------------------
of the Plan shall be subject to approval by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted. Such
stockholder approval shall be obtained in the manner and to the degree required
under the Applicable Laws.
-14-
<PAGE>
EXHIBIT 10.4
REPLAY NETWORKS, INC.
1999 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
((Optionee))
You have been granted an option to purchase Common Stock "Common Stock" of
------------
Replay Networks, Inc. (the "Company") as follows:
-------
Board Approval Date: ((Board Approval Date))
Date of Grant (Later of Board
Approval Date or Commence-
ment of Employment/Consulting): ((Grant Date))
Vesting Commencement Date: ((Vesting Commence Date))
Exercise Price per Share: $((Exercise Price))
Total Number of Shares Granted: ((No of Shares))
Total Exercise Price: $((Total Exercise Price))
Type of Option: ((ISO Amount)) Incentive Stock Option
((NSO Amount)) Nonstatutory Stock Option
Term/Expiration Date: ((Expir Date))
Vesting Schedule: This Option may be exercised, in whole
or in part, in accordance with the
following schedule: ((Cliff Vest
Amount)) of the Shares subject to the
Option shall vest on the ((Cliff Month
Number)) month anniversary of the
Vesting Commencement Date and 1/((Total
Vesting Months)) of the total number of
Shares subject to the Option shall vest
each month thereafter.
Certain provisions of ((Optionee))'s
offer letter dated
((Vesting Commence Date)) shall apply to
this Option Agreement.
Termination Period: This Option may be exercised for 30 days
after termination of employment or
consulting relationship except as set
out in Sections 6 and 7 of the Stock
<PAGE>
Option Agreement (but in no event later
than the Expiration Date).
-2-
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the 1999 Stock Plan and the Stock Option Agreement, both
of which are attached and made a part of this document.
((Optionee)): Replay Networks, Inc.
_________________________________ By:_______________________________
Signature
_________________________________ _______________________________
Print Name Print Name and Title
-3-
<PAGE>
REPLAY NETWORKS, INC.
1999 STOCK PLAN
STOCK OPTION AGREEMENT
----------------------
1. Grant of Option. Replay Networks, Inc., a California corporation (the
---------------
"Company"), hereby grants to ((Optionee)) ("Optionee"), an option (the "Option")
------- -------- ------
to purchase a total number of shares of Common Stock (the "Shares") set forth in
the Notice of Stock Option Grant, at the exercise price per share set forth in
the Notice of Stock Option Grant (the "Exercise Price") subject to the terms,
--------------
definitions and provisions of the Replay Networks, Inc.1999 Stock Plan (the
"Plan") adopted by the Company, which is incorporated herein by reference.
----
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to qualify
as an Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise of Option. This Option shall be exercisable during its Term
------------------
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) This Option may not be exercised for a fraction of a share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 5, 6 and 7 below, subject to the limitation contained in Section
2(a)(i).
(iii) In no event may this Option be exercised after the
Expiration Date of this Option as set forth in the Notice of Stock Option Grant.
(b) Method of Exercise. This Option shall be exercisable by
------------------
execution and delivery of the Exercise Notice and Restricted Stock Purchase
Agreement attached hereto as Exhibit A (the "Exercise Agreement") or of any
--------- ------------------
other form of written notice approved for such purpose by the Company which
shall state the election to exercise the Option, the number of Shares in respect
of which the Option is being exercised, and such other representations and
agreements as to the holder's investment intent with respect to such shares of
Common Stock as may be required by the Company pursuant to the provisions of the
Plan. Such written notice shall be signed by Optionee and shall be delivered in
person or by certified mail to the Secretary of the Company. The written notice
shall be accompanied by payment of the Exercise Price. This Option shall be
deemed to be exercised upon receipt by the Company of such written notice
accompanied by the Exercise Price.
<PAGE>
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of
applicable law and the requirements of any stock exchange upon which the Shares
may then be listed. Assuming such compliance, for income tax purposes the
Shares shall be considered transferred to Optionee on the date on which the
Option is exercised with respect to such Shares.
3. Method of Payment. Payment of the Exercise Price shall be by cash,
-----------------
check or any other method permitted under the Plan; provided however that the
Administrator may refuse to allow Optionee to tender a particular form of
payment (other than cash or check) if, in the Administrator's sole discretion,
acceptance of such form of consideration would not be in the best interests of
the Company at such time.
4. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
5. Termination of Relationship. In the event of termination of
---------------------------
Optionee's Continuous Status as an Employee or Consultant, Optionee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
-----------
Date"), exercise this Option during the Termination Period set forth in the
- ----
Notice of Stock Option Grant. To the extent that Optionee was not entitled to
exercise this Option at such Termination Date, or if Optionee does not exercise
this Option within the Termination Period, the Option shall terminate.
6. Disability of Optionee.
----------------------
(a) Notwithstanding the provisions of Section 5 above, in the event of
termination of Optionee's Continuous Status as an Employee or Consultant as a
result of Optionee's total and permanent disability (as defined in Section
22(e)(3) of the Code), Optionee may, but only within twelve months from the
Termination Date (but in no event later than the Expiration Date set forth in
the Notice of Stock Option Grant), exercise this Option to the extent Optionee
was entitled to exercise it as of such Termination Date. To the extent that
Optionee was not entitled to exercise the Option as of the Termination Date, or
if Optionee does not exercise such Option (to the extent so entitled) within the
time specified in this Section 6(a), the Option shall terminate.
(b) Notwithstanding the provisions of Section 5 above, in the event of
termination of Optionee's consulting relationship or Continuous Status as an
Employee as a result of disability not constituting a total and permanent
disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but
only within six months from the Termination Date (but in no event later than the
Expiration Date set forth in the Notice of Stock Option Grant), exercise the
Option to the extent Optionee was entitled to exercise it as of such Termination
Date;
-2-
<PAGE>
provided, however, that if this is an Incentive Stock Option and Optionee fails
to exercise this Incentive Stock Option within three months from the Termination
Date, this Option will cease to qualify as an Incentive Stock Option (as defined
in Section 422 of the Code) and Optionee will be treated for federal income tax
purposes as having received ordinary income at the time of such exercise in an
amount generally measured by the difference between the Exercise Price for the
Shares and the Fair Market Value of the Shares on the date of exercise. To the
extent that Optionee was not entitled to exercise the Option at the Termination
Date, or if Optionee does not exercise such Option to the extent so entitled
within the time specified in this Section 6(b), the Option shall terminate.
7. Death of Optionee. In the event of the death of Optionee (a) during
-----------------
the Term of this Option and while an Employee or Consultant of the Company and
having been in Continuous Status as an Employee or Consultant since the date of
grant of the Option, or (b) within 30 days after Optionee's Termination Date,
the Option may be exercised at any time within six months following the date of
death (but in no event later than the Expiration Date set forth in the Notice of
Stock Option Grant), by Optionee's estate or by a person who acquired the right
to exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the Termination Date.
8. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him or her. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
9. Term of Option. This Option may be exercised only within the Term set
--------------
forth in the Notice of Stock Option Grant, subject to the limitations set forth
in Section 7 of the Plan.
10. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of certain of the federal and California tax consequences of
exercise of this Option and disposition of the Shares under the laws in effect
as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of Incentive Stock Option. If this Option qualifies as
----------------------------------
an Incentive Stock Option, there will be no regular federal or California income
tax liability upon the exercise of the Option, although the excess, if any, of
the Fair Market Value of the Shares on the date of exercise over the Exercise
Price will be treated as an adjustment to the alternative minimum tax for
federal tax purposes and may subject Optionee to the alternative minimum tax in
the year of exercise.
(b) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, there may be a regular federal income tax
liability and a California income tax liability upon the exercise of the Option.
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is
an
-3-
<PAGE>
employee, the Company will be required to withhold from Optionee's compensation
or collect from Optionee and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
(c) Disposition of Shares. In the case of a Nonstatutory Stock
---------------------
Option, if Shares are held for more than one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
and California income tax purposes. In the case of an Incentive Stock Option,
if Shares transferred pursuant to the Option are held for more than one year
after exercise and are disposed of at least two years after the Date of Grant,
any gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal and California income tax purposes. In either case,
the long-term capital gain will be taxed for federal income tax and alternative
minimum tax purposes at a maximum rate of 20% if the Shares are held more than
one year after exercise. If Shares purchased under an Incentive Stock Option
are disposed of within one year after exercise or within two years after the
Date of Grant, any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
difference between the Exercise Price and the lesser of (i) the Fair Market
Value of the Shares on the date of exercise, or (ii) the sale price of the
Shares.
(d) Notice of Disqualifying Disposition of Incentive Stock Option
-------------------------------------------------------------
Shares. If the Option granted to Optionee herein is an Incentive Stock Option,
- ------
and if Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to the Incentive Stock Option on or before the later of (i) the date
two years after the Date of Grant, or (ii) the date one year after the date of
exercise, Optionee shall immediately notify the Company in writing of such
disposition. Optionee acknowledges and agrees that he or she may be subject to
income tax withholding by the Company on the compensation income recognized by
Optionee from the early disposition by payment in cash or out of the current
earnings paid to Optionee.
11. Withholding Tax Obligations.
---------------------------
(a) General Withholding Obligations. As a condition to the exercise
-------------------------------
of Option granted hereunder, Optionee shall make such arrangements as the
Administrator may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that may arise in connection with the
exercise, receipt or vesting of the Option. The Company shall not be required
to issue any Shares under the Plan until such obligations are satisfied.
Optionee understands that, upon exercising a Nonstatutory Stock Option, he or
she will recognize income for tax purposes in an amount equal to the excess of
the then Fair Market Value of the Shares over the Exercise Price. If Optionee
is an employee, the Company will be required to withhold from Optionee's
compensation, or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income.
Additionally, Optionee may at some point be required to satisfy tax withholding
obligations with respect to the disqualifying disposition of an Incentive Stock
Option. Optionee shall satisfy his or her tax withholding obligation arising
upon the exercise of this Option by one or some combination of the following
methods: (i) by cash or check payment, (ii) out of Optionee's current
compensation, (iii) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares which (A) in the case of Shares previously
acquired from the Company, have
-4-
<PAGE>
been owned by Optionee for more than six months on the date of surrender, and
(B) have a Fair Market Value determined as of the applicable Tax Date (as
defined in Section 11(c) below) on the date of surrender equal to the amount
required to be withheld, or (iv) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option that number of Shares having
a Fair Market Value determined as of the applicable Tax Date equal to the amount
required to be withheld.
(b) Stock Withholding to Satisfy Withholding Tax Obligations. In the
--------------------------------------------------------
event the Administrator allows Optionee to satisfy his or her tax withholding
obligations as provided in Section 11(a)(iii) or (iv) above, such satisfaction
must comply with the requirements of this Section (11)(b) and all applicable
laws. All elections by Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax
Date (as defined in Section 11(c) below);
(ii) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(iii) all elections shall be subject to the consent or
disapproval of the Administrator.
In the event the election to have Shares withheld is made by Optionee and
the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, Optionee shall receive the full number of
Shares with respect to which the Option is exercised but Optionee shall be
unconditionally obligated to tender back to the Company the proper number of
Shares on the Tax Date.
(c) Definitions. For purposes of this Section 11, the Fair Market
-----------
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined under the applicable laws (the
"Tax Date").
--------
12. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Optionee agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Company (other
than those included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
[Signature Page Follows]
-5-
<PAGE>
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
document.
REPLAY NETWORKS, INC.
By:_______________________________
_______________________________
(Print name and title)
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated: ________________________ __________________________________
((Optionee))
-6-
<PAGE>
EXHIBIT A
---------
REPLAY NETWORKS, INC.
1999 STOCK PLAN
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
-------------------------------------------------------
This Agreement ("Agreement") is made as of ______________, by and between
---------
Replay Networks, Inc., a California corporation (the "Company"), and
-------
((Optionee)) ("Purchaser"). To the extent any capitalized terms used in this
---------
Agreement are not defined, they shall have the meaning ascribed to them in the
1999 Stock Plan.
1. Exercise of Option. Subject to the terms and conditions hereof,
------------------
Purchaser hereby elects to exercise his or her option to purchase __________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
------
the Company's 1999 Stock Plan (the "Plan") and the Stock Option Agreement dated
----
______________, (the "Option Agreement"). The purchase price for the Shares
----------------
shall be $((Exercise Price)) per Share for a total purchase price of
$_______________. The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Time and Place of Exercise. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company simultaneously
with the execution and delivery of this Agreement in accordance with the
provisions of Section 2(b) of the Option Agreement. On such date, the Company
will deliver to Purchaser a certificate representing the Shares to be purchased
by Purchaser (which shall be issued in Purchaser's name) against payment of the
exercise price therefor by Purchaser by (a) check made payable to the Company,
(b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of
shares of the Common Stock of the Company in accordance with Section 3 of the
Option Agreement, or (d) a combination of the foregoing.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) Right of First Refusal. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
- -------
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(a) (the "Right of First Refusal").
----------------------
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide
<PAGE>
intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number
-------------------
of Shares to be transferred to each Proposed Transferee; and (iv) the terms and
conditions of each proposed sale or transfer. The Holder shall offer the Shares
at the same price (the "Offered Price") and upon the same terms (or terms as
-------------
similar as reasonably possible) to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within 30
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection
(iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
-------------- --------------
the Shares purchased by the Company or its assignee(s) under this Section 3(a)
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at
-------
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section 3(a), then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section 3(a) notwithstanding, the transfer of any or
all of the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate Family (as defined below) or a trust for the
benefit of Purchaser's Immediate Family shall be exempt from the provisions of
this Section 3(a). "Immediate Family" as used herein shall mean spouse, lineal
----------------
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the
-2-
<PAGE>
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(b) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In
-----------------------------------------------------
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding, in the event of death, a transfer to Immediate Family as set forth in
Section 3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the greater of the purchase price paid by Purchaser pursuant to
this Agreement or the Fair Market Value of the Shares on the date of transfer.
Upon such a transfer, the person acquiring the Shares shall promptly notify the
Secretary of the Company of such transfer. The right to purchase such Shares
shall be provided to the Company for a period of 30 days following receipt by
the Company of written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any stock
------------------------------
to be transferred pursuant to Section 3(b)(i), the price per Share shall be a
price set by the Board of Directors of the Company that will reflect the current
value of the stock in terms of present earnings and future prospects of the
Company. The Company shall notify Purchaser or his or her executor of the price
so determined within 30 days after receipt by it of written notice of the
transfer or proposed transfer of Shares. However, if the Purchaser does not
agree with the valuation as determined by the Board of Directors of the Company,
the Purchaser shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the Company and the
Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(c) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations.
(d) Restrictions Binding on Transferees. All transferees of Shares
-----------------------------------
or any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Shares shall be
void unless the provisions of this Agreement are satisfied.
(e) Termination of Rights. The Right of First Refusal and the
---------------------
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(b) above shall terminate upon the first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act").
--------------
(f) Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any
-3-
<PAGE>
securities of the Company (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time (not to exceed 180 days) from the effective
date of such registration as may be requested by the Company or such managing
underwriters and to execute an agreement reflecting the foregoing as may be
requested by the underwriters at the time of the Company's initial public
offering.
4. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
5. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A
-4-
<PAGE>
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO
OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY
OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(iii) IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT
OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES.
Purchaser understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to this Agreement.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
(d) Removal of Legend. When all of the following events have
-----------------
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 5(a)(ii): (i) the termination of the Right of
First Refusal; and (ii) the expiration or termination of the market standoff
provisions of Section 3(f) (and of any agreement entered pursuant to Section
3(f)). After such time, and upon Purchaser's request, a new certificate or
certificates representing
-5-
<PAGE>
the Shares not repurchased shall be issued without the legend referred to in
Section 5(a)(ii), and delivered to Purchaser.
6. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a Parent or Subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
7. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address as set forth below or as subsequently
modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights
-6-
<PAGE>
and obligations of Purchaser under this Agreement may only be assigned with the
prior written consent of the Company.
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
-7-
<PAGE>
The parties have executed this Exercise Notice and Restricted Stock
Purchase Agreement as of the date first set forth above.
COMPANY:
Replay Networks, Inc.
By: ________________________________
Name: ______________________________
(print)
Title: _____________________________
1945 Charleston Road
Mountain View, CA 94043-1201
PURCHASER:
((OPTIONEE))
____________________________________
(Signature)
Address:
____________________________________
____________________________________
I, ______________________, spouse of ((Optionee)), have read and hereby approve
the foregoing Agreement. In consideration of the Company's granting my spouse
the right to purchase the Shares as set forth in the Agreement, I hereby agree
to be bound irrevocably by the Agreement and further agree that any community
property or similar interest that I may have in the Shares shall hereby be
similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-
fact with respect to any amendment or exercise of any rights under the
Agreement.
____________________________________
Spouse of ((Optionee))
-8-
<PAGE>
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
----------------------------------------------------
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer.
---------- -----------------------
(a) The issuer of any security upon which a restriction on transfer has
been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a
copy of this section to be delivered to each issuee or transferee of such
security at the time the certificate evidencing the security is delivered to the
issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the
Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the broker-
dealer, nor actually present in this state if the sale of such securities is not
in violation of any securities law of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided that no order
under Section 25140 or Subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation,
or by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code, provided that no order under Section 25140 or Subdivision (a)
of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who
are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or
to the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or
by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the sale
that transfer of the securities is restricted under this rule, (ii) delivers to
each purchaser a copy of this rule, and (iii) advises the Commissioner of the
name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities; or
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirement of Section 25110 of
the Code but exempt from that qualification requirement by subdivision (f) of
Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<PAGE>
REPLAYTV, INC.
1999 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
-----------------------------------
This Restricted Stock Purchase Agreement (the "Agreement") is made as of
---------
______________, __________, by and between ReplayTV, Inc ., a Delaware
corporation (the "Company"), and ((Purchaser)) ("Purchaser") pursuant to the
------- ---------
Company's 1999 Stock Plan. To the extent any capitalized terms used in this
Agreement are not defined, they shall have the meaning ascribed to them in the
1999 Stock Plan.
1. Sale of Stock. Subject to the terms and conditions of this Agreement,
-------------
on the Purchase Date (as defined below) the Company will issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company, ((NoofShares))
shares of the Company's Common Stock (the "Shares") at a purchase price of
------
$((PriceperShare)) per Share for a total purchase price of
$((TotalPurchasePrice)). The term "Shares" refers to the purchased Shares and
------
all securities received in replacement of or in connection with the Shares
pursuant to stock dividends or splits, all securities received in replacement of
the Shares in a recapitalization, merger, reorganization, exchange or the like,
and all new, substituted or additional securities or other properties to which
Purchaser is entitled by reason of Purchaser's ownership of the Shares.
2. Purchase. The purchase and sale of the Shares under this Agreement
--------
shall occur at the principal office of the Company simultaneously with the
execution of this Agreement by the parties, or on such other date as the Company
and Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the
-------------
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
payment of the purchase price therefor by Purchaser by (a) check made payable to
the Company, (b) cancellation of indebtedness of the Company to Purchaser, (c)
cancellation of amounts due to Purchaser for prior services rendered to the
Company, or (d) by a combination of the foregoing.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below). After any Shares have
been released from such Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.
(a) Repurchase Option.
-----------------
(i) In the event of the voluntary or involuntary termination of
Purchaser's employment or consulting relationship with the Company for any
reason (including death or disability), with or without cause, the Company shall
upon the date of such termination (the "Termination Date") have an irrevocable,
----------------
exclusive option (the "Repurchase Option") for a period of 90 days from such
-----------------
date to repurchase all or any portion of the Shares held by Purchaser
<PAGE>
as of the Termination Date which have not yet been released from the Company's
Repurchase Option at the original purchase price per Share specified in Section
1 (adjusted for any stock splits, stock dividends and the like).
(ii) Unless the Company notifies Purchaser within 90 days from
the date of termination of Purchaser's employment or consulting relationship
that it does not intend to exercise its Repurchase Option with respect to some
or all of the Shares, the Repurchase Option shall be deemed automatically
exercised by the Company as of the 90th day following such termination, provided
that the Company may notify Purchaser that it is exercising its Repurchase
Option as of a date prior to such 90th day. Unless Purchaser is otherwise
notified by the Company pursuant to the preceding sentence that the Company does
not intend to exercise its Repurchase Option as to some or all of the Shares to
which it applies at the time of termination, execution of this Agreement by
Purchaser constitutes written notice to Purchaser of the Company's intention to
exercise its Repurchase Option with respect to all Shares to which such
Repurchase Option applies. The Company, at its choice, may satisfy its payment
obligation to Purchaser with respect to exercise of the Repurchase Option by
either (A) delivering a check to Purchaser in the amount of the purchase price
for the Shares being repurchased, or (B) in the event Purchaser is indebted to
the Company, canceling an amount of such indebtedness equal to the purchase
price for the Shares being repurchased, or (C) by a combination of (A) and (B)
so that the combined payment and cancellation of indebtedness equals such
purchase price. In the event of any deemed automatic exercise of the Repurchase
Option pursuant to this Section 3(a)(ii) in which Purchaser is indebted to the
Company, such indebtedness equal to the purchase price of the Shares being
repurchased shall be deemed automatically canceled as of the 90th day following
termination of Purchaser's employment or consulting relationship unless the
Company otherwise satisfies its payment obligations. As a result of any
repurchase of Shares pursuant to this Section 3(a), the Company shall become the
legal and beneficial owner of the Shares being repurchased and shall have all
rights and interest therein or related thereto, and the Company shall have the
right to transfer to its own name the number of Shares being repurchased by the
Company, without further action by Purchaser.
(iii) 100 % of the Shares shall initially be subject to the
Repurchase Option. 1/4th of the total number of shares shall be released from
the Repurchase Option on the twelve month anniversary of the Vesting
Commencement Date (as set forth on the signature page of this Agreement), and an
additional 1/48th of the total number of Shares shall be released from the
Repurchase Option each month after the date of issuance of the Shares on the
Monthly Vesting Date (as set forth on the signature page of this Agreement),
until all Shares are released from the Repurchase Option. Fractional shares
shall be rounded to the nearest whole share.
(b) Right of First Refusal. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
- -------
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(b) (the "Right of First Refusal").
----------------------
-2-
<PAGE>
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (A) the
------
Holder's bona fide intention to sell or otherwise transfer such Shares; (B) the
name of each proposed purchaser or other transferee ("Proposed Transferee"); (C)
-------------------
the number of Shares to be transferred to each Proposed Transferee; and (D) the
terms and conditions of each proposed sale or transfer. The Holder shall offer
the Shares at the same price (the "Offered Price") and upon the same terms (or
-------------
terms as similar as reasonably possible) to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within 30 days
----------------------------------
after receipt of the Notice, the Company and/or its assignee(s) may, by giving
written notice to the Holder, elect to purchase all, but not less than all, of
the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection
(iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for the
-------------- --------------
Shares purchased by the Company or its assignee(s) under this Section 3(b) shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section 3(b), then the Holder
may sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 60 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section 3(b) notwithstanding, the transfer of any or all of
the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate Family (as defined below) or to a trust for
the benefit of Purchaser's Immediate Family shall be exempt from the provisions
of this Section 3(b). "Immediate Family" as used herein shall mean
----------------
-3-
<PAGE>
spouse, lineal descendant or antecedent, father, mother, brother or sister. In
such case, the transferee or other recipient shall receive and hold the Shares
so transferred subject to the provisions of this Section 3, and there shall be
no further transfer of such Shares except in accordance with the terms of this
Section 3.
(c) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In
-----------------------------------------------------
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding, in the event of death, a transfer to Immediate Family as set forth in
Section 3(b)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the greater of the purchase price paid by Purchaser pursuant to
this Agreement or the Fair Market Value of the Shares on the date of transfer.
Upon such a transfer, the person acquiring the Shares shall promptly notify the
Secretary of the Company of such transfer. The right to purchase such Shares
shall be provided to the Company for a period of 30 days following receipt by
the Company of written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any stock to
------------------------------
be transferred pursuant to Section 3(c)(i), the price per Share shall be a price
set by the Board of Directors of the Company that will reflect the current value
of the stock in terms of present earnings and future prospects of the Company.
The Company shall notify Purchaser or his or her executor of the price so
determined within 30 days after receipt by it of written notice of the transfer
or proposed transfer of Shares. However, if Purchaser does not agree with the
valuation as determined by the Board of Directors of the Company, Purchaser
shall be entitled to have the valuation determined by an independent appraiser
to be mutually agreed upon by the Company and Purchaser and whose fees shall be
borne equally by the Company and Purchaser.
(d) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any stockholder or stockholders of
the Company or other persons or organizations.
(e) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement, including, insofar as applicable, the
Repurchase Option. In the event of any purchase by the Company hereunder where
the Shares or interest are held by a transferee, the transferee shall be
obligated, if requested by the Company, to transfer the Shares or interest to
the Purchaser for consideration equal to the amount to be paid by the Company
hereunder. In the event the Repurchase Option is deemed exercised by the Company
pursuant to Section 3(a)(ii) hereof, the Company may deem any transferee to have
transferred the Shares or interest to Purchaser prior to their purchase by the
Company, and payment of the purchase price by the Company to such transferee
shall be deemed to satisfy Purchaser's obligation to pay such transferee for
such Shares or interest, and also to satisfy the Company's obligation to pay
Purchaser for such Shares or interest. Any sale or transfer of the Shares shall
be void unless the provisions of this Agreement are satisfied.
-4-
<PAGE>
(f) Termination of Rights. The Right of First Refusal and the
---------------------
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(c) above shall terminate upon the first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act"). Upon
--------------
termination of the Right of First Refusal and the expiration or exercise of the
Repurchase Option, a new certificate or certificates representing the Shares not
repurchased shall be issued, on request, without the legend referred to in
Section 6(a)(ii) below and delivered to Purchaser.
4. Escrow of Unvested Shares. For purposes of facilitating the
-------------------------
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Exhibit A executed by
---------
Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the
Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and Assignment Separate from Certificate in escrow and to take
all such actions and to effectuate all such transfers and/or releases as are in
accordance with the terms of this Agreement. Purchaser hereby acknowledges that
the Secretary of the Company, or the Secretary's designee, is so appointed as
the escrow holder with the foregoing authorities as a material inducement to
make this Agreement and that said appointment is coupled with an interest and is
accordingly irrevocable. Purchaser agrees that said escrow holder shall not be
liable to any party hereof (or to any other party). The escrow holder may rely
upon any letter, notice or other document executed by any signature purported to
be genuine and may resign at any time. Purchaser agrees that if the Secretary
of the Company, or the Secretary's designee, resigns as escrow holder for any or
no reason, the Board of Directors of the Company shall have the power to appoint
a successor to serve as escrow holder pursuant to the terms of this Agreement.
5. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act. Purchaser does not have any present
intention to transfer the Shares to any other person or entity.
(b) Purchaser understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and
-5-
<PAGE>
qualification requirements is available. Purchaser acknowledges that the Company
has no obligation to register or qualify the Shares for resale. Purchaser
further acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of Purchaser's control,
and which the Company is under no obligation and may not be able to satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection the purchase or disposition of the Shares and that
Purchaser is not relying on the Company for any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY
OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(iii) IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT
OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA,
-6-
<PAGE>
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Purchaser understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to this Agreement.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a Parent or Subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
8. Section 83(b) Election. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
----
income the difference between the amount paid for the Shares and the Fair Market
Value of the Shares as of the date any restrictions on the Shares lapse. In
this context, "restriction" means the right of the Company to buy back the
-----------
Shares pursuant to the Repurchase Option set forth in Section 3(a) of this
Agreement. Purchaser understands that Purchaser may elect to be taxed at the
time the Shares are purchased, rather than when and as the Repurchase Option
expires, by filing an election under Section 83(b) (an "83(b) Election") of the
--------------
Code with the Internal Revenue Service within 30 days from the date of purchase.
Even if the Fair Market Value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income under Section 83(a) in the future. Purchaser understands that
failure to file such an election in a timely manner may result in adverse tax
consequences for Purchaser. Purchaser further understands that an additional
copy of such election form should be filed with his or her federal income tax
return for the calendar year in which the date of this Agreement falls.
Purchaser acknowledges that the foregoing is only a summary of the effect of
United States federal income taxation with respect to purchase of the Shares
hereunder, and does not purport to be complete. Purchaser further acknowledges
that the Company has directed Purchaser to seek independent advice regarding the
applicable provisions of the Code, the income tax laws of any municipality,
state or foreign country in which Purchaser may reside, and the tax consequences
of Purchaser's death.
Purchaser agrees that he will execute and deliver to the Company with
this executed Agreement a copy of the Acknowledgment and Statement of Decision
Regarding
-7-
<PAGE>
Section 83(b) Election (the "Acknowledgment"), attached hereto as Exhibit B.
-------------- ---------
Purchaser further agrees that Purchaser will execute and submit with the
Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit C, if
---------
Purchaser has indicated in the Acknowledgment his or her decision to make such
an election.
9. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the Company's
initial public offering.
10. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address as set forth below or as subsequently
modified by written notice.
-8-
<PAGE>
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
-9-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
REPLAYTV, INC.
By:________________________________
Title:_____________________________
Address:
1945 Charleston Road
Mt. View, CA 94043
PURCHASER:
((PURCHASER))
___________________________________
(Signature)
Address:
((PurchaserAddress1))
((PurchaserAddress2))
Vesting Commencement
Date: ((VestingCommenceDate))
Monthly Vesting
Date: ((MonthlyVestingDate))
I, ________________________________, spouse of ((Purchaser)), have read and
hereby approve the foregoing Agreement. In consideration of the Company's
granting my spouse the right to purchase the Shares as set forth in the
Agreement, I hereby agree to be irrevocably bound by the Agreement and further
agree that any community property or similar interest that I may have in the
Shares shall be similarly bound by the Agreement. I hereby appoint my spouse as
my attorney-in-fact with respect to any amendment or exercise of any rights
under the Agreement.
___________________________________
Spouse of ((Purchaser))
-10-
<PAGE>
EXHIBIT A
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase
Agreement between the undersigned ("Purchaser") and ReplayTV, Inc. (the
---------
"Company") dated _______________, ____ (the "Agreement"), Purchaser hereby
------- ---------
sells, assigns and transfers unto the Company _________________________________
(________) shares of the Common Stock of the Company, standing in Purchaser's
name on the books of the Company and represented by Certificate No. ____, and
hereby irrevocably constitutes and appoints
________________________________________________ to transfer said stock on the
books of the Company with full power of substitution in the premises. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS
THERETO.
Dated: ______________________
Signature:
________________________________________
((Purchaser))
________________________________________
Spouse of ((Purchaser)) (if applicable)
Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Company to exercise its repurchase
option set forth in the Agreement without requiring additional signatures on the
part of Purchaser.
<PAGE>
EXHIBIT B
---------
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(b) ELECTION
--------------------------------
The undersigned (which term includes the undersigned's spouse), a purchaser
of ((NoofShares)) shares of Common Stock of ReplayTV, Inc., a Delaware
corporation (the "Company") by exercise of stock purchase right (the "Right")
------- -----
granted pursuant to the Company's 1999 Stock Plan (the "Plan"), hereby states as
----
follows:
1. The undersigned acknowledges receipt of a copy of the Plan relating to
the offering of such shares. The undersigned has carefully reviewed the Plan and
the stock purchase agreement pursuant to which the Right was granted.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the undersigned's
own tax advisor, __________________________, whose business address is
_____________________________, regarding the federal, state and local
tax consequences of purchasing shares under the Plan, and particularly
regarding the advisability of making elections pursuant to Section
83(b) of the Internal Revenue Code of 1986, as amended (the "Code")
----
and pursuant to the corresponding provisions, if any, of applicable
state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code, and is
submitting to the Company, together with the undersigned's executed
Restricted Stock Purchase Agreement, an executed form entitled
"Election Under Section 83(b) of the Internal Revenue Code of 1986;"
or
(b) ____ not to make an election pursuant to Section 83(b) of the Code.
<PAGE>
4. Neither the Company nor any subsidiary or representative of the Company
has made any warranty or representation to the undersigned with respect to the
tax consequences of the undersigned's purchase of shares under the Plan or of
the making or failure to make an election pursuant to Section 83(b) of the Code
or the corresponding provisions, if any, of applicable state law.
Date:_____________________ ___________________________________
((Purchaser))
Date:_____________________ ___________________________________
Spouse of ((Purchaser))
<PAGE>
EXHIBIT C
---------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: ((Purchaser))
NAME OF SPOUSE: ________________
ADDRESS: ((PurchaserAddress1))
((PurchaserAddress2))
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: _______________
2. The property with respect to which the election is made is described as
follows:
_______________ shares of the Common Stock of ReplayTV, Inc., a Delaware
corporation (the "Company").
-------
3. The date on which the property was transferred is: _______________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $_______________.
6. The amount (if any) paid for such property: $______________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ___________________ ________________________________________
((Purchaser))
Dated: ___________________ ________________________________________
Spouse of ((Purchaser))
<PAGE>
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
----------------------------------------------------
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer.
---------- -----------------------
(a) The issuer of any security upon which a restriction on transfer has
been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a
copy of this section to be delivered to each issuee or transferee of such
security at the time the certificate evidencing the security is delivered to the
issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of
the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's ancestors,
descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory
or country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which
the Commissioner's written consent is obtained or under this rule not
required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided that no
order under Section 25140 or Subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code, provided that no order under Section 25140 or
Subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or countries who
are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or
to the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or
by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities; or
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<PAGE>
EXHIBIT 10.13
MASTER COLLABORATION AGREEMENT
This Master Collaboration Agreement ("Agreement") is entered into as of
December 20, 1999 ("Effective Date") by and between MATSUSHITA-KOTOBUKI
ELECTRONICS INDUSTRIES, LTD., a corporation organized under the laws of Japan
with its principal place of business at 8-1 Furujin-machi, Takamatsu, Kagawa
prefecture, Japan ("MKE"), and REPLAY NETWORKS, INC., a California corporation
with its principal place of business at 1945 Charleston Road, Mountain View,
California 94043-1201, U.S.A. ("Replay").
WHEREAS, MKE designs, develops and manufactures, among other things, hard
disk drives and has substantial knowledge and expertise in and owns certain
technology and know-how relating to hard disk drives and other electronics
(including, without limitation, hardware and software);
WHEREAS, MKE, by itself and in collaboration with others, is designing and
developing various application products using audio visual hard disk drives and
other electronics;
WHEREAS, Replay is developing and owns certain technology and know-how
relating to the RTVS (as defined below) and the ReplayTV 3000 Product (as
defined below);
WHEREAS, MKE and Replay desire to develop a new market contemplated by the
integration of Replay's technology relating to the RTVS and ReplayTV Products
and MKE's technology in audio visual hard disk drives and other electronics;
WHEREAS, MKE has made an equity investment in Replay pursuant to a separate
Stock Purchase Agreement and a separate Investor's Rights Agreement;
WHEREAS, MKE and Replay have made and entered into an OEM Distribution
Agreement ("OEM Agreement") as of the 30/th/ day of July, 1999, as amended as of
the 20/th/ day of December, 1999, which enables MKE to purchase from Replay the
ReplayTV 3000 Product manufactured by Replay's third party contract manufacturer
and to market, sell and distribute such ReplayTV 3000 Product; and
WHEREAS, MKE and Replay desire to enter into this Agreement on terms and
conditions set forth below in order to establish the framework for development,
manufacturing, marketing, importation, sales and distribution of the ReplayTV
Products and intellectual property rights pertaining to said ReplayTV Products;
NOW THEREFORE, in consideration of the above premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. DEFINITIONS.
1.1 "Affiliate" means, with respect to a party hereto, any corporation,
---------
partnership, joint venture, subsidiary, division or other business arrangement
which is directly or indirectly controlled by, controlling or under common
control with such party. Control shall mean any direct or indirect beneficial
ownership of fifty percent (50%) or more of the voting stock or participating
profit interest of such corporation or other business entity.
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS
-1-
<PAGE>
1.2 "Competitive Service" means any service that (a) permits viewing of
-------------------
content on a television or monitor, (b) contains a dialup or other similar
network connection for the delivery of an electronic programming guide and other
content and/or software to any product enabling the enhancements or
personalization of television viewing, and (c) generates or has as part of its
business plan to generate at least [***] of its annual revenues from one or more
of the following: advertisers, media partners, television networks or production
companies, film studios or any similar content providers.
1.3 "End User" means any third party which lawfully obtains a Replay TV
--------
Product solely for its own personal or internal business purposes and not for
further distribution or resale.
1.4 "End User Restrictions" means the restrictions set forth in Exhibit A.
--------------------- ---------
1.5 "Gold Master" means, for each MKE Product version, the master
-----------
electronic copy of all software applications, content and related material
installed or to be installed on the hard drive or memory device of all MKE
Products shipped by or on behalf of MKE, MEI or any MEI Affiliate.
1.6 "Intellectual Property" or "Intellectual Property Rights" means any
---------------------
and all patents, patent rights, trademarks, service marks, trade names, trade
dresses, copyrights, works of authorship and trade secrets, and all
registrations and applications of all of the foregoing, and any and all other
intellectual property and industrial property rights.
1.7 "MEI" means Matsushita Electric Industrial Co., Ltd.
---
1.8 "Reference Specification" means those minimum hardware and software
-----------------------
requirements established by Replay, in its sole discretion, for all ReplayTV
Products, as may be modified from time to time by Replay pursuant to Section
4.4.
1.9 "MKE Features" means features designed or developed by or on behalf of
------------
Replay for MKE and incorporated into any MKE Products (subject to the
requirements of Section 4.4), and which features the parties agree in writing
advance shall be subject to the exclusivity provisions of Section 6.3(b).
1.10 "MKE Products" means ReplayTV Products other than Replay TV 3000
------------
Product, which are (a) jointly designed and developed by MKE and Replay or (b)
designed or developed by MKE: in either case, (a) or (b), which will be
manufactured by or for MKE hereunder, including, without limitation, the next
generation digital terrestrial ReplayTV Products and those ReplayTV Products
integrating the ReplayTV 3000 Product with certain MKE products.
1.11 "PCEC" means Panasonic Consumer Electronics Company, a division of
----
Matsushita Electric Corporation of America.
1.12 "Product Specification" means those hardware and software
---------------------
specifications established for each MKE Product by MKE. Each Product
Specification shall incorporate, at a minimum, the Reference Specification, as
such Reference Specification may be modified from time to time by Replay
pursuant to Section 4.4.
[***] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
-2-
<PAGE>
1.13 "ReplayTV Products" means any products manufactured by, or on behalf
-----------------
of, MKE or Replay that use or incorporate Replay Technology or Replay
Intellectual Property, and which are compatible with and fully support the
features of the RTVS and the applicable Product Specification (and are not
compatible with any Competitive Service), as the RTVS may be modified and
enhanced by Replay from time to time.
1.14 "APIs" mean any application programming interfaces, and associated
----
documentation, developed by or for Replay in connection with any Replay
software.
1.15 "Replay Device Software" means Replay's proprietary and/or licensed
----------------------
(a) operating system, streaming technology (excluding that streaming technology
necessary for the development of MPEG encoder/decoders or similar integrated
circuits), file storage and retrieval system, and (b) application software
providing functionality, content and/or used to interface with the Replay Server
Software, including any APIs developed in connection with the foregoing, that is
incorporated into or downloaded onto any ReplayTV Product, including any
improvements or modifications thereto which Replay distributes generally to OEMs
and End Users, over the RTVS or otherwise, during the Term. Replay Device
Software does not include any Replay Server Software or Replay Driver Software.
1.16 "Replay Driver Software" means Replay's proprietary hardware device
----------------------
driver software used to interface the Replay Device Software with the hardware
components of any ReplayTV Products (including that streaming technology
necessary for the development of MPEG encoder/decoders or similar integrated
circuits), that is incorporated into or downloaded onto any ReplayTV Product,
including any improvements or modifications thereto which Replay distributes
generally to OEMs and End Users, over the RTVS or otherwise, during the Term.
Replay Driver Software does not include any Replay Device Software and Replay
Server Software.
1.17 "Replay Intellectual Property" means any and all Intellectual Property
----------------------------
owned by Replay.
1.18 "Replay Server Software" means Replay's proprietary server-based
----------------------
software and applications designed to provide the RTVS and communicate with
ReplayTV Products.
1.19 "RTVS" means Replay's proprietary service providing for the
----
personalized viewing of content over a television or monitor and contains a
dialup or network connection for the delivery of software upgrades and/or
content updates. RTVS includes, without limitation, the following
functionality: (a) personalized programming (including time-shifting of
programming, automatic and intelligent program recording, promotion of "off-
hours" programming not otherwise immediately or easily viewed, future locally
modified and enhanced television programming), (b) an interactive on-screen
programming guide, (c) locally-inserted advertising, (d) e-commerce
capabilities, (e) pay-per-view services, and (f) premium virtual channels.
1.20 "Replay Technology" means all Technology owned by Replay, including
-----------------
without limitation the Replay Server Software, Replay Device Software, and
Replay Driver Software.
1.21 "ReplayTV 3000 Product" means Replay's proprietary ReplayTV 3000
---------------------
product as it exists on the Effective Date.
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1.22 "Technology" means computer software, algorithms, designs, ideas,
----------
know-how, processes, formulas, specifications, compositions, data, technical
drawings, schematics, flowcharts, techniques, improvements and inventions
(whether patentable or not), which are confidential or proprietary to a party.
1.23 "Term" means the Initial Term and any renewals or extensions to the
-----
Initial Term pursuant to Section 13.2.
1.24 "Territory" means the United States, and will, automatically and
---------
without further action by the parties, expand to include territories and
possessions of the United States and additional countries upon Replay's
commercial introduction and launch of the RTVS in such territories and
possessions of the United States or countries during the Term.
2. PRODUCT DEVELOPMENT
2.1 Phase One - ReplayTV 3000 Products.
----------------------------------
(a) During Phase One, MKE shall, pursuant to the terms and conditions
of the OEM Agreement, (i) purchase from Replay, on a private label basis,
ReplayTV 3000 Products manufactured by Replay's third party contract
manufacturer(s), and (ii) market, sell and distribute such private labeled
ReplayTV 3000 Products in the Territory under the Panasonic(R) brand name. As of
the Effective Date, the parties estimate that MKE's commercial launch of such
ReplayTV 3000 Products under the Panasonic(R) brand name will be [***] 2000,
provided that Replay delivers to MKE by such date ReplayTV 3000 Products that
comply with the Matsushita Industrial Standards and all reasonable requirements
of MKE and Replay, including, without limitation, the Reference Specification
and requirements relating to quality and copyright protection.
(b) MKE may, at its sole option, cost and expense, design or have
designed (by a third party or by Replay) (a) a custom remote control, front
bezel and printed materials for the ReplayTV 3000 Products, and (b) subject to
Replay's prior approval, other customized specifications for such ReplayTV 3000
Products. Replay and MKE agree to cooperate with each other on the design of
such customized specifications in order to meet and comply with the Matsushita
Industrial Standards and the Reference Specification. Replay and MKE agree that
subject to Replay's Intellectual Property Rights in the ReplayTV 3000 Products,
the custom remote control, front bezel and printed materials designed by or for
MKE, and all Intellectual Property Rights therein, shall be owned solely by MKE
and, except as otherwise agreed in writing, all other customized specifications
developed pursuant to this Section 2.1(b), and all Intellectual Property Rights
therein, shall be owned solely by Replay. Notwithstanding anything else in this
Section 2.1(b), Replay shall be free to independently develop features or
specifications for the ReplayTV 3000 Products, or any other ReplayTV Products,
that are similar in design, appearance or functionality to such MKE customized
specifications. In the event MKE designs or has designed such customized
specifications, Replay agrees to use commercially reasonable efforts to cause
its third party contract manufacturer(s) of ReplayTV 3000 Products, as promptly
as reasonably practical in light of such customized specifications, to commence
manufacture of ReplayTV 3000 Products for MKE in accordance with such customized
specifications.
2.2 Phase Two - MKE Products.
-------------------------
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(a) At such time that Phase One has progressed to the mutual
satisfaction of MKE and Replay, the parties agree to jointly develop the first
MKE Product. In such case, Replay will be primarily responsible for the further
development of the RTVS and MKE will be primarily responsible for the further
development of the hardware comprising MKE Products.
(b) In addition to subsection (a) above, MKE may, at its sole
discretion, and at its sole cost, design and develop MKE Products independent of
Replay. In such case, MKE shall establish a Product Specification for each
such MKE Product, and MKE shall at all times comply with the requirements of
Section 4.4 in connection with design, development and manufacture of such MKE
Products. Replay shall maintain and support the features of RTVS to any and
all such MKE Products that MKE manufactures, and markets, sells or distributes
in the Territory.
3. LICENSE GRANTS
3.1 Software License
----------------
3.1.1 Replay Driver Software
(a) Subject to the terms and conditions of this Agreement,
Replay grants a [***] license to MKE (with the right to sublicense to MEI or any
MEI Affiliate), subject at all times to the requirements of Section 4.4: (i) to
use, copy (and have copied), modify, improve and create derivative works of the
Replay Driver Software (in both source code and object code form) solely in
connection with the development of MKE Products, (ii) to incorporate (and have
incorporated) the Replay Driver Software and any such modifications,
improvements or derivative works solely into MKE Products in object code form;
(iii) to manufacture, have manufactured, market, distribute, import and sell the
MKE Products incorporating the Replay Driver Software in the Territory by itself
or through MEI or any MEI Affiliate; and (iv) to sublicense to End User the
right to use the Replay Driver Software in the Territory, subject to Sections
3.1.3 and 3.1.4.
(b) Replay shall promptly deliver to MKE all source code and object
code for the Replay Driver Software, including any updates and upgrades thereof,
and all related documentation, developed by Replay as of the Effective Date and
during the Term. MKE hereby grants Replay a worldwide, nonexclusive,
nontransferable and royalty-free license (including the right to sublicense to
other OEMs as part of the Reference Specification, subject to Section 4.4(a)) to
any modifications or improvements to the Replay Driver Software. MKE shall
promptly deliver to Replay the reasonably documented (in English) source code to
all such modifications or improvements at the time such modifications or
improvements are provided to Replay for testing pursuant to Section 4.4.
3.3.3 Replay Device Software
(a) Subject to the terms and conditions of this Agreement, Replay
grants a [***] license solely to MKE (with the right to sublicense to MEI or any
MEI Affiliate), subject at all times to the requirements of Section 4.4, to: (i)
use and copy (and have copied) the Replay Device Software (in object code form
only) solely for the purpose of incorporating the Replay Device Software into
MKE Products, (ii) incorporate (and have incorporated) the Replay Device
Software into
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MKE Products in object code form, (iii) manufacture, have manufactured, market,
distribute, import and sell MKE Products incorporating the Replay Device
Software in the Territory by itself or through MEI or any MEI Affiliate, and
(iv) sublicense to End Users the rights to use the Replay Device Software in the
Territory subject to Sections 3.1.3 and 3.1.4.
(b) Subject to the terms and conditions of this Agreement, Replay
grants a [***] license solely to MKE to use, copy, modify, improve and create
derivative works of the Replay Device Software provided to MKE in source code
form, solely in connection with MKE's internal, noncommercial, development of
prototypes for MKE Products. The source code license provided in this Section
3.1.2(b) shall not include any third party software incorporated in any Replay
Device Software or otherwise licensed to Replay. MKE shall take all reasonable
steps necessary to prevent unauthorized disclosure of, or access to, all source
code provided by Replay pursuant to this Agreement.
(c) Replay shall promptly deliver to MKE source code for Replay Device
Software, including any updates and upgrades thereof, and all related
documentation, developed by Replay as of the Effective Date and for a period of
[***] thereafter (or such longer period as Replay may require to complete
development and documentation of planned APIs for such Replay Device Software).
Additionally, MKE may request Replay to modify or improve the Replay Device
Software, and subject to the parties' mutual written agreement upon
specifications and requirements for such modifications or improvements, Replay
shall provide such modifications or improvements to MKE subject at all times to
this Section 3.1.2.
3.1.3 Restrictions
MKE agrees that it will not attempt to (i) reverse assemble, reverse
engineer, decompile or otherwise attempt to derive source code (except as
otherwise provided in Section 3.1.1 and 3.1.2) from the Replay Device Software
or Replay Server Software, (ii) remove or unbundle the Replay Device Software
from any ReplayTV Product, or (iii) facilitate or encourage any third party
(including any End User) to do any of the foregoing. MKE further agrees that it
will not (iv) provide any functionality or software applications on any ReplayTV
Products that are directly competitive with any functionality or software
provided (or planned in good faith to be provided during the subsequent [***]
period, and such plans disclosed to MKE) by or through the RTVS or the Replay
Device Software, or (v) interfere with, or provide any hardware, software, or
other features that interferes with, the communication of the ReplayTV Products
with RTVS.
3.1.4 End User Licensing
MKE shall include an end user license agreement mutually agreed upon
by the parties in or with ReplayTV Products which contains, at a minimum, the
End User Restrictions ("End User License Agreement"), and require End User's
acknowledgement that any such ReplayTV Products distributed by MEI or any MEI
Affiliate or OEMs be subject to such End User License Agreement. MKE
acknowledges and agrees that, upon prior written notice to MKE, Replay may amend
the End User Restrictions from time to time in order to address issues arising
in particular geographic regions as the Territory is expanded, to address
changes in the law relating to such restrictions, and to achieve other good
faith business interests of Replay. Each End User sublicense shall be granted
in an End User License
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Agreement which shall include, at minimum, the End User Restrictions, and which
also expressly provides that (i) the End User's sublicense to use the Replay
Device Software is solely for such End User's personal or internal business
purposes; (ii) Replay may terminate such End User License Agreement upon written
notice of failure by such End User to comply with the terms of such End User
License Agreement, and (iii) Replay shall be a third party beneficiary of the
End User License Agreement, and the provisions of such End User License
Agreement shall be enforceable by Replay and/or MKE.
3.2 Replay Intellectual Property (other than Software) License
----------------------------------------------------------
Subject to the terms and conditions of this Agreement, and during the
Term and thereafter, Replay grants to MKE and its Affiliates a [***] license
under all of Replay Intellectual Property Rights relating to the ReplayTV 3000
Product (excluding any Replay software contained therein, which shall be
licensed solely as set forth in Section 3.1) to (i) design, develop, use,
manufacture and have manufactured worldwide MKE Products, and (ii) market,
import, sell and distribute in the Territory MKE Products. MKE may sublicense
such rights to MEI or any MEI Affiliate and may market, import, sell and
distribute MKE Products through MEI or any MEI Affiliate.
3.3 Sublicenses to MEI and MEI Affiliates
-------------------------------------
All permitted sublicenses granted by MKE to MEI and MEI Affiliates
pursuant to this Section 3 and as otherwise provided in this Agreement are
conditioned upon MEI's and such MEI Affiliates' express acknowledgement of, and
agreement to abide by, the restrictions imposed on MKE pursuant to this Section
3 and Section 4.4.
4. MANUFACTURING.
4.1 General.
-------
(a) During Phase One, ReplayTV 3000 Products purchased by MKE from
Replay shall be manufactured by Replay's third party contract manufacturer in
accordance with the OEM Agreement.
(b) MKE will reasonably assist Replay in obtaining low pricing for
components used in the manufacture of ReplayTV 3000 Products. Provided that such
assistance shall not require MKE's participation in any negotiations with third
parties.
(c) Replay agrees to indemnify and hold harmless MKE, MEI and MEI
Affiliates and their respective contract manufacturers from any and all
liabilities, damages, settlements, costs and expenses (including reasonable
attorney's fees) that may arise as a result of any claim of trade secret
misappropriation by any of Replay's third party contract manufacturers of
ReplayTV 3000 Products in connection with the design, development, manufacture,
marketing, importation, sale or distribution of MKE Products as permitted under
this Agreement.
4.2 Manufacture by MKE.
------------------
(a) General. Subject to the terms and conditions of this Agreement,
-------
MKE shall have the [***] license to manufacture and have
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manufactured the MKE Products (i) under the Panasonic(R) brand name, (ii) if
requested by Replay, under the Replay brand name, and (iii) under any private
label brand name.
(b) Under Replay Brand. If Replay orders any MKE Products from MKE and
------------------
MKE accepts such order (provided that MKE shall not unreasonably reject Replay's
order), MKE will manufacture such MKE Products for Replay at prices that are
competitive to those offered to PCEC or any other third party (other than
another MKE Affiliate) under substantially similar terms and conditions,
including, without limitation, volume of purchase, specifications, types of
distribution channels used and payment terms. Such orders for MKE Products by
Replay shall be subject to the economic terms of Section 10 below.
(c) Under Private Label.
-------------------
(i) Subject to the terms and conditions of this Agreement,
including the license grants in Section 3 above, MKE shall have, solely during
the Initial Term, [***] right and license to sell, within the Territory, private
label MKE Products manufactured by or for MKE to and on behalf of OEMs,
including, without limitation, distributors, mass merchants, consumer
electronics companies, computer companies or any other types of companies or
businesses. Nothing in this Section 4.2(c) shall limit or restrict Replay's
rights to sell, manufacture or have manufactured products under private label
for any third party or OEM.
(ii) MKE is solely responsible for negotiating the terms of
the agreement with any such OEM, including, without limitation, product pricing,
revenue sharing and the procurement process; provided, however, that any such
-------- -------
agreement shall contain provisions that shall protect and preserve Replay's
Intellectual Property Rights to at least the same levels as protected by this
Agreement (including without limitation Sections 3.1.3 and 3.1.4 hereof), and
the provisions of Section 7.2 and Replay shall be a third party beneficiary to
any such agreement in connection with the foregoing.
(iii) MKE shall comply with Replay's requirements as set forth
in Section 9.3 below regarding MKE's use of the Replay logo, and shall impose
such limitations on any OEM hereunder.
(iv) Replay agrees to extend the Subsidy payable to MKE as set
forth in Section 10 below to include all private label MKE Products manufactured
by or for MKE and sold by OEMs pursuant to this Section 4.2(c); provided,
--------
however, that (a) any such Subsidy shall be paid solely to MKE and not directly
- -------
to any OEMs, and (b) MKE will not, without Replay's prior written approval,
enter into any private label agreement with any third party that has an existing
OEM or similar agreement with Replay. Replay will not, without MKE's prior
written approval, enter into any OEM or similar agreement with any third party
that has an existing private label agreement with MKE.
(v) If any third party that has previously entered into an
OEM or similar agreement with Replay requests that MKE perform contract
manufacturing of ReplayTV Products on its behalf, both Replay and MKE agree to
negotiate with such OEM to establish the necessary terms and conditions of such
agreement among the parties. MKE will not, without Replay's prior written
approval, enter into any contract manufacturing arrangement with such third
party.
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(vi) Product modifications to MKE Products that are requested
by such OEMs and that relate to the RTVS, Replay Driver Software or Replay
Device Software shall be forwarded to Replay by MKE.
4.3 Most Favored Agreement.
----------------------
In the event that Replay enters into an agreement during the term of
this Agreement with any third party in which, taken together, the (a) scope of
license rights to Replay Technology and Replay Intellectual Property Rights and
(b) Subsidy amount and/or RTVS Profit Share, are more favorable than the
comparable license rights, Subsidy and/or RTVS Profit Share offered to MKE under
this Agreement for substantially similar products sold during similar time
periods under substantially similar terms and conditions, including, without
limitation, volume of purchase, specifications and functionality, types of
distribution channels used and payment terms, considered in the aggregate ("More
Favorable Agreement"), Replay will notify MKE of the above terms of such More
Favorable Agreement in writing no later than thirty (30) days after such More
Favorable Agreement is granted to such third party. If MKE notifies Replay in
writing within thirty (30) days thereafter, the parties agree to amend this
Agreement by replacing the existing license rights to Replay Technology and
Replay Intellectual Property, and applicable Subsidy and/or RTVS Profit Share
provisions, taken together, with the corresponding provisions in the More
Favorable Agreement. The above amendment to the Agreement shall become effective
as of the effective date of the More Favorable Agreement. MKE shall be entitled
to have a third party auditor reasonable acceptable to Replay, upon reasonable
prior notice and not more than twice per calendar year, to review Replay's
agreements with third party OEMs for the purpose of verifying compliance with
this Section 4.3.
4.4 Specifications; Gold Master; Testing.
------------------------------------
(a) Specifications. All MKE Products shall comply fully with the
--------------
Reference Specification and applicable Product Specification. Replay may, from
time to time and upon [***] days' written notice to MKE, revise the Reference
Specification for MKE Products. If such revisions relate to software, within
[***] days after such revised Reference Specification is provided to MKE (or
such other time period as may be mutually agreed by the parties), all MKE
Products manufactured by or on behalf of MKE shall conform to such revised
Reference Specification. If such revisions relate to hardware, within [***] days
after such revised Reference Specification is provided to MKE (or such other
time period as may be mutually agreed by the parties), all MKE Products
manufactured by or on behalf of MKE shall conform to such revised Reference
Specification. If the Reference Specification embodies any MKE Intellectual
Property Rights, Replay and MKE shall negotiate in good faith to determine a
reasonable one-time license fee to be charged to other OEMs manufacturing
products conforming thereto. In the event the Reference Specification embodies
any other OEM or third party Intellectual Property Rights, MKE shall pay a
reasonable one-time license fee to manufacture MKE Products conforming thereto.
(b) Gold Master. All MKE Products shall contain a hard disk or memory
-----------
device installed with the contents of the then-current version of the Gold
Master supplied to MKE by Replay. Replay shall determine the pre-configured hard
drive content of such Gold Master, including, without limitation, initial Replay
channels, zones and promotions. In addition, Replay shall determine and may
periodically change (subject to the reasonable
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approval of MKE) the amount of hard disk drive space to be reserved for future
RTVS programming ("Reserved Capacity") and provide such information to MKE
promptly in writing. MKE shall not promote such Reserved Capacity as hard disk
drive space available to End Users of MKE Products. Replay may, from time to
time modify the Gold Master and provide a new version thereof to MKE. Within
[***] days after receipt of such Gold Master, MKE shall ensure that all MKE
Products manufactured thereafter have hard disks or memory devices loaded with
the new Gold Master Version. MKE shall not modify, add or remove any software,
content or other material to or from any Gold Master.
(c) Testing and Quality Assurance. MKE shall notify Replay in writing
-----------------------------
at least [***] days in advance of providing Replay with any new MKE Product that
MKE desires be tested for commercial release, and [***] days or such lesser
agreed upon time period for any modifications or improvements to any existing
MKE Product to be so tested. MKE shall provide Replay an agreed upon number of
units of such MKE Product necessary for Replay's testing and quality assurance,
including full compliance and operation with the Replay Device Software, Replay
Server Software and the RTVS. Replay shall conduct such testing within [***]
days after receipt of such units, and shall notify MKE in writing of the results
of such tests. In the event that any unit fails such Replay testing and quality
assurance, the parties will meet to coordinate a review and analysis of the
problems discovered by Replay. MKE shall not ship any new MKE Product until
Replay determines that such product meets such testing and quality assurance.
(d) Proposed Software Modifications. MKE may propose modifications or
-------------------------------
improvement to the Gold Master, the Replay Driver Software and the Replay Device
Software. After suitable testing and quality assurance, Replay may incorporate
such modifications or improvements into the Gold Master, the Replay Driver
Software or Replay Device Software, as appropriate, provided that such testing
and incorporation of any modification or improvement (other than to the Replay
Device Software, changes to which shall be at Replay's sole discretion) shall
not be unreasonably withheld by Replay. MKE shall not ship any MKE Product with
such modifications or improvements except as permitted pursuant to this Section
4.4.
(e) Restrictions. MKE, acknowledges and agrees that Replay is the
------------
sole entity entitled to transmit or have downloaded (over any network or other
dialup connection) any software, content or other material, or any improvement
or modification thereto, to the Gold Master or any hard disk or memory device
contained in any MKE Product. MKE shall not, directly or through any third
party, MEI or MEI Affiliate, transmit or have downloaded any such software,
content or other material, or any improvement or modification thereto, without
Replay's express prior written permission. This does not affect any other rights
of MKE, MEI and MEI Affiliate to install any software, content or other
materials into MKE Products using Gold Master as permitted pursuant to this
Agreement.
4.5 API Development.
---------------
Replay will use its best efforts to develop and document mutually
agreed upon Replay Device Software APIs reasonably necessary for the development
of MKE Products that combine Replay Technology with other features and
functionality developed or provided by MKE. In the event that MKE experiences
significant difficulty in utilizing such APIs in connection with the development
of such products, Replay will, at MKE's request, consider in good faith
providing source code updates and modifications for the applicable portions of
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the Replay Device Software on a case-by-case basis. Any provision by Replay of
such Replay Device Software source code updates and modifications shall be
subject to the provisions of Section 3 hereof.
5. CUSTOMER SERVICE.
MKE and Replay shall work together in good faith to develop and establish
mutually acceptable customer service and support standards and processes for the
ReplayTV Products. The parties shall agree upon further details regarding this
Section 5; provided, however, that MKE will at all times be responsible for
-------- -------
providing all first level support to End Users of MKE and OEMs regarding MKE
Products and ReplayTV 3000 Products and Replay will be responsible solely for
providing second level support to MKE. First level support will be provided by
MKE, and if MKE finds that such support relates to the RTVS and should be
provided by Replay, MKE will promptly notify Replay of such support request from
End User. In such event, Replay shall be responsible for providing all first
level support to such End Users. "First level support" means telephone support,
online support and/or any required End User site visits. "Second level support"
means software bug fixes and any support requested by MKE technical personnel
providing such first level support.
6. ADDITIONAL OBLIGATIONS OF REPLAY.
6.1 RTVS Programming. Replay shall maintain and support, and continue
----------------
development and expand the availability of, the RTVS for use in connection with
ReplayTV Products.
6.2 Replay agrees that, at MKE's request, it shall reasonably negotiate
with MKE in good faith with respect to granting MKE a license to Replay
Technology (including, without limitation, Replay Device Software and Replay
Driver Software) and Replay Intellectual Property Rights for use in geographic
regions where the RTVS is not available.
6.3 Favorable Terms for MKE. Replay agrees to provide certain favorable
-----------------------
terms to MKE, including, without limitation, the following:
(a) Replay agrees to provide MKE with a road map of the RTVS,
products, software and other related information in the earliest possible
timeframe.
(b) Replay agrees that MKE shall have exclusivity of any and all MKE
Features for a minimum period of [***] after the commercial launch of the first
commercially released MKE Product; and
(c) Replay agrees to reasonably provide support to MKE for original or
exclusive features designed or developed by or for MKE and incorporated into any
ReplayTV Products; provided, however, that (i) nothing in this Section 6.3(c)
-------- -------
shall obligate Replay to devote engineering efforts to such support except to
the extent Replay agrees in writing in advance; and (ii) to the extent such
features require additional hardware, additional bandwidth, or third party
licenses or software, MKE shall reimburse Replay for reasonable expenses
incurred in connection with developing and/or procuring the same, provided that
Replay first obtains MKE's prior written approval of such expenses. The period
of Replay's obligation to support such features shall be negotiated by the
parties in good faith and mutually agreed upon on a case-by-case basis.
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7. ADDITIONAL RESTRICTIONS.
7.1 Except as expressly provided in Section 7.2 below, nothing in this
Agreement or otherwise shall be deemed or construed to prohibit or restrict MKE,
MEI or any MEI Affiliates from designing, developing, using, manufacturing,
having manufactured, marketing, importing, selling or distributing any products
that are or may be competitive with any ReplayTV Products; provided, however,
-------- -------
that (a) such products do not incorporate any Replay Technology or Replay
Intellectual Property, and that no access to, or use of, any Replay Confidential
Information relating to such Replay Technology or Replay Intellectual Property
is made in connection with the design or development of such products, and (b)
no person who has or has had access to any Replay software source code
(excluding Replay Driver Software source code) is involved in the design or
development of such products during the Term of this Agreement and for a period
of [***] thereafter.
7.2 During the Term of this Agreement, MKE shall not enter into any
agreement with any third party to design, develop, market or distribute any
products that support, or are compatible with, (i) a Competitive Service, or
(ii) [***]. The determination of whether a service is a Competitive Service
shall be made as of the effective date of any agreement between MKE or MKE
Affiliate and such service provider. Notwithstanding the foregoing, nothing in
this Section 7.2 shall preclude MKE from providing components or contract
manufacturing for products that support or are compatible with the [***];
provided, however, that no MKE employee who has or has had access to Replay
- -------- -------
Technology (including Replay software source code), or is or has been involved
in the design or development of ReplayTV Products will be involved in the
provision of components or contract manufacturing for products that support or
are compatible the [***] or a Competitive Service.
7.3 Nothing in this Agreement or otherwise shall be deemed or construed to
prohibit or restrict MKE, MEI or MEI Affiliates from designing, developing,
making, using, manufacturing, having manufactured, marketing, importing, selling
or distributing any components that were designed, developed, derived, used or
manufactured in the course of the development of any ReplayTV Products, except
to the extent that (a) any such components embody any Replay Technology or
Replay Intellectual Property, or (b) any person who has or has had access to any
Replay software source code (excluding Replay Driver Software source code) is
involved in the design or development of such components.
8. OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS. As between the parties:
8.1 Except as provided in Section 8.5 below, any and all inventions
independently discovered, conceived, or reduced to practice by a party in the
course of development of any ReplayTV Products and any and all Intellectual
Property Rights in and to such inventions shall be owned solely by the party who
independently discovered, conceived, or reduced to practice such invention.
8.2 Except as provided in Section 8.5 below, any and all inventions
jointly discovered, conceived, or reduced to practice by both parties in the
course of development of any ReplayTV Products and any and all Intellectual
Property Rights in and to such inventions shall be owned jointly by both
parties; provided, however, that each party contributed
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engineering resources to such joint inventions. Each party shall have the right
to use or non-exclusively license such jointly owned inventions and any
Intellectual Property Rights thereto without a duty to report or account to the
other party.
8.3 Except as provided in Section 8.5 below, any and all copyrightable
works (including, without limitation, all computer software) independently
created by a party in the course of development of any ReplayTV Products and any
and all Intellectual Property Rights in and to such copyrightable works shall be
owned solely by the party who independently created such copyrightable work.
8.4 Except as provided in Section 8.5 below, any and all copyrightable
works jointly created by both parties in the course of development of any
ReplayTV Products and any and all Intellectual Property Rights in and to such
copyrightable works shall be owned jointly by both parties. Each party shall
have the right to use or non-exclusively license such jointly-owned
copyrightable works and any Intellectual Property Rights thereto without a duty
to report or account to the other party.
8.5 Notwithstanding anything else in this Section 8 or otherwise in this
Agreement, all Intellectual Property Rights in and to the RTVS, Replay Server
Software and Replay Device Software, and any modifications or improvements
thereto, whether made by Replay or MKE or jointly by Replay and MKE, shall be
owned solely by Replay.
8.6 Subject to Replay's ownership of Replay Technology and Replay
Intellectual Property Rights, including without limitation its ownership rights
pursuant to Section 8.5, and notwithstanding anything else in this Agreement,
all MKE Products and all Intellectual Property Rights in and to MKE Products
shall be owned solely by MKE.
8.7 Replay acknowledges and agrees that MKE may assign to MEI its
ownership interest in any inventions jointly owned by MKE and Replay hereunder
and the right to apply for, prosecute and maintain any patents therefor. Replay
agrees to reasonably cooperate with MEI and to provide MEI with necessary
assistance, at MEI's sole expense, in connection with the preparation and
prosecution of such patent applications. MKE agrees to reasonably cooperate
with Replay and to provide Replay with necessary assistance, at Replay's sole
expense, in connection with the preparation and prosecution of any Replay patent
applications.
8.8 MKE shall own any and all intellectual property rights in all
modifications or improvements made by MKE to the Replay Driver Software. If
such MKE Intellectual Property Rights are incorporated into the Reference
Specification, then MKE hereby grants Replay a license with sublicense rights in
accordance with Section 4.4(a). For the avoidance of doubt, the foregoing
ownership rights are expressly limited to those modifications or improvements to
the Replay Driver Software made by MKE, and expressly excludes any ownership of
the Replay Driver Software. In no event shall MKE use or incorporate any Replay
Driver Software modified by MKE in products other than ReplayTV Products.
Nothing in this Section 8.8 shall preclude Replay or any Replay OEM from
independently developing modifications or improvements to the Replay Driver
Software that are substantially similar to those developed by MKE.
9. MARKETING.
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9.1 Sales; Brand. Subject to the license grants in Section 3, MKE shall
------------
have the right to market, import, sell and distribute ReplayTV Products itself
or through MEI or any MEI Affiliates to customers (including, without
limitation, OEMs, resellers and end users) using its normal channels of
distribution. Subject to Sections 9.2 and 9.3 below, such ReplayTV Products
shall be marketed, sold and distributed under the Panasonic(R) brand name.
9.2 OEM Sales. Subject to the license grants in Section 3, MKE, MEI and
---------
MEI Affiliates shall have the right to market, import, sell and distribute
within the Territory to OEMs any private labeled MKE Products manufactured by or
for MKE.
9.3 Replay Logo and Trademark License. For all ReplayTV Products
---------------------------------
marketed, imported, sold or distributed by MKE, MEI or MEI Affiliates, MKE shall
affix or cause to be affixed the Replay logo (in such format as Replay provides
to MKE) on such ReplayTV Products and on related user interface, packaging and
advertising materials in accordance with MEI's and Replay's rules and standards
and in a manner mutually acceptable to both parties. Replay hereby grants to
MKE a [***] license to use (with a right to sublicense to third parties,
including, without limitation, MEI, MEI Affiliates and third party contract
manufacturers ("Sublicensees")), the Replay logo and related Replay trademarks
(collectively, "Marks") in connection with the ReplayTV Products, including,
without limitation, packaging and user interface and any other materials in
connection with the manufacture, marketing, importation, sale and distribution
of ReplayTV Products. MKE agrees, and shall cause its Sublicensees to agree,
that (a) all advertisements, promotional materials, packaging and user interface
and any other materials bearing the Marks shall identify Replay as the owner of
the Marks, (b) all use of the Marks by MKE or its Sublicensees shall inure to
the benefit of Replay, and (c) all use of the Marks by MKE or its Sublicensees
are subject to Replay's reasonable quality control requirements (which
requirements Replay shall promptly provide to MKE). MKE shall, and shall cause
its Sublicensees to, upon Replay's reasonable prior written request, provide
Replay with samples of use of the Marks by MKE or its Sublicensees in connection
with ReplayTV Products for the sole purpose of allowing Replay to verify quality
control compliance in accordance with Replay's quality control requirements that
Replay has provided to MKE as set forth above.
9.4 Promotion and Advertising.
-------------------------
(a) MKE and Replay shall reasonably cooperate in good faith to
jointly market and promote the RTVS and MKE Products. The parties understand and
agree that MKE shall be primarily responsible for promoting MKE Products, and
Replay shall be primarily responsible for promoting RTVS, and each party shall
respect the role and responsibility of the other party.
(b) MKE, through MEI Affiliates, will commit a minimum of [***] to
promote and advertise the ReplayTV Products sold or to be sold under the
Panasonic(R) brand before the first shipment or during the first [***] following
the first shipment of a ReplayTV Product to MKE under the OEM Agreement.
(c) MKE and Replay shall discuss in good faith and mutually agree
upon further details regarding this Section 9.4.
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10. ECONOMIC TERMS.
10.1 Subsidy. MKE shall be entitled to a mutually agreed upon product
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subsidy ("Subsidy") paid by Replay in connection with those MKE Products that
are shipped by or on MKE's behalf during the Term of this Agreement. The intent
of both parties when negotiating the Subsidy during the Initial Term is that
[***]. Such intention is subject to MKE's obligation to manufacture and operate
efficiently, and MKE's Affiliates' efficient and effective distribution,
marketing and sales of such MKE Products.
10.2 Subsidy Negotiation. Replay and MKE shall meet [***] to
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negotiate in good faith a mutually agreed upon Subsidy to be paid to MKE for
each MKE Product model sold during a subsequent [***] period, up to an agreed
upon [***], and a [***]. The parties will meet approximately [***] in advance of
the beginning of such period for such negotiations. The parties shall determine
the amount of the Subsidy by considering, at a minimum, for such MKE Product
model: (a) [***], (b) [***], and (c) [***]. In the event that [***], the parties
agree to have further discussions regarding the Subsidy.
10.3 Payment Terms. All payments for MKE Products made by Replay to MKE
-------------
during the Initial Term shall be made by irrevocable Letter of Credit ("LC") at
[***] prior to the shipment date (payment terms FOB Japan) of each Purchase
Order issued hereunder. After the Initial Term, Replay shall make reasonably
commercial efforts to reduce the payment terms from [***]. Payment for MKE
Products to be purchased by MKE or an Affiliate and paid to Replay shall be due
the [***] following the [***] that Replay's invoice has issued and delivered to
MKE or an Affiliate. All payments hereunder shall be made in U.S. dollars.
10.4 Revenue Share. MKE shall be entitled to a mutually agreed upon
-------------
[***] received by Replay solely in connection with those MKE Products that are
shipped by or on MKE's behalf after the Initial Term [***]. The amount, duration
and other terms of such [***] and an appropriate Subsidy shall be mutually
agreed upon by the parties. MKE agrees to waive any [***] in connection with any
MKE Products shipped during the Initial Term.
11. BOOKS AND RECORDS; AUDITS. Each party shall keep complete and accurate
books and records relating to the manufacture, distribution and sale of ReplayTV
Products and the calculation of the applicable Subsidy and/or [***] for MKE
Products for the duration of Term plus one (1) year ("Audit Period"). During the
Audit Period, a party ("Auditing Party") shall have the right, upon prior
written notice and no more than once a year, to inspect the books and records of
the other party ("Audited Party") relating solely to the manufacture,
distribution and sale of ReplayTV Products and the applicable Subsidy
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and/or [***] under Section 10 during the Audited Party's normal business hours,
using an independent certified public accountant retained by the Auditing Party
and reasonably acceptable to the Audited Party, for the purpose of verifying any
reports, information or payments provided or due hereunder and verifying
compliance with the material terms and conditions of this Agreement. Such
independent certified public accountant shall be bound to hold all information
in confidence except as necessary to communicate to the Auditing Party the
Audited Party's underpayment of payments, inaccurate reports or information
and/or noncompliance with any material terms or conditions of this Agreement.
The fees and expenses of such inspection/audit shall be paid by the Auditing
Party; however, if an underpayment of more than five percent (5%) of the total
payments due to the Auditing Party hereunder for any calendar year is
discovered, then such fees and expenses shall be paid by the Audited Party, and
the Audited Party shall promptly pay to the Auditing Party all such delinquent
payment amounts with interest thereon at the prime rate reported by the Bank of
America, San Francisco, California, plus one percent (1%), computed from the
date such payments were due until the date the Audited Party actually pays the
Auditing Party such payments.
12. CONFIDENTIALITY.
12.1 Each party agrees that confidential information it obtains from the
other party under this Agreement, including, without limitation, Technology,
trade secrets, patent applications, and business, technical and financial
information ("Confidential Information") is Confidential Information of the
disclosing party ("Discloser"). Without limiting the foregoing, the parties
agree that (a) information obtained by Replay via the RTVS that is specific MKE
or PCEC's sales or business activity (excluding any information specific to
purchasers of ReplayTV Products) is MKE Confidential Information, and (b) all
Replay software (source code and object code) and information relating to RTVS
net revenues is Replay Confidential Information. The receiving party
("Recipient") agrees to (i) keep the Discloser's Confidential Information
confidential, (ii) use the Discloser's Confidential Information only for the
purposes of fulfilling its obligations under this Agreement, (iii) use at least
the same degree of care in keeping the Discloser's Confidential Information
confidential as its uses for its own confidential information of a similar
nature, and (iv) limit access to the Discloser's Confidential Information to its
officers, directors, agents, professional advisors, contractors, subcontractors
and employees and to the officers, directors, agents, professional advisors,
contractors, subcontractors and employees of its Affiliates who have a need to
know for the purposes of this Agreement.
12.2 Confidential Information in tangible form is now and shall at all
times be conspicuously labeled by the Discloser as "Confidential" or similar
designation. If the Confidential Information is disclosed orally, it must be
specifically designated by the Discloser as Confidential Information at the time
of disclosure and confirmed in writing by the Discloser to be Confidential
Information. Such written confirmation shall be provided to the Recipient
within twenty (20) business days following such oral disclosure.
12.3 The obligations under this Section 12 shall not extend to any
information that the Recipient can document:
(a) was in the public domain at the time it was disclosed or becomes
part of the public domain after disclosure through no fault of the Recipient or
its employees or agents;
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(b) was known to the Recipient at the time of its disclosure or
becomes known to it without breach of this Agreement, as evidenced by
contemporaneous written records;
(c) is independently developed by the Recipient, as evidenced by
contemporaneous written records;
(d) is disclosed by the Discloser to a third party without
restriction on such third party's rights to disclose or use the same;
(e) is approved for release upon the Discloser's prior written
consent;
(f) is disclosed by Recipient pursuant to judicial order, a
requirement of a governmental agency or by operation of law, provided that the
Recipient gives the Discloser prompt written notice of any such requirement.
12.4 This Section 12 shall survive termination or expiration of the
Agreement for a period of [***].
13. TERM AND TERMINATION.
13.1 Term. This Agreement shall commence as of the Effective Date and
----
shall continue in effect for a period of three (3) years ("Initial Term"),
unless terminated earlier pursuant to this Agreement.
13.2 Renewal. Following the Initial Term, this Agreement may, at MKE's
-------
sole option, be renewed for one additional three (3) year term, provided that
MKE gives at least [***] written notice prior to the expiration of the Initial
Term. Thereafter, in the event either party wishes to renew this Agreement, such
party will provide the other party with [***] written notice prior to the
expiration of the Initial Term or then current renewal term, and the parties
agree to negotiate in good faith for a period of up to [***] in an attempt to
renew this Agreement on terms mutually acceptable to both parties, which
renewal, if any, shall be set forth in writing and signed by both parties. The
foregoing renewal option and procedure shall apply to any and all additional
renewal terms.
13.3 Termination.
-----------
(a) This Agreement may be terminated in its entirety by either party
immediately upon the occurrence of any the following events:
(i) if the other ceases to do business, or otherwise terminates
its business operations;
(ii) if the other shall fail to promptly secure or renew any
license, registration, permit, authorization or approval necessary for the
conduct of its business in a manner contemplated by this Agreement, or if any
such license, registration, permit, authorization or approval is revoked or
suspended and not reinstated within [***] or if reinstatement is not possible
within [***],diligent efforts are not being made to effect such reinstatement;
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(iii) if the other materially breaches any material provision of
this Agreement and fails to cure such breach within [***] after receiving
written notice from the non-breaching party describing such breach; or
(iv) if the other shall seek protection under any bankruptcy,
receivership, trust deed, creditors arrangement, composition or comparable
proceeding, or if any such proceeding is instituted against the other (and not
dismissed within [***]).
(b) This Agreement may be terminated by MKE in its absolute and sole
discretion without cause for any reason upon at least [***] days' prior written
notice to Replay. In the event of such termination by MKE, and notwithstanding
any other provision in this Agreement, (a) all license rights granted to MKE
hereunder shall terminate immediately (including all object code and source code
software licenses), (b) MKE shall cease any and all use of Replay Technology and
Replay Intellectual Property, including without limitation any development,
manufacture or sale of any products or components containing or embodying Replay
Technology or Replay Intellectual Property (excluding, for a period of [***]
after such termination, the manufacture and distribution of those components
necessary for the provision of spare parts for MKE Products to purchasers of
such products prior to termination of this Agreement), and (c) for a period of
[***] from the date of such termination, MKE shall not enter into any
discussions or agreements relating to the development or manufacture of any
products that support or are compatible with any Competitive Service or [***]
(except as expressly permitted under Section 7.2). The determination of whether
a service is a Competitive Service shall be made as of the effective date of any
agreement between MKE or MKE Affiliate and such service provider.
13.4 No Liability for Termination. Neither party shall incur any liability
----------------------------
whatsoever for any damages, loss or expenses of any kind suffered or incurred by
the other (or for any compensation to the other) arising from or incident to any
termination of this Agreement pursuant to Section 13.3 above, whether or not
such party is aware of any such damages, loss or expenses.
13.5 Effect of Termination. Upon expiration or any termination of this
---------------------
Agreement, all licenses granted by Replay hereunder shall immediately terminate
(excluding any End User Licenses), and MKE shall promptly return to Replay all
copies of any software source code, together with any modifications,
improvements and documentation relating thereto. Replay shall continue
supporting the RTVS and all End Users of ReplayTV Products as provided in this
Agreement. The following provisions shall survive the expiration or any
termination of this Agreement: Sections 1, 4.4(a), 4.4(b), 4.4(e), 5, 6.1, 7, 8,
10, 11, 12, 13.3 (b), 13.4, 13.5, 13.6, 13.7, 14.4, 15, 16, 19 and 20. Remedies
for all breaches hereunder will also survive. Each party will promptly return
all Confidential Information of the other party (and all copies and abstracts
thereof) that it is not entitled to retain under the surviving terms of this
Agreement.
13.6 Termination Not Sole Remedy. Termination is not the sole remedy under
---------------------------
this Agreement and, whether or not termination is effected, all other remedies
will remain available.
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13.7 OEM Agreement Option. Unless this Agreement is terminated by Replay
--------------------
pursuant to Section 13.3(a), or by MKE pursuant to Section 13.3(b), MKE shall
have the right, for a period of [***] to enter into an OEM Agreement with Replay
for the manufacture and distribution of MKE Products, on terms and conditions
comparable to those terms and conditions generally offered by Replay to its
other OEMs at the time.
14. REPRESENTATIONS AND WARRANTIES.
14.1 Replay Warranties. Replay represents and warrants that as of the
-----------------
Effective Date (a) it has the full right and authority to enter into this
Agreement and grant the rights and licenses granted herein, (b) it has not
previously granted and will not grant any rights in conflict with this
Agreement, and (c) to the best of Replay's knowledge, no third party has
asserted any claim or demand that the Replay Intellectual Property or Replay
Technology infringes any third party Intellectual Property Rights or other
proprietary rights.
14.2 MKE Warranties. MKE represents and warrants that as of the Effective
--------------
Date (a) it has the full right and authority to enter into this Agreement and
grant the rights granted herein, and (b) it has not previously granted and will
not grant any rights in conflict with this Agreement.
14.3 Other Warranties. Each party represents and warrants that it will
----------------
comply with all applicable laws, regulations and rules in connection with its
obligations and performance under this Agreement.
14.4 Disclaimer of Warranties. EXCEPT AS EXPRESSLY PROVIDED ABOVE IN
------------------------
SECTIONS 14.1, 14.2 14.3 AND 15, REPLAY AND MKE EACH EXPRESSLY DISCLAIM ANY
WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO THIS
AGREEMENT AND ALL ACTIVITIES HEREUNDER, INCLUDING, WITHOUT LIMITATION, ANY
IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE OR
NONINFRINGEMENT.
15. INDEMNIFICATION.
15.1 By Replay. Replay shall indemnify, defend and hold harmless MKE, and
---------
its Affiliates, officers, directors, employees and agents ("MKE Indemnified
Parties"), from and against all loss, harm and liability, including, without
limitation, all costs, damages, settlements, claims, suits and expenses
(including reasonable attorneys' fees) incurred by any MKE Indemnified Party
arising out of or resulting from: (a) any claim for property damage, personal
injury or death caused by any action or omission by Replay in performing its
obligations under this Agreement; or (b) any claim that any of Replay Technology
or Replay Intellectual Property Rights including, without limitation, the RTVS,
the Replay Server Software, Replay Driver Software, the Replay Device Software
or any ReplayTV Products (except to the extent such claim is based on a ReplayTV
Product (or a portion or component thereof) developed, modified or improved by
or for MKE (other than by Replay)) infringes any third party Intellectual
Property Rights; provided that MKE shall provide Replay with prompt written
notice of any claim for which it seeks indemnification under this Section 15,
Replay shall have sole control of the defense and any settlement of any such
claim, and MKE shall reasonably cooperate and provide reasonable assistance in
connection with the defense or settlement of any such claim.
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15.2 By MKE. MKE shall indemnify, defend and hold harmless Replay, and its
------
Affiliates, officers, directors, employees and agents ("Replay Indemnified
Parties"), from and against all loss, harm and liability, including, without
limitation, all costs, damages, settlements, claims, suits and expenses
(including reasonable attorneys' fees) incurred by any Replay Indemnified Party
and arising out of or resulting from: (a) any claim for property damage,
personal injury or death caused by any action or omission by MKE in performing
its obligations under this Agreement; or (b) any claim that the MKE Products
infringe any third party Intellectual Property Rights, except where such claim
arises solely as a result of the Replay Technology or Replay Intellectual
Property Rights; provided that Replay shall provide MKE with prompt written
notice of any claim for which it seeks indemnification under this Section 15,
MKE shall have sole control of the defense and any settlement of any such claim,
and Replay shall reasonably cooperate and provide reasonable assistance in
connection with the defense or settlement of any such claim.
15.3 Options. In the event of any allegation of infringement of any third
-------
party Intellectual Property Right which is subject to indemnification under this
Section 15, the indemnifying party shall have the right, in its sole discretion,
to (a) obtain a license from the third party; (b) defend against such allegation
through final judgment and all timely filed appeals; and/or (c) redesign the
allegedly infringing products in order to avoid infringement, in which case the
indemnified party shall use diligent commercial efforts to immediately cease use
and distribution of all such allegedly infringing products and commence use of
the redesigned product, provided that such redesigned product provides
substantially similar functionality and is of substantially similar quality as
the allegedly infringing product, but in no event of less quality than the
former product. In the event Replay does not take action under (a),(b) or (c)
above in a reasonable time, MKE shall, at its sole discretion, have a right to
terminate this Agreement.
15.4 Limitations. Notwithstanding the foregoing, neither party shall have
-----------
any indemnification obligations pursuant to this Section 15 with respect to any
claim arising from (a) the combination, operation or use of the such party's
Technology or Intellectual Property Rights with other products, software or
materials not furnished by such party where such party's Technology or
Intellectual Property Rights would not themselves be infringing; or (b) the
modification or improvement of such party's Technology or Intellectual Property
Rights by the other party or any third party.
16. LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT
OR OTHERWISE, NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY OR TO ANY OTHER
PERSON OR ENTITY WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY
CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR
(I) ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR (II) LOST
PROFITS, LOST BUSINESS OR LOST DATA, EVEN IF THE REMEDIES PROVIDED FOR IN THIS
AGREEMENT FAIL OF THEIR ESSENTIAL PURPOSE AND EVEN IF EITHER PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OR PROBABILITY OF SUCH DAMAGES. EXCEPT FOR EACH
PARTY'S OBLIGATIONS UNDER SECTION 15 (INDEMNIFICATION), ANY BREACH OF SECTION 12
(CONFIDENTIALITY), OR BREACH OF ANY LICENSES GRANTED PURSUANT TO SECTION 3, EACH
PARTY'S LIABILITY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER, WHETHER IN CONTRACT,
TORT (INCLUDING NEGLIGENCE),
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STRICT LIABILITY OR ANY OTHER LEGAL THEORY, IS LIMITED TO, AND WILL NOT EXCEED,
TEN MILLION U.S. DOLLARS ($10,000,000).
17. ASSIGNMENT. Except as otherwise provided in this Agreement, neither party
may transfer or assign this Agreement nor the rights and obligations hereunder
(by operation of law or otherwise) without the prior written consent of the
other party; Notwithstanding the foregoing, no consent shall be required for any
assignment in connection with any merger, acquisition, sale or transfer of all,
or substantially all of a party's stock, assets or business to which this
Agreement relates; provided, however, that in the event of any acquisition of
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Replay by an entity that derives at least fifty percent (50%) of its gross
revenues from home electronics products, MKE shall have the right to terminate
this Agreement upon [***] prior written notice if MKE and such entity cannot
resolve any problems or issues relating to the continuation of this Agreement
within three (3) months after the date of such assignment. The terms and
conditions of this Agreement shall bind and inure to each party's successors and
permitted assigns.
18. PUBLICITY AND PRESS RELEASES. Except to the extent necessary under
applicable laws or regulations or for ordinary marketing purposes, the parties
agree that no press releases or other publicity relating to the substance of the
matters contained herein will be made without approval by both parties. A press
release announcing this Agreement will be jointly drafted and released by the
parties.
19. SOURCE CODE ESCROW.
19.1 Escrow. Within [***] after the Effective Date, Replay
------
shall deposit with Data Securities International, Inc. ("Escrow Agent") the
------------
source code to the Replay Device Software and Replay Driver Software ("Escrow
------
Materials") pursuant to the terms of an escrow agreement to be entered into
- ---------
among MKE, Replay, and the Escrow Agent. At the end of each calendar quarter
thereafter, Replay shall deposit any updates or improvements to the Escrow
Materials completed during such calendar quarter. Replay shall be responsible
for establishing and maintaining the escrow account.
19.2 Release of Escrow Materials. In the event that (i) Replay files
---------------------------
for or becomes a party to any involuntary bankruptcy or receivership, and such
involuntary proceeding is not dismissed within [***] after filing; or (ii)
Replay commences liquidation proceedings or generally ceases doing business, a
"Release Event" shall be deemed to have occurred.
-------------
19.3 Release Procedure. Upon the occurrence and continuation of a
-----------------
Release Event, MKE will notify the Escrow Agent. The Escrow Materials will be
released for use by MKE, subject to the terms and conditions hereof, only after
notice of such Release Event from the Escrow Agent to Replay and Replay's
failure to declare in writing to the Escrow Agent within [***] that no Release
Event has occurred. If Replay makes such written declaration, then the issue of
whether a Release Event has occurred and is continuing shall be submitted to
arbitration in Santa Clara County, California, under the Commercial Arbitration
Rules of the American Arbitration Association by one (1) arbitrator appointed in
accordance with said Rules. Judgment on the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. The costs of the
arbitration, including administrative and arbitrator's fees, shall be shared
equally by the parties. Each party shall bear the costs of its own attorneys'
fees in connection with such arbitration.
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WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
-21-
<PAGE>
19.4 License. Subject to the terms and conditions of this Agreement,
-------
Replay hereby grants MKE a [***] right and license to use the Escrow Materials
pursuant to Section 3 hereof, which right and license MKE may exercise at any
time after the occurrence and during the continuation of a Release Event. Upon
the cessation of any Release Event, all licenses granted pursuant to this
Section 19.4 shall terminate, unless and until triggered again pursuant to this
Section 19, and MKE shall promptly return all copies of the Escrow Materials, or
any portion thereof, to Replay.
20. MISCELLANEOUS.
20.1 Export Control. The parties shall comply with the U.S. Foreign
--------------
Corrupt Practices Act and all applicable export laws, restrictions, and
regulations of any U.S. or foreign agency or authority. The parties will not
export or re-export, or allow the export or re-export of any product, technology
or information it obtains or learns pursuant to this Agreement (or any direct
product thereof) in violation of any such law, restriction or regulation,
including, without limitation, export or re-export to Cuba, Iran, Iraq, Libya,
North Korea or any other country subject to U.S. trade embargoes, or to any
party on the U.S. Export Administration Table of Denial Orders or the U.S.
Department of Treasury List of Specially Designated Nationals, or to any
prohibited destination in any of the Country Groups specified in the then
current Supplement No. 1 to part 740 or the Commerce Control List specified in
the then current Supplement to part 738 of the U.S. Export Administration
Regulations (or any successor supplement or regulations).
20.2 Amendment and Waiver. Except as otherwise expressly provided
--------------------
herein, any provision of this Agreement may be amended and the observance of any
provision of this Agreement may be waived (either generally or in any particular
instance and either retroactively or prospectively) only with the written
consent of the parties. However, it is the intention of the parties that this
Agreement be controlling over additional or different terms of any purchase
order, confirmation, invoice or similar document, even if accepted in writing by
both parties, and that waivers and amendments of any provision of this Agreement
shall be effective only if made by non-preprinted agreements signed by both
parties and demonstrably understood by its term to be an amendment or waiver.
The failure of either party to enforce its rights under this Agreement at any
time for any period shall not be construed as a waiver of such rights.
20.3 Governing Law and Legal Actions. This Agreement shall be
-------------------------------
governed by and construed under the laws of the State of California and the
United States without regard to conflicts of law provisions thereof and without
regard to the United Nations convention on Contracts for the International Sale
of Goods. The sole jurisdiction and venue for actions related to the subject
matter hereof shall be the California state and U.S. federal courts having
jurisdiction in Santa Clara County, California. In any action or proceeding to
enforce rights under this Agreement, the prevailing party shall be entitled to
recover reasonable costs and attorneys' fees.
20.4 Headings. Headings and captions are for convenience only and are
--------
not to be used in the interpretation of this Agreement.
20.5 Notices. Any notice or other communication required to permitted
-------
to be made or given to either party under this Agreement shall be deemed
sufficiently made or given on the date of delivery if delivered in person or by
overnight commercial courier
[***] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
-22-
<PAGE>
service with tracking capabilities with costs prepaid, or three (3) days after
the date of mailing if sent by certified first class U.S. mail, return receipt
requested and postage prepaid, at the address of the parties set forth below or
such other address as may be given from time to time under the terms of this
notice provision:
If to MKE:
8-1 Furujin-machi, Takamatsu, Kagawa
760-0025 Japan
Matsushita-Kotobuki Electronics Industries, Ltd.
Attention: President
Telephone: 087-851-7228
Facsimile: 087-851-1047
If to Replay:
1945 Charleston Road
Mountain View, California 94303
Replay Networks, Inc.
Attention: Chief Executive Officer
Telephone: 650-210-1000
Facsimile: 650-964-4847
20.6 Severability. If any provision of this Agreement is held to be
------------
illegal or unenforceable, that provision shall be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable.
20.7 Relationship of Parties. The parties hereto expressly understand
-----------------------
and agree that the other is an independent contractor in the performance of each
and every party of this Agreement and is solely responsible for all of its
employees and agents and its labor costs and expenses arising in connection
therewith. The parties are not partners, joint venturers or otherwise
affiliated and neither has any right or authority to bind the other in any way.
20.8 Force Majeure. No liability or loss of rights hereunder shall
-------------
result to either party from delay or failure in performance caused by an event
of force majeure (that is, circumstances beyond the reasonable control of the
party affected thereby, including, without limitation, acts of God, fire, flood,
war, governmental action, compliance with laws or regulations, strikes, lockouts
or other serious labor disputes, or shortage of or inability to obtain material
or equipment) for so long as such event of force majeure continues in effect.
20.9 Remedies. Except as otherwise expressly stated in this
--------
Agreement, the rights and remedies of a party set forth herein with respect to
failure of the other to comply with the terms of this Agreement (including,
without limitation, rights of full termination of this Agreement) are not
exclusive, the exercise thereof shall not constitute an election of remedies and
the aggrieved party shall in all events be entitled to seek whatever additional
remedies that may be available in law or in equity.
-23-
<PAGE>
20.10 Basis of Bargain. Each party recognizes and agrees that the
----------------
warranty disclaimers and liability and remedy limitations in this Agreement are
material bargained for bases of this Agreement and that they have been taken
into account and reflect in determining the consideration to be given by each
party under this Agreement and in the decision by each party to enter into this
Agreement. In addition, each party acknowledges and agrees that it has not
relied upon any proposals, oral or written, negotiations, conversations,
promises or discussions between or among the parties relating to the subject
matter of this Agreement or any past dealing or industry custom not expressly
set forth in this Agreement (or the exhibits hereto), the OEM Agreement, the
Stock Purchase Agreement or the Investor's Rights Agreement.
20.11 Entire Agreement. The parties agree that this Agreement,
----------------
together with any exhibits hereto, and the OEM Agreement constitutes the entire
understanding and agreement with respect to the subject matter hereof and
supersedes all proposals, oral or written, all negotiations, conversations,
promises or discussions between or among parties relating to the subject matter
of this Agreement and all past dealing or industry custom.
MATSUSHITA-KOTOBUKI ELECTRONICS REPLAY NETWORKS, INC.
INDUSTRIES, LTD.
By: /s/ Sachihiko Hamaguchi By: /s/ Kim LeMasters
--------------------------- -----------------------------
Name: Sachihiko Hamaguchi Name: Kim LeMasters
------------------------ -------------------------
Title: President Title: Chief Executive Officer
----------------------- -------------------------
-24-
<PAGE>
EXHIBIT A
---------
End User License Restrictions
All ReplayTV Products sold by or for MKE, including any private label MKE
Products manufactured by or for MKE on behalf of third parties pursuant to
Section 4.2 shall include an End User Software License Agreement containing
provisions at least as restrictive as the following provisions:
(1) the End User is granted a [***] license to use the Replay Driver
Software and Replay Device Software solely for its personal or internal business
purposes and solely in the geographic locations where the RTVS is supported,
subject at all times to the terms and conditions of the End User License
Agreement;
(2) Replay, MKE and their respective licensors retain all of their
respective Intellectual Property Rights in the Replay Driver Software and Replay
Device Software (including any Replay Driver Software or Replay Device Software
incorporated into any ReplayTV Product), and no title to such intellectual
property is transferred to the End User;
(3) the End User agrees to accept periodic software and content updates
that may be offered from time to time in connection with the RTVS;
(4) the End User agrees to provide name and contact information during the
initial product configuration process and for each subsequent software update.
(5) the End User agrees not to reverse assemble, decompile, or otherwise
attempt to derive source code from the Replay Driver Software and Replay Device
Software, or to remove or unbundle the Replay Driver Software or Replay Device
Software from any ReplayTV Product;
(6) the End User agrees to comply with all export and re-export
restrictions and regulations of the Department of Commerce or other agency or
authority of the United States or other applicable countries, and not to
transfer, or authorize the transfer, of the ReplayTV Products to a prohibited
country or otherwise in violation of any such restrictions or regulations;
(7) Neither Replay nor MKE shall be liable to the End User for any
indirect, consequential, incidental or special damages arising out of the use or
license of the ReplayTV Products, regardless of the theory of liability
(including contract, tort (including negligence) or strict liability).
[***] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
-25-
<PAGE>
EXHIBIT 10.14
OEM Distribution Agreement
This Distribution Agreement ("Agreement") is entered into the 30th day of
---------
July, 1999, and amended this 20/th/ day of December, 1999, between Matsushita-
Kotobuki Electronics Industries, Ltd. having its principal place of business at
8-1 Furujin-machi, Takamatsu, Kagawa prefecture, Japan ("MKE") and Replay
---
Networks, Inc., 1945 Charleston Road, Mountain View, California 94303, U.S.A.
("Replay Networks").
---------------
RECITALS:
--------
Replay Networks has designed certain Products that MKE desires to resell.
Replay Networks has entered into contracts with, and may in the future enter
into other contracts with, manufacturers of the Products ("Contract
--------
Manufacturers"). Under such contracts, the Contract Manufacturers have agreed
- -------------
to manufacture the Products pursuant to Specifications provided by Replay
Networks and to deliver such Products. MKE desires to have the Contract
Manufacturers manufacture the Products and deliver the Products directly to MKE
and to have Replay Networks manage the Contact Manufacturers performance of the
design, production and delivery process.
AGREEMENT:
---------
In consideration of the foregoing and the agreements contained herein, the
parties agree as follows:
1. Definitions.
-----------
"Confidential Information" of a party shall mean any information
------------------------
disclosed by that party to the other pursuant to this Agreement which is in
written, graphic, machine readable or other tangible form and is marked
"Confidential," "Proprietary" or in some other manner to indicate its
confidential nature. Confidential Information may also include oral information
disclosed by one party to the other pursuant to this Agreement, provided that
such information is designated as confidential at the time of disclosure and is
reduced to writing by the disclosing party within a reasonable time (not to
exceed twenty (20) days) after its oral disclosure, and such writing is marked
in a manner to indicate its confidential nature and delivered to the receiving
party.
"Content" shall mean any video, text, graphics, images,
-------
advertisements, promotions or other materials which are modified and/or updated
from time to time as part of the Replay Network Service, including, without
limitation, reserved channels, zones, hard drive allocation and other
configurations of any Product.
"Intellectual Property" shall mean patents, copyrights, authors'
---------------------
rights, trademarks, tradenames, know-how and trade secrets relating to the
Products or the design, specifications or manufacture of the Products, and any
modifications or improvements thereto, irrespective of whether such rights arise
under U.S., or Japan or international intellectual property, unfair competition
or trade secret laws.
"Inventory" shall mean raw materials and supplies necessary for the
---------
manufacture of Products pursuant to this Agreement.
"Products" shall mean the products manufactured by Contract
--------
Manufacturers at the direction of Replay Networks pursuant to this Agreement, as
set forth on Exhibit A attached hereto.
---------
"Purchase Order" shall mean a MKE Purchase Order in the form attached
--------------
as Exhibit B.
---------
"Replay Software" shall mean Replay Networks' proprietary and/or
---------------
licensed operating systems and application software that is incorporated into or
downloaded onto any Product, including any
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
improvements, modifications or enhancements thereto, but excluding hardware
driver software used to interface the Replay Software with the hardware
components of any Products.
"Specifications" shall mean the specifications for the Products as
--------------
provided to Contract Manufacturers by Replay Networks and as accepted by MKE in
writing, and as revised from time to time upon mutual written agreement of the
parties.
2. Agreement to Manage Production. Replay Networks agrees to use diligent
------------------------------
commercial efforts to perform the work (hereinafter "Work" as further defined
----
below) pursuant to Purchase Orders or changes in Purchase Orders issued by MKE
and accepted by Replay Networks on behalf of its Contract Manufacturers. Work
shall mean to, on behalf of MKE, manage the design, production , delivery of
Products and other related matters by the Contract Manufacturers. All Products
will be manufactured by the Contract Manufacturers pursuant to the
Specifications. Except for any Replay Software or Content which does not affect
the functioning of the Products, Replay Networks shall not alter the design or
Specifications of any Products, nor deviate from such design or Specifications
for any purpose, including without limitation, of improving product quality or
safety, without a prior written consent of MKE.
3. MKE's subsidiary. Replay Networks acknowledges and agrees that MKE
----------------
shall have the right to cause the obligations of MKE hereunder to be performed
by one or more of its subsidiaries, and all references herein to MKE shall
include any subsidiaries of MKE to the extent such subsidiaries perform
obligations of MKE hereunder. The performance of the obligations of MKE
hereunder by one or more of its subsidiaries shall not release MKE from
liability for the performance of its obligations hereunder.
4. Forecasting, Orders, Material Procurement
-----------------------------------------
(a) Forecast. Replay Networks shall cause the Contract Manufacturers
--------
to supply the quantities of the Products meeting the Specifications on the
Delivery Dates requested by MKE provided the Delivery Dates (as defined below)
conform to the Product lead-times and MKE forecasts set forth herein. Lead time
from placing Purchase Order to the delivery of the Products shall be [***]
unless otherwise agreed in the Purchase Order by the parties. On the fifteenth
(15/th/) day of each month, MKE shall provide Replay Networks with a rolling
forecast in writing of MKE's estimated aggregate purchase requirements of
Product for the subsequent [***] (the "Forecast"). Such Forecast shall be
legally binding on MKE. Replay Networks shall use its best efforts to cause the
Contract Manufacturers to supply the number of Products set forth in the
Forecast.
(b) Purchase Orders. All Purchase Orders for each calendar month
---------------
shall be submitted on or before the fifteenth (15/th/) day of such month to
Replay Networks in writing by mail or facsimile to the address set forth on the
signature page to this Agreement. Such Purchase Orders must specify all Product
types and quantities, and must set a date of requested delivery (the "Delivery
--------
Date"). Replay Networks will confirm receipt of Purchase Orders by facsimile or
- ----
e-mail. The parties agree that the terms and conditions contained in this
Agreement shall prevail over any terms and conditions of any Purchase Order,
acknowledgment form or other instrument.
(c) Acceptance or Rejection of Purchase Orders. Purchase Orders
------------------------------------------
submitted each month pursuant to Section 4(b) will be accepted or rejected by
Replay Networks in writing by the twenty-third (23/rd/) calendar day of each
month (or the following business day in the event the 23/rd/ day is a weekend or
a holiday). Any such Purchase Orders within Forecast amount and lead times
specified in Section 4(a) that are not rejected in writing by Replay Networks by
such date shall be deemed accepted by Replay Networks effective upon receipt of
such Purchase Order.
(d) Order Forecast Variations.
-------------------------
(i) Purchase Order Acceleration. Replay Networks will use
---------------------------
diligent commercial efforts to manage and cause the Contract manufacturer to
perform accelerated production and delivery of Products if MKE requests
acceleration ("Purchase Order Schedule Increase"). A request for a Purchase
--------------------------------
Order Schedule Increase shall be submitted in writing by MKE to Replay Networks,
by mail or
[***]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
facsimile. Replay Networks will notify MKE in writing by mail or fax within
[***] business days of receipt of the request for a Purchase Order Quantity
Increase of (i) Replay Networks' capability to fill the Purchase Order Schedule
Increase and (ii) whether Replay Networks will add Expediting Charges to the
purchase price in order to meet the demands of the Purchase Order Schedule
Increase. Replay Networks' notification to MKE that it will accept a Purchase
Order Schedule Increase with no Expediting Charge will operate as an acceptance
of the Purchase Order Schedule Increase. Should Replay Networks notify MKE that
a Expediting Charge will be imposed, MKE will notify Replay Networks within
[***] business days if MKE accepts the revised terms of such Purchase Order
Schedule Increase. Agreements with respect to Purchase Order Schedule Increases
shall supercede prior Purchase Orders to the extent such prior Purchase Orders
conflict with the Purchase Order Schedule Increase. Any failure to provide
notification where required pursuant to this section 4(d)(i) shall be deemed to
operate as a rejection.
(ii) Other Schedule Alterations. For each Purchase Order or
--------------------------
Forecast Product amounts, MKE shall be entitled, without penalty, to delay the
Delivery Date of Products as set forth in the table below:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
# of days before Maximum Maximum
Shipment Date on Reschedule Quantity Reschedule Period
Purchase Order or
Forecast Product
amount
-------------------------------------------------------------------
<S> <C> <C>
0-30 [***] [***]
-------------------------------------------------------------------
31-60 [***] [***]
-------------------------------------------------------------------
61-90 [***] [***]
-------------------------------------------------------------------
91-120 [***] [***]
-------------------------------------------------------------------
</TABLE>
(iii) Any Purchase Order quantities rescheduled pursuant to
this section may not be subsequently rescheduled without the prior written
consent of Replay Networks. All other changes in shipment date other than as
authorized in this Section 4(d) require Replay Networks' prior written consent
and shall be subject to an inventory carrying charge of [***] per month for
finished Product, procured by the Contract Manufacturers to support the original
schedule.
5. Components; Tooling.
-------------------
(a) Replay Networks' acceptance of Purchase Orders will constitute
authorization for Replay Networks to grant Contract Manufacturers permission to
procure, using standard purchasing practices, the components, materials,
supplies and other Inventory necessary for the manufacture of Products covered
by such Purchase Orders.
(b) MKE authorizes Replay Networks to grant Contract Manufacturers
permission to purchase, in amounts beyond the amount necessary to fill accepted
Purchase Orders, the components, materials, and supplies: (i) with lead times
greater than [***] at the time the Purchase Order is placed ("Long Lead Time
--------------
Components").
- ----------
(c) MKE shall be responsible for all Inventory and Long Lead Time
Components purchased by Replay Networks or the Contract Manufacturers pursuant
to this Section 5 under the conditions provided elsewhere in this Agreement. In
the event, however, Replay Networks cancels any Purchase Order and/or Forecast,
MKE shall not be responsible for any Inventory or Long Lead Time Components
which were ordered or procured for such Purchase Order or Forecast.
(d) MKE shall pay for or obtain and consign to Contract Manufacturer,
via Replay Networks any Product-specific tooling and other reasonably necessary
non-recurring expenses specific to the Product, as set forth in Replay Networks'
quotation.
[***]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
(e) End Of Life Component Purchase Order. Replay Networks shall
------------------------------------
notify MKE in writing at least [***] in advance of the End of Life ("EOL") of
any Product. MKE may submit a Purchase Order of such EOL for spare parts for
such Products on terms, conditions and pricing to be mutually agreed by the
parties. Neither Replay Networks nor any Contract Manufacturer shall have any
obligation to supply spare parts to MKE for any Product after the EOL of such
product. By the end of [***] Replay Networks will establish a service center for
Replay direct products. MKE, at its option, may enter into a separate agreement
with such service center for out-of-warranty Product repairs and EOL inventory.
(f) Training. Replay Networks shall provide a reasonable number of
--------
training classes for Matsushita Electric Corporation of America ("MECA")
personnel, at MECA's request, at locations in the United States mutually agreed
upon by Replay Networks and MECA. All reasonable expenses for such training
shall be mutually borne between MKE and Replay Networks.
6. MKE Requested Changes. MKE may request, at any time, in writing, that
---------------------
Replay Networks make changes to any of the following: (i) the design or
specifications of the Products, (ii) MKE's chosen method of shipment or packing,
or (iii) MKE's chosen place of delivery (collectively, "MKE Requested Changes").
---------------------
Replay Networks will evaluate MKE Requested Changes and notify MKE of whether it
accepts the MKE Requested Changes within [***] business days of Replay Networks'
receipt of MKE's request. If, in the sole judgement of Replay Networks, the MKE
Requested Change will cause an increase in the cost or delay in the delivery of
the Products, Replay Networks will notify MKE of such in writing within the same
time period. Should Replay Networks notify MKE that an increase in the cost or
delay in the delivery of the Products will occur, MKE will notify Replay
Networks within [***] business days following its receipt of such notice if MKE
accepts the revised terms of such Purchase Order.
7. Product Shipment and Inspection.
-------------------------------
(a) Shipments. All Products delivered pursuant to the terms of this
---------
Agreement shall be suitably packed for shipment in accordance with Replay
Networks' specifications, as approved in advance by MKE, marked for shipment to
MKE's destination specified in the applicable Purchase Order and delivered.
Shipment will be CIF to up to [***] warehouse locations in the continental
United States specified by Panasonic Consumer Electronics Company ("PCEC"), at
which time risk of loss and title will pass to MKE. All freight, insurance and
other shipping expenses will be paid by Replay Networks. The minimum shipment
order per location will be [***] Product units. Any special packing expenses not
included in the original price quotation for the Products will be paid by MKE.
(b) Cancellation. MKE may not cancel any part of any Purchase Order
------------
under this Agreement without Replay Networks' prior written consent, which
consent will not be unreasonably withheld. In the event MKE cancels any Purchase
Order, reasonable cancellation charges will be paid by MKE directly to Contract
Manufacture (Flextronics International) pursuant to the letter agreement agreed
upon by Replay Networks, MKE and Flextronics International substantially in the
same form attached as Exhibit D. If MKE pays such cancellation charges to
---------
Flextronics, Replay Networks shall waive any rights to claim and receive remedy
arising or in relation to such cancellation.
(c) Product Inspection and Acceptance.
---------------------------------
(i) MKE will inspect the Products within [***] business days
of receipt in accordance with the inspection standard mutually agreed upon by
the parties in writing. MKE may, subject to Contract Manufacturer's prior
approval, implement the outgoing inspection, in its sole discretion, at the
facility of the Contract Manufacturer, provided, however, in no case MKE shall
waive its rights to implement incoming inspection at MKE's facility. If the
Products are found to be defective in material and workmanship, fail to meet
Specifications or the acceptable quality levels ("AQL") in the attached Exhibit
C, MKE has the right to reject such Products, at Replay Networks' cost and
expense, during said period. Products not rejected during said period will be
deemed accepted.
[***]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
(ii) In the event of any rejection of Product pursuant to
Section 7(c)(i), MKE shall promptly notify Replay Networks in writing, and
provide a written failure report substantiating the basis for the rejection.
Within [***] business days after receipt of such notice and failure report,
Replay Networks shall either (a) send a Replay Networks representative to
inspect the Products at the applicable PCEC location, or (b) accept return of
rejected Products. In the event of an emergency request by MKE, Replay Networks
shall use diligent commercial efforts to shorten this [***] business day period.
(d) Documentation. Replay Networks shall be responsible for supplying
-------------
operating instructions and registration card with each Product shipped to MKE;
provided, however, that the costs of such items do not exceed the costs of
- -------- -------
comparable items in the ReplayTV 3000 product being shipped by Replay Networks.
8. Payment Terms, Additional Costs and Price Changes.
-------------------------------------------------
(a) Payment Terms. The price for Products to be manufactured will be
-------------
as specified in the attached Exhibit A, as such Exhibit may be amended in
---------
writing by mutual agreement by the parties from time to time, and shall be
reflected in Purchase Orders issued by MKE and accepted by Replay Networks. All
prices quoted are exclusive of federal, state and local excise, sales, use and
similar taxes, and any duties, and MKE shall be responsible for all such items.
Payment for any Products, services or other costs to be paid by MKE hereunder is
due at the [***] day following the [***] the invoice has issued and delivered to
MKE (in the event such day is the holiday in U.S., then the following business
day) and shall be made in lawful U.S. currency. MKE agrees to pay [***] monthly
interest on all late payments. Furthermore, if MKE is late with payments and
fails to make such payments to Replay Networks within [***] days after receipt
of written notice from Replay Networks notifying MKE of such late payments,
Replay Networks may require prepayment or delay shipments or suspend work until
all such delinquent payments owed to Replay Networks are received. Such pre-
payment will be made to an escrow account designated by Replay Networks.
(b) Additional Costs. MKE is responsible for (i) any expediting
----------------
charges reasonably necessary because of a change in MKE's requirements
("Expediting Charges") which charges are preapproved by MKE, (ii) any overtime
------------------
or downtime charges incurred as a result of delays in the normal production or
interruption in the workflow process and caused by MKE's change in
Specifications or other MKE Requested Changes which charges are preapproved by
MKE.
(c) Cost Reductions. Replay Networks agrees to make every possible
---------------
effort to reduce Products costs at Replay Networks sole responsibility. MKE will
assist Replay Networks to establish low components pricing for the Products.
(d) Purchase Volumes; Reports. During each [***] period set forth in
Exhibit A hereto, the parties will agree upon a guaranteed minimum and
target maximum number of Products MKE shall purchase from Replay, net of any
returns or cancellations, as set forth in Exhibit A. In the event that
(a) [***] (b) [***] or (c) [***] the parties agree to have further discussions
regarding the pricing for such Products and purchase volumes.
9. License Grants; Ownership Rights.
--------------------------------
(a) License. During the term of this Agreement, MKE grants Replay
-------
Networks a [***] license, with the right to sublicense to Contract
Manufacturers, to use all of MKE's Confidential Information and Intellectual
Property required to perform the Work and allow the Contract Manufacturer to
manufacture the Products pursuant to the terms of this Agreement. In addition,
MKE grants Replay Networks a [***] license, including the right to sublicense,
to use and modify any improvements, modifications or specifications for the
Products provided by MKE for the purposes of manufacture of the Products and
delivery thereof to MKE.
[***]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
(b) Replay Software License. Subject to the terms and conditions of
-----------------------
this Agreement, and during term hereof, Replay Networks grants to MKE a [***]
license, to use the Replay Software contained in the Products (in object code
form only) solely in conjunction with such Products. Except for the license
granted in this Section 9(b), all right, title and interest in the Replay
Software shall remain the exclusive property of Replay Networks or its
licensors. Noting in this Agreement entitles MKE to the receipt or use of, or
access to, Replay Software source code or any right to reproduce the Replay
Software. The Products are offered for sale and are sold by Replay Networks
subject in every case to the condition that such sale does not convey any
license, expressly or by implication, to modify, improve, manufacture,
reproduce, decompile, disassemble, compile or reverse engineer the Replay
Software. MKE acknowledges and agrees that it (i) may not modify the Replay
Software, and (ii) receives no title or ownership rights to such Replay
Software.
(c) Intellectual Property Rights.
----------------------------
(i) Replay Networks shall retain sole right, title and
interest in and to all Intellectual Property owned as of the date hereof and
solely developed by Replay Networks thereafter.
(ii) MKE shall retain sole right?title and interest in and to
all Intellectual Property owned as of the date hereof and solely developed by
MKE thereafter.
(iii) Replay Networks and MKE shall retain undivided and equal
right, title and interest to all Intellectual Property jointly developed by
Replay Networks and MKE hereunder. The parties do not currently contemplate any
jointly developed Intellectual Property being developed pursuant to this
Agreement.
10. Confidential Information.
------------------------
(a) Nondisclosure and Nonuse. Each party shall treat as confidential
------------------------
all Confidential Information of the other party for a period of [***] after
termination of this Agreement, shall not use such Confidential Information
except as set forth in this Agreement, and shall use reasonable efforts not to
disclose such Confidential Information to any third party, without the prior
written consent of the disclosing party. Each party shall promptly notify the
other party of any actual or suspected misuse or unauthorized disclosure of the
other party's Confidential Information.
(b) Exceptions. Notwithstanding the above, neither party shall have
----------
liability to the other with regard to any Confidential Information of the other
which the receiving party can prove: (i) was in the public domain at the time it
was disclosed or has entered the public domain through no fault of the receiving
party; (ii) was known to the receiving party, without restriction, at the time
of disclosure, as demonstrated by files in existence at the time of disclosure;
(iii) is disclosed with the prior written approval of the disclosing party;(iv)
is disclosed by the disclosing party to a third party without restriction on
such third party's rights to disclose or use the same, (v) is independently
developed by the receiving party, or (vi) is disclosed pursuant to the order or
requirement of a court, administrative agency, or other governmental body;
provided, however, that the receiving party shall provide prompt notice of such
court order or requirement to the disclosing party to enable the disclosing
party to seek a protective order or otherwise prevent or restrict such
disclosure.
(c) Return of Confidential Information. Upon expiration or
----------------------------------
termination of this Agreement, each party shall promptly return all Confidential
Information of the other party.
(d) Remedies. Any breach of the restrictions contained in this
--------
Section 10 is a breach of this Agreement which may cause irreparable harm to the
nonbreaching party. Any such breach shall entitle the nonbreaching party to
injunctive relief in addition to all legal remedies.
(e) Confidentiality of Agreement. Each party agrees that the
----------------------------
existence and the terms and conditions of this Agreement shall be treated as
Confidential Information and shall not be
[***]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
disclosed to any third party; provided, however, that each party may disclose
the terms and conditions of this Agreement:(i) as required by any court or other
governmental body; (ii) as otherwise required by law; (iii) to legal counsel of
the parties; (iv) in confidence, to accountants, banks, and financing sources
and their advisors; (v) in connection with the enforcement of this Agreement or
rights under this Agreement; or (vi) in confidence, in connection with an actual
or proposed merger, acquisition, or similar transaction.
11. Indemnity.
---------
(a) By Replay Networks. Except for any indemnification obligation of
------------------
of MKE pursuant to Section 11(b) below, Replay Networks shall defend, indemnify
and hold harmless MKE from all claims, costs, damages, judgments and attorney's
fees resulting from or arising out of any third party claim alleging that the
Products infringe any valid U.S. and Japanese patents, patent rights,
trademarks, trademark rights, trade name rights, copyrights, trade secrets,
proprietary rights and processes or other intellectual property right. MKE shall
promptly notify Replay Networks in writing of the initiation of such claims. In
addition, Replay Networks shall have sole control of the defense and any
settlement of any such claim, and MKE shall provide reasonable assistance in
connection with the defense or settlement of any such claim. In the event of
infringement on third party's intellectual property rights, Replay Networks
shall, at its option, and subject to MKE's consultation: (i) procure for MKE the
right to continue the use or sale of the Products, (ii) provide Products which
do not infringe such intellectual property right or (iii) accept return of such
Products and refund the amounts paid by MKE therefore.
(b) By MKE. MKE shall defend, indemnify and hold harmless Replay
------
Networks from all claims, costs, damages, judgments and attorney's fees
resulting from or arising out of any third party claim that any MKE Requested
Change, alone or in combination with any Product, infringes any valid U.S. and
Japanese patents, patent rights, trademarks, trademark rights, trade name
rights, copyrights, trade secrets, proprietary rights and processes or other
such intellectual property right. Replay Networks shall promptly notify MKE in
writing of the initiation of such claims. In addition, MKE shall have sole
control of the defense and any settlement of any such claim, and Replay Networks
shall reasonably cooperate and provide reasonable assistance in connection with
the defense or settlement of any such claim.
(c) Limitations. THE FOREGOING STATES THE ENTIRE LIABILITY AND
-----------
OBLIGATIONS OF, AND THE EXCLUSIVE REMEDY OF, THE PARTIES, WITH RESPECT TO ANY
ALLEGED OR ACTUAL INFRINGEMENT OF PATENTS, COPYRIGHTS, TRADE SECRETS, TRADEMARKS
OR OTHER INTELLECTUAL PROPERTY RIGHTS.
(d) Product Liability. Replay Networks agrees that, if notified
-----------------
promptly in writing and given sole control of the defense and all related
settlement negotiations, it will defend MKE from any claim or action and will
hold MKE harmless for any property damage or personal injury, including death,
which arises from any alleged defect of any Products, other than for any claim
or action resulting from or arising out of any modification, enhancement, or
change in specifications of the Product specified in any written MKE design
instructions or drawings. Replay Networks shall name MKE as an additional
insured under Replay Networks' product liability policies for any Products.
12. No Other Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN,
------------------
NEITHER PARTY NOR ITS AGENT(S), REPRESENTATIVE(S) OR EMPLOYEE(S) SHALL BE LIABLE
TO THE OTHER PURSUANT TO THIS AGREEMENT FOR AMOUNTS REPRESENTING LOSS OF
REVENUES, LOSS OF PROFITS, LOSS OF BUSINESS OR INDIRECT, CONSEQUENTIAL, SPECIAL
OR PUNITIVE DAMAGES OF THE OTHER PARTY, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
EXCEPT FOR EACH PARTY'S OBLIGATIONS UNDER SECTION 11 (INDEMNITY) AND
SECTION 10 (CONFIDENTIALITY), EACH PARTY'S TOTAL LIABILITY, AND THE LIABILITY OF
ITS AGENT(S), REPRESENTATIVE(S) AND EMPLOYEE(S), FOR DAMAGES OR ALLEGED DAMAGES,
WHETHER IN CONTRACT OR TORT (INCLUDING STRICT LIABILITY AND NEGLIGENCE) WITH
RESPECT TO THIS AGREEMENT IS LIMITED TO AND SHALL NOT
<PAGE>
EXCEED THE TOTAL AMOUNTS PAID BY MKE TO REPLAY NETWORKS UNDER THIS AGREEMENT.
13. Warranty and Disclaimer; Returns.
--------------------------------
(a) Warranty and Disclaimer. Replay Networks warrants that the
-----------------------
Products will conform to Specifications and will be free from defects in
material and workmanship for a period of [***] from the date of sales to
end-users from PCEC subject to repair with no charge of labor costs, and
[***] from the date of sales to end-users from PCEC, subject to repair with
no charge for materials, parts and components; provided, however, that in no
-------- --------
event shall Replay Networks have any warranty obligation for (i) labor costs
more than [***] after shipment to PCEC, or (ii) materials, parts and components
more than [***] after shipment to PCEC. This express limited warranty does not
apply to (a) materials consigned or supplied by MKE to Replay Networks or the
Contract Manufacturers, (b) defects resulting from MKE's contributions to the
design of the Products or from MKE Requested Changes; or (c) Product that has
been abused, damaged, altered or misused by any person or entity after the title
passes to MKE. With respect to first articles, prototypes, pre-production units,
test units or similar Products, Replay Networks makes no representations or
warranties whatsoever. Upon any failure of Product to comply with the above
warranty, Replay Network's sole obligation and MKE's sole remedy, is for Replay
Networks to have the Contract Manufacturer (or Replay Networks' designated
repair vendor), at Replay Networks' option, promptly repair or replace such
Product pursuant to the provisions of Section 13(b). EXCEPT FOR THE FOREGOING
EXPRESSLY STATED WARRANTIES, REPLAY NETWORKS MAKES NO EXPRESS OR IMPLIED
WARRANTIES RELATING TO THE PRODUCTS COVERED BY THIS AGREEMENT. REPLAY NETWORKS
EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
(b) Returns.
-------
Products (or subassemblies thereof) in breach of warranty to
Section 13(a) shall be returned by MKE directly to the Contract Manufacturer (or
other point of repair specified by Replay Networks), freight pre-paid, subject
to (a) MKE notifying Replay Networks of MKE's intention to return such Products
(or subassemblies thereof), (b) MKE's completion of a failure report and (c) MKE
obtaining a return material authorization number from Replay Networks to be
displayed on the shipping container. Shipment of such repaired or replaced
Products (or subassemblies thereof) shall be at Replay Networks' expense, except
that MKE shall bear all shipping costs for Products (or subassemblies thereof)
that MKE, Replay Networks and Contract Manufacturer determine after testing are
not defective and conform to Specifications.
Alternatively, MKE may to repair such defective Products itself
at Replay Networks' cost and expense. The detailed procedure, conditions, and
acceptable costs for such warranty return, repair and replacement by MKE shall
be mutually agreed upon by the parties in writing.
14. Term and Termination.
--------------------
(a) Term. This Agreement shall become effective on the date of this
----
Agreement and shall continue until April 1, 2001.
(b) Termination. This Agreement may be terminated at any time with or
-----------
without cause by either party upon the giving of not less than [***] written
notice by registered mail to the other party. Either party may terminate this
Agreement at any time if the other party breaches any material term or condition
hereof and fails to cure such breach within [***] after notice of such breach in
the case of a default in any payment, or [***] after notice of such breach in
the case of any breach of any other material term or condition of this
Agreement, or if the other party shall be or becomes insolvent, or if either
party makes an assignment for the benefit of creditors, or if there are
instituted by or against either party proceedings in bankruptcy or under any
insolvency or similar law or for reorganization, receivership or dissolution.
[***]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
(c) Termination Liability. Neither party shall be liable in any
---------------------
manner on account of the termination or cancellation of this Agreement. The
rights of termination and cancellation as set forth herein are absolute. Both
MKE and Replay Networks are aware of the possibility of expenditures necessary
in preparing for performance hereunder and the possible losses and damages that
may occur to each in the event of termination or cancellation. Both parties
clearly understand that neither shall be liable for damages of any kind
(including but not limited to special, incidental or consequential damages) by
reason of the termination or cancellation of this Agreement except as otherwise
expressly provided herein.
(d) Obligations Upon Termination. The termination or expiration of
----------------------------
this Agreement shall in no way relieve either party from its obligations to pay
the other any sums accrued hereunder and to fulfill the performance under any
accepted Purchase Order regarding the Products in existence prior to such
termination or expiration.
(e) Survival of Certain Provisions. Notwithstanding anything to the
------------------------------
contrary in this Agreement, the following sections shall survive termination of
this Agreement: 1, 8, 9, 10, 11, 12, 13, 14 and 15.
15. Miscellaneous.
-------------
(a) Amendments and Waivers. Any term of this Agreement may be amended
----------------------
or waived only with the written consent of the parties or their respective
successors and assigns. Any amendment or waiver effected in accordance with this
Section 15(a) shall be binding upon the parties and their respective successors
and assigns.
(b) Successors and Assigns. Neither party shall have the right to
----------------------
assign or otherwise transfer its rights or obligations under this Agreement
except with the prior written consent of the other party, not to be unreasonably
withheld. Subject to the foregoing, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective permitted
successors and assigns of the parties. 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.
(c) Governing Law; Jurisdiction. This Agreement and all acts and
---------------------------
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of California and the United States, without giving effect to
principles of conflicts of law and without regard to the United Nations
Convention on Contracts for the International Sale of Goods. Each of the parties
to this Agreement consents to the exclusive jurisdiction and venue of the courts
of the state and federal courts of Santa Clara County, California for actions
related to the subject matter of this Agreement.
(d) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(e) 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.
(f) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by overnight delivery service with tracking capabilities with
costs prepaid, or three (3) days after being deposited in the regular mail as
certified or registered mail (airmail if sent internationally) with postage
prepaid and return receipt requested, if such notice is addressed to the party
to be notified at such party's address or facsimile number as set forth below,
or as subsequently modified by written notice:
If to Replay Networks:
Replay Networks, Inc.
<PAGE>
1945 Charleston Road
Mountain View, California 94303
Atten: Legal Department
Tel. 650-210-1000
Fax 650-964-4847
If to MKE:
Matsushita-Kotobuki Electronics Industries, Ltd.
8-1 Furujin-machi
Takamatsu
Kagawa prefecture
Japan
Attn: Legal Department
Tel. 81-87-851-7228
Fax. 81-87-851-1047
(g) Severability. If one or more provisions of this Agreement are
------------
held to be illegal or unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith, in order to maintain the economic
position enjoyed by each party as close as possible to that under the provision
rendered unenforceable. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision within five (5)
business days, then (i) such provision shall be limited or eliminated to the
minimum extent necessary to be enforceable, (ii) the balance of the Agreement
shall be interpreted as if such provision were limited or eliminated as the case
may be and (iii) the balance of the Agreement shall be enforceable in accordance
with its terms.
(h) Entire Agreement. This Agreement is the product of both of the
----------------
parties hereto, and constitutes the entire agreement between such parties
pertaining to the subject matter hereof, and merges all prior negotiations and
drafts of the parties with regard to the transactions contemplated herein. Any
and all other written or oral agreements existing between the parties hereto
regarding such transactions are expressly canceled.
(i) Independent Contractors. The relationship of Replay Networks and
-----------------------
MKE established by this Agreement is that of independent contractors, and
nothing contained in this Agreement will be construed (i) to give either party
the power to direct and control the day-to-day activities of the other, (ii) to
constitute the parties as partners, joint ventures, co-owners or otherwise as
participants in a joint or common undertaking, or (iii) to allow either party to
create or assume any obligation on behalf of the other for any purpose
whatsoever.
(j) Force Majeure. If the performance of this Agreement or any
-------------
obligations hereunder is prevented, restricted or interfered with by reason of
fire or other casualty or accident, strikes or labor disputes, war or other
violence, any law, order, proclamation, regulation, ordinance, demand or
requirement of any government agency, or any other act or condition beyond the
reasonable control of the parties hereto, the party so affected upon giving
prompt notice to the other parties shall be excused from such performance during
such prevention, restriction or interference.
(k) Advice of Legal Counsel. Each party acknowledges and represents
-----------------------
that, in executing this Agreement, it has had the opportunity to seek advice as
to its legal rights from legal counsel and that the person signing on its behalf
has read and understood all of the terms and provisions of this Agreement. This
Agreement shall not be construed against any party by reason of the drafting or
preparation thereof.
The parties have executed this Agreement as of the date first set forth
above.
<PAGE>
MATSUSHITA-KOTOBUKI REPLAY NETWORKS, INC.
ELECTRONIC INDUSTRIES, LTD.
By: /s/ Takao Kanamura By: /s/ Kim LeMasters
--------------------------- ---------------------------
Name: Takao Kanamura Name: Kim LeMasters
-------------------------- ---------------------------
(print) (print)
Title: Senior Management Director Title: Chief Executive Officer
-------------------------- ---------------------------
Date: December 20, 1999 Date: December 20, 1999
-------------------------- ---------------------------
<PAGE>
Exhibit A
---------
Products and Pricing
I. First Period - Products shipped from [***] to [***]
Product Price Projected MSRP
- ------- ----- --------------
PV-HS1000 (20 GB Hard Drive) [***] [***]
PV-HS2000 (30 GB Hard Drive)* [***] [***]
Guaranteed Minimum Purchase Volume: [***] Product units**
Target Maximum Purchase Volume: [***] Product units**
* This Product will be available on [***].
**Guarantee minimum and target maximum volumes apply to all Products and any
products manufactured by MKE containing Replay Software that support the Replay
Network Service ("MKE Products").
II. Second Period - Products shipped from [***] to [***]
MKE and Replay Networks will meet prior to [***] to negotiate in good
faith the pricing and guaranteed minimum and maximum purchase volumes for each
Product or MKE Product to be sold during the second period. In determining such
pricing, the parties shall consider, for each Product or MKE Product: (a) [***],
(b) [***], and (c) [***]. The agreed upon pricing, minimum and maximum purchase
volumes for each Product or MKE Product shall be attached to this Exhibit A upon
the completion of such negotiations.
[***]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
Exhibit B
---------
Form of Purchase Order
<PAGE>
Exhibit C
---------
Acceptable Quality Levels (AQL)
1.1. Defect Classifications
The following definitions and defect classifications shall be used when defining
a Hard Disk Recorder (hereinafter called HDR) defect:
Defect A definite HDR characteristic one or more defect.
Defective HDR A HDR containing one or more Defect.
Note: A HDR containing Defects in more than one (1)
category shall be classified as being defective in the
most severe classification.
Fitness for Use To be fit for use, a HDR must be free of Safety, Critical
and Major Defects.
Safety Defect [***] A Defect that would cause the HDR to be unsafe, in
violation of an applicable safety code or which, when
connected with another piece of equipment (e.g., video
source or monitor), would materially damage said connected
equipment.
Critical Defect [***] A Defect that would cause the HDR to be inoperative.
Major Defect [***] A Defect which reduces materially the usability of the
HDR, yields unsatisfactory results or detracts from the
appearance of the HDR and is likely to leave customer
dissatisfied.
Minor Defect [***] A Defect which does not affect fitness for use, but one
which should be noted for corrective action by the
Supplier.
2. Lot Acceptance
(a) Lot size: [***] units typical
(b) Lots rejected for Major Defects may be reconsidered for acceptance upon
notification of MKE and remedial action implemented by Replay
Networks, Inc.
[***]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
TABLE FOR INSPECTION FOR OUT-GOING PRODUCT MODEL;PV-HS1000
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ITEMS CRITERIA DECISION NOTES
----------------------
CRITICAL MAJOR MINOR
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. PACKING A
1-1 PACKING CASE NOTICEABLE DAMAGES [***]
INCORRECT INDICATIONS [***]
1-2 PACKING SPEC
MIS-PRINTINGS [***]
OUT-OF-SPEC ISSUES [***]
MIXTURE OF ALIEN OBJECTS [***]
- ---------------------------------------------------------------------------------------------------------------------------------
2. INCLUDED ACCESSORIES A
2-1 SUPPLIED ACCESSORIES SHORTAGE, MIS-INSERTION, MIXTURE [***]
OF ALIEN OBJECTS
DIRT OR STAIN
- ---------------------------------------------------------------------------------------------------------------------------------
3. OUTER APPEARANCE A
3-1 GENERAL OUTER APPEARANCE NOTICEABLE DIRT OR STAIN, DAMAGES [***]
3-2 LABEL SHORTAGE, MIS-LOCATION [***]
MIS-PRINTING, DIRT OR STAIN [***]
- ---------------------------------------------------------------------------------------------------------------------------------
4. FUNCTION
4-1 POWER ON/OFF BUTTON NO FUNCTION [***]
4-2 REMOTE HDR FUNCTION NO FUNCTION [***]
4-3 REMOTE OTHER FUNCTION NO FUNCTION [***]
- ---------------------------------------------------------------------------------------------------------------------------------
5. LED INDICATION
5-1 POWER (G) INCORRECT INDICATION [***]
5-2 RECORDING (R) INCORRECT INDICATION [***]
5-3 NEW CONTENT INCORRECT INDICATION [***]
- ---------------------------------------------------------------------------------------------------------------------------------
6. INPUT/OUTPUT TERMINALS A
6-1 ANT/CATV IN NO VIDEO, OR NO COLOR, OR NO AUDIO [***]
TROUBLES ON VIDEO OR AUDIO [***]
(POOR, EXCESSIVE, NOISY, DISTORTED)
6-2 LINE1, LIN2, S-VIDEO NO VIDEO, OR NO COLOR, OR NO AUDIO [***]
TROUBLES ON VIDEO OR AUDIO [***]
(POOR, EXCESSIVE, NOISY, DISTORTED)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[***] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
7. CONTROL TERMINALS
7-1 IR BLASTER PORT NO FUNCTION (NO CONTROLLING [***]
A DBS AND CABLE BOX WITH IR
CONTROL)
7-2 SERIAL CONTROL NO FUNCTION (NO LINKING A DSS) [***]
7-3 TEL LINE NO FUNCTION (NO CONNECTING TO
THE REPLAY NETWORKS SERVICE) [***]
- ---------------------------------------------------------------------------------------------------------
</TABLE>
A = Classification subject to mutually agreed upon specification.
[***] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT D
---------
LETTER AGREEMENT
This Letter Agreement is entered into as of , 1999 by and among Replay
Networks Inc. ("Replay Networks"), Matsushita-Kotobuki Electronics Industries,
Ltd. ("MKE"), and Flextronics International ("Flextronics").
Replay Networks and MKE have entered into the OEM Distribution Agreement ("OEM
Agreement") in which MKE will purchase ReplayTV 3000 ("Products") manufactured
by Flextronics from Replay Networks.
Replay Networks, MKE and Flextronics desire to establish certain procedure and
conditions with respect to the cancellation of purchase orders for the Products
under the OEM Agreement.
The parties undersigned acknowledge and agree as follows:
1. MKE may not cancel any part of any purchase order of Products issued by
MKE and accepted by Replay Networks under the OEM Agreement ("Purchase
Order") without Replay Networks' prior written consent, which consent will
not be unreasonably withheld.
2. In the event MKE cancels any Purchase Order, MKE will reimburse reasonable
cancellation charges directly to Flextronics. Flectronics shall invoice
MKE such cancellation charges based on actual costs supported by
documentation, which costs will be identified by Flextronics within [***]
after said cancellation. For the purpose of this Addendum, said actual
costs are defined as the costs of materials, together with related
restocking charges, which have been procured specifically for Products and
expected to be built for MKE on any MKE Purchase Order(s) accepted by
Replay Networks, and any production related charges due to cancellation of
such Purchase Order(s). Upon determination of the cancellation charges,
MKE may accept delivery of Products under the terms of the Purchase Order
in lieu of paying such cancellation charges.
3. MKE shall promptly notify Flextronics and Replay Networks in the event of
any cancellation of any Purchase Order. MKE shall not be responsible for
any portion of such cancellation charge arising from any delay by
Flextronics in stopping or ceasing procurement of any materials, or
manufacturing of the Products, and Flextronics shall bear such costs.
Replay Networks, Inc. Matsushita-Kotobuki Electronics
Industries, Ltd.
By:____________________ By:_________________________
Title: Title:
Flextronics International
By:____________________ .
Title:
[***]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.15
Flextronics International Manufacturing Contract
This Manufacturing Agreement ("Agreement") is entered into this 3rd day of
November, 1998 by and between Replay Networks having its place of business at
1003 Ewell Court, Palo Alto, California 94303 ("Replay Networks") and
Flextronics International USA, Inc., 2090 Fortune Drive, San Jose, CA 95131
("Flextronics").
Replay Networks has created a market for Replay Networks' Products and is solely
responsible for the sales and marketing of the Products. Flextronics has
developed processes and practices for manufacturing products for many different
electronic applications and at Replay Networks' request desires to manufacture
Replay Networks' Products in accordance with Replay Networks' specifications.
Replay Networks acknowledges that Flextronics' expertise is manufacturing and
that Flextronics' responsibility related to the Replay Networks' Products is
limited to this extent. The parties agree as follows:
1.0 WORK LICENSE
Flextronics agrees to use reasonable commercial efforts to perform the work
(hereinafter "Work") pursuant to purchase orders or changes thereto issued by
Replay Networks and accepted by Flextronics. Work shall mean to procure
components, materials, equipment and other supplies and to manufacture,
assemble, test, and products (hereinafter "Products") pursuant to detailed
written specifications for each such Product which are provided by Replay
Networks and accepted by Flextronics and to deliver such Products. For each
Product or revision thereof, written specifications shall include but are not
limited to bill of materials, schematics, assembly drawings, process
documentation, test specifications, current revision number, and approved vendor
list (hereinafter "Specifications") as attached hereto.
Flextronics is granted by Replay Networks a non-exclusive license during the
term of this Agreement to use all of Replay Networks' patents, trade secrets and
other intellectual property required to perform Flextronics' obligations under
this Agreement.
2.0 FORECASTS, ORDERS, MATERIAL PROCUREMENT
2.1 Forecast. Replay Networks shall provide Flextronics, on a [***] basis, a
rolling [***] Product order forecast.
2.2 Purchase Orders. Replay Networks will issue written purchase orders [***]
per calendar [***] which specify all Work to be completed within a minimum [***]
period commencing on the date of the purchase order. Each purchase order shall
reference this Agreement, and the applicable written Specifications as described
in Section 1.0. Purchase orders shall normally be deemed accepted by
Flextronics, provided however that Flextronics may reject any order that
represents a significant deviation from Replay Networks' historical ordering
volumes or shipment dates. Flextronics shall notify Replay Networks of rejection
of any purchase order within [***] working days of receipt of such order.
Replay Networks may use its standard purchase order form to release items,
quantities, prices, schedules, change notices, specifications, or other notice
provided for hereunder. The parties agree that the terms and conditions
contained in this Agreement shall prevail over any terms and conditions of any
purchase order, acknowledgment form or other instrument.
2.3 Material Procurement. Replay Networks' accepted purchase orders will
constitute authorization for Flextronics to procure, using standard purchasing
practices, the components, materials and supplies necessary for the manufacture
of Products ("Inventory") covered by such purchase orders.
In addition, Replay Networks authorizes Flextronics to purchase, in amounts
beyond the amount necessary to fill accepted purchase orders, the components,
materials, and supplies: (i) with lead times greater than [***] days at
the time the order is placed ("Long Lead Time Components") plus [***] to
account for the order, shipment, receipt and manufacturing time and, (ii)
purchased in quantities above the required amount in order to achieve price
targets ("Economic Order Inventory"), and (iii) purchased in excess of
requirements because of minimum let sizes available from manufacturers ("Minimum
Order Inventory"). Together these are called "Special Inventory".
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE 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 SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
Flextronics may purchase Long Lead Time Components sufficient to meet all
deliveries under the purchase orders and Product forecast in effect at the time
the order with the supplier is placed, and may reasonably purchase Minimum Order
Inventory even if greater than the amount necessary to meet purchase orders and
Product forecast. Economic Order Inventory shall be purchased by Flextronics
only with the prior approval of Replay Networks. Flextronics may, from time to
time, hold Long Lead Time Components and finished goods in inventory to increase
Replay Networks flexibility. The components and quantities of all such
inventory will be documented in a separate letter and signed by both Flextronics
and Replay Networks.
Replay Networks will be responsible for all Inventory and Special Inventory
purchased by Flextronics under this Section 2.1 under the conditions provided
elsewhere in this Agreement.
3.0 SHIPMENTS, SCHEDULE CHANGE, CANCELLATION
3.1 Shipments. All Products delivered pursuant to the terms of this Agreement
---------
shall be suitably packed for shipment in accordance with Replay Networks'
Specifications, marked for shipment to Replay Networks' destination specified in
the applicable purchase order and delivered.. Shipment will be F.O.B.
Flextronics' facility at which time risk of loss and title will pass to Replay
Networks. All freight, insurance and other shipping expenses, as well as any
special packing expenses not included in the original price quotation for the
Products, will be paid by Replay Networks.
3.2 Quantity Increases and Shipment Schedule Changes. For any accepted
------------------------------------------------
purchase order, Replay Networks may (i) increase the quantity of Products or
(ii) reschedule the quantity of Products and their shipment date as provided in
the table below:
Maximum Allowable Variance From Purchase Order Quantities/Shipment Dates
------------------------------------------------------------------------
# of days before Allowable Maximum Maximum
Shipment Date Quantity Reschedule Reschedule
on Purchase Order Increases Quantity Period
----------------- --------- ---------- ----------
[***] [***] [***] [***]
[***] [***] [***] [***]
[***] [***] [***] [***]
[***] [***] [***] [***]
Any purchase order quantities increased or rescheduled pursuant to this Section
may not be subsequently increased or rescheduled without the prior written
approval of Flextronics. All other changes in quantity or shipment date require
Flextronics' prior written consent and shall be subject to an inventory carrying
charge of [***] per month for finished Product, and Inventory and Special
Inventory procured to support the original schedule. Allowable quantity
increases are subject to material availability. Flextronics will use reasonable
commercial efforts to meet quantity increases. If there are extra costs to meet
a schedule increase in excess of the above limits, Flextronics will inform
Replay Networks for its approval in advance.
3.3 Cancellation. Replay Networks may not cancel any portion of Product
------------
quantity of an accepted purchase order without Flextronics' prior written
approval, not to be unreasonably withheld. If the parties agree upon a
cancellation, Replay Networks will pay Flextronics for Products, Inventory, and
Special Inventory affected by the cancellation as follows: (i) [***] of the
contract price for all finished Products in Flextronics' possession, (ii) [***]
of the cost of all Inventory and Special Inventory in Flextronics' possession
and not returnable to the vendor or usable for other Replay Networkss, whether
in raw form or work in process, less the salvage value thereof, (iii) [***] of
the cost of all Inventory and Special Inventory on order and not cancelable,
(iv) [***] vendor cancellation charges incurred with respect to Inventory and
Special Inventory accepted for cancellation or return by the vendor, and (v)
expenses incurred by Flextronics related to labor and equipment specifically put
in place to support Replay Networks' purchase orders.
Flextronics will use reasonable commercial efforts to return unused Inventory
and Special Inventory and to cancel pending orders for such inventory, and to
otherwise mitigate the amounts payable by Replay Networks.
[***] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
If the forecast for any period is less than the previous forecast supplied over
the same period, that amount will be considered canceled and Replay Networks
will be responsible for any Special Inventory as set forth in the specific
letter described in Section 2.3.
4.0 ENGINEERING CHANGES
Replay Networks may request, in writing, that Flextronics incorporate
engineering changes into the Product. Such request will include a description
of the proposed engineering change sufficient to permit Flextronics to evaluate
its feasibility and cost. Flextronics' evaluation shall be in writing and shall
state the costs and time of implementation and the impact on the delivery
schedule and pricing of the Product. Flextronics will not be obligated to
proceed with the engineering change until the parties have agreed upon the
changes to the Product's Specifications, delivery schedule and Product pricing
and upon the implementation costs to be borne by the Replay Networks including,
without limitation, the cost of Inventory and Special Inventory on-hand and on-
order that becomes obsolete.
5.0 TOOLING, NON-RECURRING EXPENSES, SOFTWARE
Flextronics shall provide non-Product specific tooling at its expense. Replay
Networks shall pay for or obtain and consign to Flextronics any Product specific
tooling and other reasonably necessary non-recurring expenses, to be set forth
in Flextronics' quotation. All software which Replay Networks provides to
Flextronics is and shall remain the property of Replay Networks. Replay
Networks grants Flextronics a license to copy, modify and use such software
required to perform Flextronics' obligations under this Agreement. All
software developed by Flextronics to support the process tooling or otherwise
shall be and remain the property of Flextronics.
6.0 PRODUCT ACCEPTANCE AND WARRANTIES
6.1 Product Acceptance. Flextronics will build, inspect and test Products for
------------------
Replay Networks and deliver them to Replay's on-site Product Inventory Storage
Area at which time title will pass. Flextronics will provide a certificate of
conformance that the products meet the parties joint Product acceptance
criteria. Replay Networks will have [***] days after shipment of the Product
to review the report and come to Flextronics to audit the Product. If no audit
is performed within the [***] days the Product will be deemed accepted.
Products shipped to a location other than the on-site Replay Product Inventory
Storage area will be inspected and tested as required by Replay Networks within
[***] days of receipt. If Products are found to be defective in material or
workmanship, Replay Networks has the right to reject such Products during said
period. Products not rejected during said period will be deemed accepted.
Replay Networks may return defective Products, freight collect, after obtaining
a return material authorization number from Flextronics to be displayed on the
shipping container and completing a failure report. Rejected Products will be
promptly repaired or replaced, at Flextronics' option, and returned freight pre-
paid. If the Product is source inspected by Replay Networks prior to shipment,
Replay Networks will inspect goods within [***] days of its request date.
6.2 Express Limited Warranty. Flextronics warrants that the Products will
------------------------
conform to Replay Networks' applicable Specifications and will be free from
defects in workmanship for a period of [***] days from the date of shipment.
Materials are warranted to the same extent that the original manufacturer
warrants the materials. This express limited warranty does not apply to (a)
materials consigned or supplied by Replay Networks to Flextronics; (b) defects
resulting from Replay Networks' design of the Products; (c) any other defects;
or (d) Product that has been abused, damaged, altered or misused by any person
or entity after title passes to Replay Networks. With respect to first articles,
prototypes, pre-production units, test units or other similar Products,
Flextronics makes no representations or warranties whatsoever. Notwithstanding
anything else in this Agreement, Flextronics assumes no liability for or
obligation related to the performance, accuracy, specifications, failure to meet
specifications or defects of or due to tooling, designs or instructions produced
or supplied by Replay Networks and Replay Networks shall be liable for costs or
expenses incurred by Flextronics related thereto. Upon any failure of a Product
to comply with the above warranty, Flextronics' sole obligation, and Replay
Networks' sole remedy, is for Flextronics, at its option, to promptly repair or
replace such unit and return it to Replay Networks freight collect. Replay
Networks shall return Products covered by the warranty freight pre-paid after
completing a failure report and obtaining a return material authorization number
from Flextronics to be displayed on the shipping container.
FLEXTRONICS MAKES NO OTHER WARRANTIES OR CONDITIONS ON THE PRODUCTS, EXPRESS,
IMPLIED, STATUTORY, OR IN ANY OTHER PROVISION OF THIS AGREEMENT OR COMMUNICATION
WITH
[***] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
REPLAY NETWORKS, AND FLEXTRONICS SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OR
CONDITION OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7.0 PAYMENT TERMS, ADDITIONAL COSTS AND PRICE CHANGES
7.1 Price and Payment Terms. The price for Products to be manufactured will be
-----------------------
set from time to time through purchase orders issued by Replay Networks and
accepted by Flextronics. All prices quoted are exclusive of federal, state and
local excise, sales, use and similar taxes, and any duties, and Replay Networks
shall be responsible for all such items. Payment for any Products, services or
other costs to be paid by Replay Networks hereunder is due [***] days net
from the date of invoice and shall be made in lawful U.S. currency. Replay
Networks agrees to pay [***] monthly interest on all late payments. Furthermore,
if Replay Networks is late with payments, or Flextronics has reasonable cause to
believe Replay Networks may not be able to pay, Flextronics may require
prepayment or delay shipments or suspend work until assurances of payment
satisfactory to Flextronics are received.
7.2 Letter of Credit. Upon Flextronics' request at any time during the term of
----------------
this Agreement, Replay Networks agrees to obtain and maintain a stand-by letter
of credit (LOC) to minimize the financial risk to Flextronics for its
performance of Work under this Agreement. The LOC shall be for a minimum period
of time of [***] and shall be for a total amount which is equal to [***]. The
calculation shall be based upon the forecast provided by Replay Networks
pursuant to Section 2.1. The draw-down procedures under the LOC shall be
determined solely by Flextronics. Flextronics will, in good faith, review Replay
Networks' creditworthiness periodically and may provide more favorable terms
once it feels it is prudent to do so. Replay Networks agrees to provide all
necessary financial information required for Flextronics to make a proper
assessment of creditworthiness.
7.3 Additional Costs. Replay Networks is responsible for [***]. Replay
----------------
Networks caused delays as a result of consigned inventory will result in a
special charge to the Replay Networks of [***] of the sales price of the
Product for each month, or part thereof, delayed.
7.4 Price Changes. The price of Products to Replay Networks may be increased
-------------
by Flextronics if (a) the market price of fuels, materials, raw materials,
equipment, labor and other production costs, increase beyond normal variations
in pricing as demonstrated by Flextronics, and (b) the parties agree to the
increase after good faith negotiation.
7.5 Cost Reductions. Flextronics agrees to seek ways to reduce the cost of
---------------
manufacturing Products by methods such as elimination of components, obtaining
alternate sources of materials, redefinition of Specifications, and improved
assembly or test methods. Upon implementation of such ways which have been
initiated by Flextronics, Flextronics will receive [***] of the demonstrated
cost reduction. Replay Networks will receive [***] of the demonstrated cost
reduction upon implementation of such ways initiated by Replay Networks. Replay
Networks and Flextronics will review costs on a quarterly basis.
8.0 TERM AND TERMINATION
8.1 Term. The term of this Agreement shall commence on the date hereof above
----
and shall continue for one (1) year thereafter until terminated as provided in
Section 8.2 or 10.9. After the expiration of the initial term hereunder (unless
this Agreement has been terminated) this Agreement shall be automatically
renewed for separate but successive one-year terms.
8.2 Termination. This Agreement may be terminated by either party (a) for any
-----------
reason upon [***] days written notice to the other party, or (b) if the other
party defaults in any payment to the terminating party and such default
continues without a cure for a period of [***] days after the delivery of
written notice thereof by the terminating party to the other party, or (c) if
the other party defaults in the performance of any other material term
[***] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
or condition of this Agreement and such default continues unremedied for a
period of [***] days after the delivery of written notice thereof by the
terminating party to the other party. Termination of this Agreement for any
reason shall not affect the obligations of either party which exist as of the
date of termination. Upon termination for any reason whatsoever, Replay Networks
shall be responsible for the finished Products, Inventory, and Special Inventory
in existence at the date of termination in the same manner as for cancellations
as set forth in Section 3.3. Notwithstanding termination of this Agreement,
Sections 6.2, 9.0, and 10.1 shall survive said termination.
9.0 LIABILITY LIMITATION
9.1 Patents, Copyrights, Trade Secrets, Other Proprietary Rights. Replay
------------------------------------------------------------
Networks shall defend, indemnify and hold harmless Flextronics from all claims,
costs, damages, judgments and attorney's fees resulting from or arising out of
any alleged and/or actual infringement or other violation of any patents, patent
rights, trademarks, trademark rights, trade names, trade name rights,
copyrights, trade secrets, proprietary rights and processes or other such rights
related to the Products. Flextronics shall promptly notify Replay Networks in
writing of the initiation of any such claims.
THE FOREGOING STATES THE ENTIRE LIABILITY OF THE PARTIES TO EACH OTHER
CONCERNING INFRINGEMENT OF PATENT, COPYRIGHT, TRADE SECRET OR OTHER INTELLECTUAL
PROPERTY RIGHTS.
9.2 Product Liability. Replay Networks agrees that, if notified promptly in
-----------------
writing and given sole control of the defense and all related settlement
negotiations, it will defend Flextronics from any claim or action and will hold
Flextronics harmless from any loss, damage or injury, including death, which
arises from any alleged defect of any Products. Replay Networks shall name
Flextronics as an additional insured under Replay Networks' product liability
policies for any Products.
9.3 No Other Liability. EXCEPT FOR THE EXPRESS WARRANTIES CREATED UNDER THIS
------------------
AGREEMENT AND EXCEPT AS SET FORTH OTHERWISE IN THIS AGREEMENT, IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INCIDENTAL, CONSEQUENTIAL, SPECIAL
OR PUNITIVE DAMAGES OF ANY KIND OR NATURE ARISING OUT OF THIS AGREEMENT OR THE
SALE OF PRODUCTS, WHETHER SUCH LIABILITY IS ASSERTED ON THE BASIS OF CONTRACT,
TORT (INCLUDING THE POSSIBILITY OF NEGLIGENCE OR STRICT LIABILITY), OR
OTHERWISE, EVEN IF THE PARTY HAS BEEN WARNED OF THE POSSIBILITY OF ANY SUCH LOSS
OR DAMAGE, AND EVEN IF ANY OF THE LIMITED REMEDIES IN THIS AGREEMENT FAIL OF
THEIR ESSENTIAL PURPOSE.
10.0 MISCELLANEOUS
10.1 Confidentiality. All written information and data exchanged between the
---------------
parties for the purpose of enabling Flextronics to manufacture and deliver
Products under this Agreement that is marked "Confidential" or the like, shall
be deemed to be Confidential Information. The party which receives such
Confidential Information agrees not to disclose it directly or indirectly to any
third party without the prior written consent of the disclosing party.
Confidential Information disclosed pursuant to this Agreement shall be
maintained confidential for a period of [***] after the disclosure thereof.
10.2 Entire Agreement. This Agreement constitutes the entire agreement between
----------------
the Parties with respect to the transactions contemplated hereby and supersedes
all prior agreements and understandings between the parties relating to such
transactions. Replay Networks shall hold the existence and terms of this
Agreement confidential, unless it obtains Flextronics' express written consent
otherwise. In all respects, this Agreement shall govern, and any other
documents including, without limitation, preprinted terms and conditions on
Replay Networks' purchase orders shall be of no effect.
10.3 Amendments. This Agreement may be amended only by written consent of both
----------
parties.
10.4 Independent Contractor. Neither party shall, for any purpose, be deemed to
----------------------
be an agent of the other party and the relationship between the parties shall
only be that of independent contractors. Neither party shall have any right or
authority to assume or create any obligations or to make any representations or
warranties on behalf of any other party, whether express or implied, or to bind
the other party in any respect whatsoever.
[***] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
10.5 Expenses. In the event a dispute between the parties hereunder with
--------
respect to this Agreement must be resolved by litigation or other proceeding or
a party must engage an attorney to enforce its right hereunder, the prevailing
party shall be entitled to receive reimbursement for all associated reasonable
costs and expenses (including, without limitation, attorneys fees) from the
other party.
10.6 Security Interest. Until the purchase price and all other charges payable
-----------------
to Flextronics hereunder have been received in full, Flextronics hereby retains
and Replay Networks hereby grants to Flextronics a security interest in the
Products delivered to Replay Networks and any proceeds therefrom up to the total
amounts owed to Flextronics. Replay Networks agrees to promptly execute any
documents requested by Flextronics to perfect and protect such security
interest.
10.7 Governing Law. This Agreement shall be governed by and construed under the
-------------
laws of the State of California, excluding its choice of law principles. The
parties consent to the exclusive jurisdiction of the state and Federal courts in
Santa Clara County, California.
10.8 Successors, Assignment. This Agreements shall be binding upon and inure to
----------------------
the benefit of the parties hereto and their respective successors, assigns and
legal representatives. Neither party shall have the right to assign or
otherwise transfer its rights or obligations under this Agreement except with
the prior written consent of the other party, not to be unreasonably withheld.
10.9 Force Majeure. In the event that either party is prevented from
-------------
performing or is unable to perform any of its obligations under this Agreement
(other than a payment obligation) due to any Act of God, fire, casualty, flood,
earthquake, war, strike, lockout, epidemic, destruction of production
facilities, riot, insurrection, material unavailability, or any other cause
beyond the reasonable control of the party invoking this section, and if such
party shall have used its commercially reasonable efforts to mitigate its
effects, such party shall give prompt written notice to the other party, its
performance shall be excused, and the time for the performance shall be extended
for the period of delay or inability to perform due to such occurrences.
Regardless of the excuse of Force Majeure, if such party is not able to perform
within [***] days after such event, the other party may terminate the
Agreement. Termination of this Agreement shall not affect the obligations of
either party which exist as of the date of termination.
ACCEPTED AND AGREED TO:
REPLAY NETWORKS: FLEXTRONICS INTERNATIONAL USA, INC.:
/s/ Anthony Wood /s/ Michael McNamara
- ---------------------------- ------------------------------------
By: Anthony Wood By: Michael McNamara
------------------------- ---------------------------------
Title: CEO Title: President
---------------------- ------------------------------
[***] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.16
Tribune Media Services
----------------------
435 N. Michigan Ave., Suite 1500
--------------------------------
Chicago, Illinois 60611
-----------------------
312-222-8650
------------
TRIBUNE MEDIA SERVICES TELEVISION LISTINGS AGREEMENT
This Agreement is made this June 1, 1998, between Tribune Media Services, Inc.,
(TMS), a Delaware corporation d/b/a TMS TV Listings and Pacific Digital Media,
Inc. (Publisher). TMS TV Listings herein grants to Publisher the non-exclusive
right and privilege of using TMS television program listings information within
its "Product" (as defined in Addendum 1) located at 1003 Elwell Court, Palo
Alto, California 94303 on terms and conditions set forth herein.
1. TMS shall provide to Publisher [***] television programming listings as
defined in Addendum 2. The service shall be delivered to Publisher over
communication equipment owned by Publisher at Publisher's premises.
2. (a) Publisher shall pay to TMS [***] fees as described in Addendum 4
for services provided hereunder. TMS will bill Publisher [***] and invoices
shall be payable upon receipt.
(b) This rate will increase [***] by [***] in successive years of this
Agreement with the first increase on [***].
3. Publisher shall pay all sums accruing in each [***] on or before the
fifteenth day of the following [***]. Should it become necessary to institute
collection proceedings, Publisher agrees to pay all costs, including reasonable
attorneys' fees, whether or not suit is filed. Publisher consents to the
personal jurisdiction of the courts of Illinois for all purposes and consents to
venue in the courts of Cook County, Illinois. Any objections as to jurisdiction
and venue being expressly waived.
4. This Agreement shall continue for sixteen (16) months from June 1,
1998, and shall renew itself continuously for further terms of one (1) year each
unless either party notifies the other by certified letter received by Publisher
at 1003 Elwell Court, Palo Alto, California 94303 or by TMS at Tribune Media
Services, Inc., 435 N. Michigan Avenue, Suite 1500, Chicago, Illinois 60611 at
least [***] before the end of the then current term of its desire to terminate,
in which event this agreement shall terminate at the end of the then current
term. TMS may also terminate this agreement if any invoice specified in Clause
Two above is not paid within [***] following receipt by Publisher.
Notwithstanding the above, Publisher shall have the right to terminate this
Agreement upon [***] notice to TMS if TMS fails to perform the services it has
agreed to perform and if such failure continues for [***] days after Publisher
gives TMS notice of the failure.
5. Publisher agrees to review all TMS television program listing
transmissions and immediately notify TMS of any changes necessary to Publisher's
format or any mistakes, errors or omissions in data. TMS shall not be liable for
any loss or damage arising to Publisher by reason of nondelivery, delay or
interruption in delivery of data due to circumstances beyond the control of TMS,
which shall include without limitation, failure of communication equipment. IN
NO EVENT SHALL TMS' LIABILITY TO PUBLISHER OR ANY OTHER PARTY FOR MISTAKES,
ERRORS, OR OMISSIONS IN DATA, FOR NONDELIVERY OR LATE DELIVERY OF DATA, EXCEED
THE AMOUNT PAYABLE BY PUBLISHER TO TMS FOR THE DATA IN WHICH THE MISTAKE, ERROR,
OR OMISSION OCCURRED, OR FOR THE DATA WHICH WAS NOT DELIVERED OR WAS NOT
DELIVERED ON A TIMELY BASIS. IN NO EVENT SHALL TMS BE LIABLE FOR INCIDENTAL,
CONSEQUENTIAL, OR PUNITIVE DAMAGES OR LOST-PROFIT DAMAGES.
6. TMS and Publisher (each, "the Indemnifying Party") shall indemnify and
hold the other party and its Affiliates (as defined in this Agreement) and their
respective employees, officers and directors (the Indemnified Party(ies))
harmless from and against any and all claims, damages, costs, expenses and other
liabilities (whether under a theory of strict liability or otherwise) by third
parties incurred by, or threatened, imposed or filed against, any Indemnified
Party (including, without limitation,(a) costs of investigation and defense,
which shall include without limitation court costs and reasonable attorney and
other expert and third party fees and (b) to the extent permitted by Law, any
fines, penalties and forfeitures in connection with any proceedings against an
Indemnified Party) caused by (i) any breach of this Agreement by the
Indemnifying Party; and (ii) any personal injury, property
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE 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 SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
damage or physical damage or any other harm or damage, to any person resulting
from or arising out of or related to the Indemnifying Party's performance or
misperformance of any obligation under this Agreement; and (iii) an actual or
alleged infringement of any patent, copyright, trademark, servicemark or other
intellectual property right and/or interest (including without limitation,
misappropriation of trade secrets) arising out of any action or inaction by an
Indemnified Party and/or its agents or employees with respect to its obligations
under this Agreement or any portion thereof, or any and all other materials or
Services furnished directly or indirectly to, or the use thereof by, the
Indemnifying Party(ies) (Infringement Claim(s)). The indemnification obligations
under this Section 6 expressly include an obligation to indemnify the
Indemnified Party for the actions or inactions of any and all agents,
contractors, employees, officers, directors, subcontractors or other persons
working for, under the director of, or on behalf of the Indemnifying Party with
respect to its obligations under this Agreement. Affiliate(s) mean any
corporation or other entity controlling, or controlled by, or under common
control with, a person, as the case may be.
7. Publisher shall not use any of the data provided by TMS hereunder
except for use within its "Product."
8. CONFIDENTIAL/PROPRIETARY INFORMATION
a. Licensed Data as Confidential/Proprietary Information. The parties
acknowledge that the Licensed Data listed in Addendum 2 received by Publisher
from TMS will be deemed Confidential/Proprietary Information, the use and
disclosure of which is restricted by this Section.
b. Security Conditions. Confidential/Proprietary Information will be
maintained under secure conditions by Publisher using reasonable security
measures but in any event (a) not less than the same security procedures used by
Publisher for the protection of its own Confidential/Proprietary Information of
a similar kind, and (b) any specific security measures required by this
Agreement.
c. Non-Disclosure Obligation.
i. Except as may be otherwise permitted by this Agreement, Publisher shall
not disclose any Confidential/Proprietary Information to any third party without
the prior consent of TMS.
ii. Publisher may disclose the Confidential/Proprietary Information to
those of its personnel who have a substantial need to know the specific
information in question in connection with the Publisher's exercise of rights
under this Agreement. All such Personnel will be instructed by Publisher that
the Confidential/Proprietary Information is subject to the obligation of
confidence set forth by this License Agreement.
d. No Unauthorized Copying. Except as may be otherwise permitted by this
Agreement, Publisher shall not copy, duplicate, reverse engineer, reverse
compile, disassemble, record, or otherwise reproduce any part of
Confidential/Proprietary Information, nor attempt to do any of the foregoing,
without the prior written consent of TMS. Any tangible embodiments of the
Confidential/Proprietary Information that may be generated by Publisher, either
pursuant to or in violation of this Agreement, will be deemed to be the sole
property of TMS and fully subject to the obligation of confidence set forth in
this Section.
e. Reports of Third-Party Misappropriation. Publisher shall immediately
report to TMS any attempt by any person of which Publisher has knowledge (a) to
use or disclose Confidential/Proprietary Information without authorization from
TMS, or (b) copy, reverse assemble, reverse compile or otherwise reverse
engineer any part of the Licensed Data.
f. Post-Termination Procedures. Upon any termination of Publisher's right
to possess and/or use Confidential/Proprietary Information (e.g., termination or
expiration of the license), Publisher agrees not to use such
Confidential/Proprietary Information in any way or form.
9. In the event Publisher requests format revisions or additional service,
there may be increases in the monthly rate set forth in Paragraph Two above, or
an additional one-time charge, depending on the additional service requested.
Specific rate increases or charges shall be provided to Publisher by TMS in
advance of the actual format changes requested by Publisher.
<PAGE>
10. This Agreement shall be governed by and interpreted under the laws of
the State of Illinois. This Agreement shall not take effect until accepted and
executed by an officer of Tribune Media Services, Inc., at Chicago, Illinois.
11. This Agreement contains the entire understandings of the parties
concerning the subject matter herein, and supersedes and cancels all prior
understandings, agreements, representations, oral or otherwise, between the
parties. This Agreement may only be amended in writing.
In Witness Whereof, the undersigned have executed this Agreement on the dates
indicated.
Accepted by: Accepted by:
Pacific Digital Media, Inc. Tribune Media Services, Inc.
/s/ Anthony Wood /s/ Donald C. Kraska
- ----------------------------- -----------------------------------
(Signature of Publisher) (Signature of Tribune Media Services, Inc.,
officer)
Anthony Wood Donald C. Kraska
- ----------------------------- -----------------------------------
(Publisher) (Tribune Media Services, Inc., officer)
CEO VP/Finance
- ----------------------------- -----------------------------------
(Title) (Title)
6/25/98 7/14/98
- ----------------------------- -----------------------------------
(Date) (Date)
<PAGE>
ADDENDUM 1: PRODUCT DESCRIPTION AND LIMITATIONS OF USE
Publisher will use television program listings information provided by TMS
exclusively on the electronic program guide of its Pacific Digital Media
consumer hardware device or in subsequent usage agreed upon by both parties. No
redistribution or derivative product uses are permitted without the express
written consent of TMS.
<PAGE>
ADDENDUM 2: DEFINITION OF SERVICE FOR LICENSED DATA
1. TV Schedules ("Schedules"):
- -------------------------------
SEE ATTACHED DOCUMENT "Data Specification: TV Schedules"
2. System-Specific Channel Lineups ("Channel Lineups"):
- -------------------------------------------------------
SEE ATTACHED DOCUMENT "Data Specification: Channel Lineups"
Publisher agrees to accept the Licensed Data as defined in the attached
documents during the term of this Agreement.
TMS agrees not to change the record format of the Licensed Data without
deliberation, if at all, and only then by notifying Publisher in writing in
advance.
TMS and Publisher agree that TMS may change the Licensed Data only by adding
fields at the end of file(s) and/or possibly modifying field formats, but that
TMS may not delete any fields.
<PAGE>
ADDENDUM 3:
SUB-LICENSE AGREEMENT FOR NIELSENTV CODE DATA
End User shall be deemed a sublicensee of the Agreement between Tribune Media
Services, Inc. ("Licensee") and Nielsen Media Research, Inc. ("NielsenTV") for
use of NielsenTV's Cable On-Line Data ("CODE Data") and shall have a right to
sublicense CODE Data subject to the restrictions and limitations under such
Agreement. End User is permitted to store, analyze, reformat, print and display
CODE Data in whole or in part from the TMS Service. End User may not
redistribute such CODE Data in whole or in part, nor use such material in a
commercial or business-related manner except in its capacity as a sublicensee as
described herein. The termination of the Agreement between Tribune Media
Services as Licensee and NielsenTV shall terminate any and all sublicense rights
and privileges to End User.
<PAGE>
ADDENDUM 4: FEES
On a [***] basis, within Publisher's [***], Publisher pays TMS the following:
1. TV Schedules:
[***] [***] for the Schedules defined in Addendum 2,
delivered once [***].
[***] [***] for the Schedules defined in Addendum 2,
delivered once [***].
[***] [***] for the Schedules defined in Addendum 2.
[***] [***] for the Schedules defined in Addendum 2.
[***] [***] for the Schedules defined in Addendum 2.
[***] [***] for the Schedules defined in Addendum 2.
[***] and on: [***] for the Schedules defined in Addendum 2.
2. System-Specific Channel Lineups:
[***] [***] for [***] DBS lineups and [***] cable markets,
delivered once [***].
[***] [***] for [***] DBS lineups and [***] cable markets,
delivered once [***].
[***] [***] for the Channel Lineups defined in Addendum 2,
delivered once [***].
[***] [***] for the Channel Lineups defined in Addendum 2.
[***] [***] for the Channel Lineups defined in Addendum 2.
[***] [***] for the Channel Lineups defined in Addendum 2.
[***] and on: [***] per Channel Lineup per [***] for the Channel
Lineups defined in Addendum 2.
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WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
AMENDMENT TO THE DATA LICENSE AGREEMENT BETWEEN PACIFIC DIGITAL
MEDIA INC., AND TRIBUNE MEDIA SERVICES, INC.
This amendment, dated October 26, 1998, amends the Tribune Media Services TV
Listings Agreement between Tribune Media Services, Inc., ("TMS") and Pacific
Digital Media Inc., ("Publisher") dated June 1, 1998. The same terms of the
referenced agreement will apply to the following amendments, which replace the
first sentence of Section 4 and replace the entire Addendum 4: Fees:
Replace the first sentence in Section 4 with the following:
This Agreement shall continue for twenty-one (21) months from June 1, 1998, and
shall renew itself continuously for further terms of one (1) year each unless
either party notifies the other by certified letter received by Publisher at
1003 Elwell Court, Palo Alto, California 94303 or by TMS at Tribune Media
Services, Inc., 435 N. Michigan Avenue, Suite 1500, Chicago, Illinois 60611 at
least [***] before the end of the then current term of its desire to terminate,
in which event this agreement shall terminate at the end of the then current
term
Replace ADDENDUM 4: FEES with the following:
ADDENDUM 4: FEES
On a [***] basis, within Publisher's [***], Publisher pays TMS the
following:
1. TV Schedules:
[***] [***] for the Schedules defined in Addendum 2, delivered
once [***].
[***] [***] for the Schedules defined in Addendum 2, delivered
once [***].
[***] [***] for the Schedules defined in Addendum 2.
[***] [***] for the Schedules defined in Addendum 2.
[***] [***] for the Schedules defined in Addendum 2.
[***] [***] for the Schedules defined in Addendum 2.
[***] [***] for the Schedules defined in Addendum 2.
[***] [***] for the Schedules defined in Addendum 2.
[***] [***] for the Schedules defined in Addendum 2.
[***] [***] for the Schedules defined in Addendum 2.
[***] and on: [***] for the Schedules defined in Addendum 2.
2. System-Specific Channel Lineups:
[***] [***] for [***] DBS lineups and [***] cable markets,
delivered once [***].
[***] [***] for [***] DBS lineups and [***] cable markets,
delivered once [***].
[***] [***] for the Channel Lineups defined in Addendum 2,
delivered once [***].
[***] [***] for the Channel Lineups defined in Addendum 2.
[***] [***] for the Channel Lineups defined in Addendum 2.
[***] [***] for the Channel Lineups defined in Addendum 2.
[***] [***] for the Channel Lineups defined in Addendum 2.
[***] [***] for the Channel Lineups defined in Addendum 2.
[***] [***] for the Channel Lineups defined in Addendum 2.
[***] [***] for the Channel Lineups defined in Addendum 2.
[***] and on: [***] per Channel Lineup per month for the Channel Lineups
defined in Addendum 2.
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WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
1
<PAGE>
Accepted by:
Pacific Digital Media, Inc. Tribune Media Services, Inc.
By: /s/ Anthony Wood By: /s/ Donald C. Kraska
------------------------------- -------------------------------------
Anthony Wood Donald C. Kraska
- ---------------------------------- ----------------------------------------
Printed name Printed name
CEO VP/Finance
- ---------------------------------- ----------------------------------------
Title Title
6/25/98 7/14/98
- ---------------------------------- ----------------------------------------
Date Date
2
<PAGE>
EXHIBIT 10.17
Execution Copy
Agreement
This agreement (the "Agreement") is made as of February 1, 1999 by and between
Replay Networks, Inc., 1003 Elwell Court, Palo Alto, CA 94303 ("Replay") and
Showtime Networks Inc., 1633 Broadway, New York, NY 10019 ("SNI").
The parties, for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, agree as follows:
1. The term of this Agreement shall commence as of February 1, 1999
and expire on January 31, 2000 (the "Term") unless earlier terminated in
accordance with this Agreement. The Term shall be extended automatically for one
(1) twelve-month period thereafter unless either party notifies the other in
writing at least [***] prior to [***] of its desire not to so extend the Term of
this Agreement.
2. Replay shall use the "Network Content" (as defined below) provided
to Replay by SNI as contemplated in Section 3 below to create promotional areas
(currently known as "Replay Channels" and "Replay Zones") for the "SNI Services"
(as defined in Paragraph 3 below) that will be accessible to users of the
"Replay Network Service" (as defined below) from Replay's primary "Replay
Channel" and "Replay Zone" video-interface screens. For the purposes hereof, the
term "Replay Network Service" shall mean the electronic program guide and other
features (including customization of television lineups and easy, one-touch
record capability) provided by Replay that enable owners of Replay's
receiver/storage devices ("ReplayTV Units") to customize their television
viewing. Replay shall offer at all times throughout the Term the ability for
each user of the Replay Network Service the capability to create at least [***]
for each SNI Service (each, an "SNI Replay Channel") and [***] for all of the
SNI Services (the "SNI Replay Zone"); provided that SNI acknowledges and agrees
that each Replay Zone will only accommodate up to approximately [***] Replay
Channels and that, as such, if there are greater than [***] SNI Services, a user
of the Replay Network Service may not be able to include all of the SNI Replay
Channels for the SNI Services in [***] SNI Replay Zone. SNI Replay Channels may
be deleted from an SNI Replay Zone by a Replay Network Service subscriber,
however, the SNI Replay Zone may not be deleted. Replay and SNI shall mutually
agree on the look and feel for a template to serve as the basis for each of the
SNI Replay Channels and the SNI Replay Zone. SNI shall produce and maintain
network content for the SNI Replay Zone and SNI Replay Channels throughout the
Term of this Agreement. SNI and Replay shall establish and implement a process
which will allow SNI to update, modify, delete or otherwise alter Network
Content on each SNI Replay Channel and the SNI Replay Zone on no less than a
weekly basis via a dial-up telephone modem line or other mutually agreed upon
electronic interface methodology. In addition to, and without limiting the
foregoing, SNI shall be responsible for the look and feel of each SNI Replay
Channel and the SNI Replay Zone. SNI will upload changes to the look and feel of
any or all of the SNI Replay Channels and the SNI Replay Zone as it deems
necessary and Replay will subsequently integrate those new elements into the
Replay Network Service and disseminate those elements to ReplayTV Units on a
timely basis. In addition, Replay shall, prior to factory shipment, make
reasonable efforts to load onto the hard
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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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disk of each ReplayTV Unit to be shipped during the Replay release 1.0 version
of its software, approximately [***] of promotional programming (to be supplied
by SNI in a mutually agreed upon format to Replay [***] days prior to loading)
exclusively promoting the SNI Services. SNI will update the supplied promotional
programming on a mutually agreed upon schedule. SNI shall pay Replay a [***]
set-up fee of [***] to cover Replay's manufacturing costs to pre-load the
promotional programming on the hard disks of the ReplayTV Units. Replay shall
invoice SNI for this fee within [***] days after the first number of ReplayTV
Units are pre-loaded and shipped. SNI shall pay the fee within [***] days after
receipt of the invoice.
3. SNI shall provide Replay with certain program information, text,
pictures, graphics, sound, video and other data (collectively, the "Network
Content") related to each of the television program services currently known as
Showtime, The Movie Channel, Sundance Channel and Flix (together with such
services' multiplex (including but not limited to Showtime Extreme) and time
zone feeds, the "SNI Services"). SNI will be responsible for creating,
selecting, producing and providing all Network Content (within Replay
specifications to be supplied by Replay to SNI) and for clearing all rights and
obtaining all requisite consents for the use of the Network Content in the
manner contemplated by this Agreement. The selection, substitution and
withdrawal of any element of the Network Content shall at all times remain
within the sole discretion of SNI and may be changed or altered at any time by
SNI without notice. Replay shall not make any alterations, amendments, additions
or deletions to any of the Network Content (including without limitation credit
obligations, copyright and trademark notices and the like) or to any SNI Replay
Channel or SNI Replay Zone except at the request of SNI.
4. Prior to the date that Replay first ships consumer units (such date
referred to herein as "FCS"), Replay shall provide to SNI [***] beta test
ReplayTV Units [***] and promptly following FCS, Replay shall provide to SNI
[***] additional ReplayTV Units. Replay shall make an additional [***] ReplayTV
Units available for purchase by SNI at [***] plus shipping and handling. All of
the foregoing ReplayTV Units shall contain the highest memory/storage capability
available at the time such ReplayTV Units are provided to SNI in the case of the
[***] ReplayTV Units and purchased by SNI in the case of the [***] plus shipping
and handling priced ReplayTV Units.
5. All right, title and interest in and to any and all Network Content
and any and all content or material provided to Replay by SNI for the purpose of
creating the SNI Replay Channels and the SNI Replay Zone shall remain the
property of SNI. Replay acknowledges and agrees that all trade names, trademarks
and service marks of SNI and its program suppliers (the "Marks") shall remain
the property of SNI or such program supplier, as applicable, and nothing in this
Agreement shall confer on Replay any right of ownership in or to any such Marks
and all uses of such Marks shall inure to the benefit of SNI or such program
supplier, as applicable.
6. Replay shall provide the SNI Service known as "Showtime" with [***]
positioning on the Replay Network Service comparable to any and all other
programming networks and services which appear on the Replay Network Service
(including [***]).
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WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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<PAGE>
No changes shall be made to the [***] of such positioning on the Replay Network
Service without the prior written consent of SNI. In addition, Replay shall use
its best reasonable efforts to afford each of the other SNI Services [***]
placement on the Replay Network Service. Furthermore, in the event that Replay
has surplus promotional inventory within the Replay Network Service, then Replay
shall make that surplus inventory available to SNI on a basis [***] than any
other similarly situated sponsor to allow SNI to provide additional video and
graphic information relating to the television programming being offered by SNI.
7. Replay shall collect [***] viewership and usage data on a [***]
basis, subject to technical capability, during the Term from subscribers to the
Replay Network Service and shall make that data available to SNI within [***]
following the [***] as to which the data applies; provided that such data will
only be made available to SNI as permitted by law and by Replay's agreement with
its subscribers to the Replay Network Service. Replay will also provide SNI the
ability to conduct reasonable qualitative and/or quantitative research among
Replay Network Service users that also subscribe to SNI movie-based television
services. For the purpose of conducting said research (and not for the purposes
of sale to third parties), upon SNI's request, Replay will provide SNI's
designated third party research vendor with access to Replay Network Service
users via telephone contact information. No contact information shall be
provided by such third party research vendor to SNI and all data obtained from
Replay Network Service users by such third party research vendor is to be shared
and used by SNI and Replay for their own internal research purposes with strict
respect to privacy of such Replay Network Service users.
8. Within [***] after execution of this Agreement by both parties, SNI
shall pay to Replay [***] setup fee in the amount of [***] for the creation of
software required to program the SNI Replay Zone. Replay shall bear any and all
additional costs and expenses incurred by it in the performance of its
obligations under this Agreement and SNI shall bear all costs and expenses
incurred in the creation of the Network Content.
9. SNI shall make reasonable efforts to provide Replay with the
opportunity to sponsor select Showtime events during the Term of this Agreement.
The terms of each sponsorship opportunity shall be negotiated in good faith at
the time of the particular sponsorship opportunity. SNI shall provide a link
from SNI's website to Replay's website and Replay shall provide a reciprocal
link from Replay's website to destination URL specified by SNI. SNI shall have
the right to display the Replay logo on SNI advertising and promotional
materials. Such logo may be displayed as a small icon in a peripheral portion of
the Showtime advertisement or promotion. Replay shall have the right to display
the Showtime logo and name in a peripheral portion of Replay advertisements and
promotional materials provided that Replay first obtains the prior written
consent of SNI as to each such use.
10. If Replay at any time has entered or hereafter enters into an
agreement with any other person or entity (including without limitation any
subsidiary, division or business unit of Viacom Inc.) for the inclusion of such
person's or entity's programming as part of the Replay Network Service which
agreement embodies provision(s) which is(are) more favorable to such person
or entity than the corresponding provisions contained in this Agreement (a "More
Favorable Provision(s)"),
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REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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<PAGE>
then Replay shall promptly make such More Favorable Provision(s) available to
SNI for application by SNI to the SNI Services.
11. In the event that any subsidiary, division or business unit of
Viacom Inc. has entered into or hereafter enters into an agreement with Replay
to participate in the Replay Network Service, Replay shall, at a minimum, make
available to such subsidiary, division or business unit an agreement on the
terms and conditions set forth herein for the duration of this Agreement.
12. Each party hereto and its employees and representatives shall keep
confidential the terms and conditions of this Agreement and any and all data,
reports and information relating thereto or derived thereunder (including
without limitation Replay keeping confidential (other than providing such
information to SNI) any and all usage data or other similar information
pertaining to the SNI Services) except (a) if required by a valid subpoena
issued by a court of competent jurisdiction or other governmental agency or
franchise authority (in which event the disclosing party shall (i) give the
other party reasonable notice of such intended disclosure (in advance if
practicable) and (ii) use its diligent efforts to request confidentiality of all
information subject to disclosure), (b) if required by governmental laws or
regulations (including SEC filings or franchise authorities), (c) as part of its
normal reporting or review procedure to its parent company, its auditors, legal
advisors, bankers or investment bankers; provided, however, that the disclosing
party agrees to (i) require such parent company, its auditors, legal advisors,
bankers or investment bankers to be bound by this Section 12 and (ii) be
responsible for any breach of the provisions of this Section 12 by such parent
company, its auditors, legal advisors, bankers or investment bankers; (d) in
order to enforce its rights or perform its obligations pursuant to this
Agreement; provided, however, that prior to such disclosure under this subclause
(d) such party shall request confidential treatment of such information; and (e)
in any other instance, if mutually agreed by the parties, in advance of such
disclosure, in writing.
13. Neither party may issue a press release or other public
announcement concerning this Agreement, or the activities contemplated hereby,
without the prior written consent (not to be unreasonably withheld) of the other
party to this Agreement as to the content and timing of such press release or
other announcement.
14. Commencing as of the date of this Agreement and continuing
throughout the Term, Replay and SNI shall use reasonable efforts to create and
employ on the Replay Network Service additional promotional offerings regarding
the SNI Services. Replay and SNI shall mutually agree, in good faith on a
project-by-project basis, the amount of financial, creative, production and
technical resources each party shall commit to the development and
implementation of each such additional project. Specifically, Replay and SNI
shall jointly develop thematic virtual channels relating exclusively to the SNI
Services to be made available as a feature of the Replay Network Service. Replay
and SNI shall also use reasonable efforts to create and employ as part of the
Replay Network Service enhanced promotional offerings relating exclusively to
the SNI Services using added value elements such as [***] which will be [***] of
the telecast of the [***] to which such
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promotional offering relates and [***] by any user that has also selected to
[***] the particular long-form program (subject to the limits of the ReplayTV
Unit's [***] and network [***]). SNI shall be responsible for supplying [***] to
Replay all such added value programming content and Replay shall be responsible
for [***].
15. Replay will indemnify, defend and hold harmless SNI and its
affiliated companies (and each of their respective present and former employees,
agents, directors, shareholders and parent and subsidiary companies) against and
from any and all claims, damages, penalties, liabilities, costs and expenses
(including, without limitation, reasonable fees and disbursements of counsel and
court costs) arising out of or relating to (a) the use of any of Replay's
equipment or software, to the extent that such use infringes, or is alleged to
infringe, any copyright, mask work, patent or trademark, or misappropriates, or
is alleged to misappropriate, any trade secret, or violates or is alleged to
violate any other right of any third party, (b) any failure on the part of
Replay or Replay's equipment or software to be in compliance with any law, rule,
regulation or court or administrative decree to which it is subject, (c) any
failure on the part of Replay to have acquired good title to each and every
property right (whether relative to tangible or intangible property) or any
license, usage or other right necessary to effectuate the acts or performances
contemplated by, or failure to satisfy any obligations imposed on Replay
pursuant to, this Agreement, (d) any personal injury, property damage or other
injury sustained by others that is alleged or proven to have been caused by
Replay's equipment or software (or any equipment, technologies, processes or
component used in such equipment or software) or (e) any breach or alleged
breach by Replay of any of its representations, warranties, covenants or
undertakings in this Agreement.
16. SNI will indemnify, defend and hold harmless Replay and its
affiliated companies (and each of their respective present and former employees,
agents, directors, shareholders and parent and subsidiary companies) against and
from any and all claims, damages, penalties, liabilities, costs and expenses
(including, without limitation, reasonable fees and disbursements of counsel and
court costs) arising out of or relating to (a) any claim that the Network
Content (i) infringes on, or constitutes a misappropriation of any third party's
copyright, patent, trademark, trade secret or other proprietary or intellectual
property right, or right of publicity or privacy; (ii) is defamatory or trade
libelous; (iii) is lewd, pornographic or obscene; or (iv) violates any laws
regarding unfair competition, anti-discrimination or false advertising (provided
that Replay shall, to like extent, indemnify, defend and forever hold SNI and
the corresponding SNI entities, harmless from and against any and all claims,
damages, penalties, liabilities, costs and expenses (including, without
limitation, reasonable fees and disbursements of counsel and court costs)
arising out of any deletion from, alteration of, or addition to, the Network
Content by Replay or creation of any material by Replay (such as the creation of
promotional materials)), or (b) any breach or alleged breach by SNI of any of
its representations, warranties, covenants or undertakings in this Agreement.
17. All parties shall be required to negotiate in good faith any
provision in this Agreement requiring mutual agreement of the parties or any
provision that contemplates the parties having to determine matters necessary to
effectuate the purposes of this Agreement after
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the execution hereof. The provisions of this Agreement are for the exclusive
benefit of the parties who are signatories hereto and their permitted successors
and assigns, and no third party shall be a beneficiary of, or have any rights by
virtue of, this Agreement (whether or not such third party is referred to
herein). Nothing contained herein shall be deemed to create a joint venture,
partnership, principal/agent relationship or other fiduciary relationship
between the parties hereto. This Agreement (including any Attachments attached
hereto) sets forth the entire understanding and agreement of the parties hereto
regarding the subject matter hereof, and supersedes all prior agreements,
statements, negotiations and understandings (whether written or oral) among the
parties hereto regarding such subject matter. This Agreement may not be altered,
amended, or modified except by a subsequent writing signed by the parties hereto
that specifically references this Agreement. Any ambiguities shall be resolved
without reference to which party may have drafted this Agreement.
18. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE WHOLLY PERFORMED THEREIN. REPLAY AND SNI
EACH CONSENTS TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED
AT THE ADDRESS FOR SUCH PARTY SET FORTH ABOVE.
19. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives as of the date first written above.
SHOWTIME ONLINE INC. REPLAY NETWORKS, INC.
By: /s/ Jefferson Morris By: /s/ Michael D. Kornet
---------------------------- -------------------------
Name: Jefferson Morris Name: Michael D. Kornet
Title: SVP, New Media Title: Vice President,
Business Development
Media & New Media
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EXHIBIT 10.18
July 30, 1999
Mr. Martin Yudkovitz
President
National Multimedia Inc.
30 Rockefeller Plaza
New York, New York 10112
Re: Replay Zones /Advertising
-------------------------
Dear Marty:
Replay is pleased to have National Broadcasting Company, Inc. ("NBC") join its
group of investors in its Series E financing. NBC will invest $5 million
dollars under the terms of the Series E financing. Additionally, this letter
agreement (the "Agreement") shall embody the agreement between Replay and NBC on
the following issues:
1) The term of this Agreement shall commence on the date hereof and end on
July 31, 2002 (the "Term"); provided, that if in NBC's good faith judgment
Replay fails to comply with Section 2 hereof, then NBC shall have the
option to extend the Term for a period of three (3) years by providing
written notice to Replay.
2) Replay will use its best efforts to address concerns related to how the use
of the [***] on the Replay remote affects advertising. Specifically,
within the [***] period after the date hereof Replay will consult with its
investors and advertisers to determine the best course of action to
encourage both advertiser and viewer support for the category of
personalized television and shall use its best efforts to take such action
in connection with the Replay service (the "Replay Network Service").
During this review process, Replay will no longer [***] the [***]
functionality in advertisements or marketing materials, including without
limitation in brochures, press releases and on the ReplayTV website.
3) Replay will provide to NBC [***] Replay Zone [***] during the Term. NBC
shall receive additional Replay Zones at a cost that is equal to the [***]
of (a) [***] of the Replay ratecard rate for the sponsorship of a Replay
Zone, and (b) [***] charged to [***]. "Replay Zone" means an area which may
be directly linked to from the Replay Zone Guide which features programming
designated by the applicable NBC television network (each, an "NBC
Network"); provided, that Replay shall work in conjunction with
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NBC creative services to produce each NBC Replay Zone, including special
programming packages highlighting current programming and upcoming events.
4) Replay shall promptly develop the Replay Zone Guide in which NBC may
promote its Replay Zones. Replay shall provide NBC with [***] positioning
[***] for [***] during the Term. The Replay Zone Guide shall be the primary
area devoted to displaying Replay's programming partners, and shall be
directly linked to the main screen of the Replay Network Service.
5) In regard to lead-in advertisements, lead-out advertisements and insertion
advertisements surrounding programming that is time shifted from any NBC
Network will be sold by Replay; provided, that NBC shall have an approval
right over all advertising sold by Replay, which approval shall be
exercised in good faith consistent with NBC's business interests, policies
and practices concerning advertisements or promotional messages to be aired
on NBC, also taking into account existing sponsorships, category or
programming exclusivities or similar arrangements that each NBC Network may
have with certain of its advertisers. This restriction will remain in place
during the Term. Notwithstanding the foregoing, Replay shall not swap out,
replace or otherwise alter any advertisements included within any NBC
Network programs, whether such programs are viewed on a real-time or time-
shifted basis, without the prior written consent of NBC.
6) NBC will have the right to appoint one individual who shall serve as an
observer on Replay's Board of Directors subject to the limitations and
obligations set forth in the attached Observer Policy letter.
7) Other terms consistent with terms granted to other major media investors in
the Series E financing will be negotiated in good faith between Replay and
NBC. Replay agrees to disclose to NBC the material terms granted to other
major media investors in the Series E financing to the extent it has the
right to do so.
8) The Replay Network Service will not intentionally delete any programming or
data within the signals that are transmitted by any NBC Network provided
that this material does not interfere with the Replay Network Service.
9) The Replay Network Service is intended to provide Internet connectivity as
soon as it is technology and commercially reasonable to do so. At such
time, (a) Replay will ensure that any links and/or web content incorporated
within or otherwise accompanying the signal of each NBC Network will be
passed through to users of the Replay Network Service provided that this
material does not interfere with the Replay Network Service and it is
technology and commercially feasible to do so, and (b) Replay shall
negotiate in good faith with NBC with respect to placement for the Internet
assets of NBC and its affiliates.
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10) Replay shall not modify, alter or re-design the Replay Network Service in a
manner which shall have a material adverse impact on the rights granted to
NBC herein.
If this Agreement is acceptable to you, I would appreciate your indicating
your acceptance of this Agreement by executing this letter at the place
indicated below.
Sincerely,
REPLAY NETWORKS, INC.
By: /s/ Layne Britton
--------------------------------------
Layne Britton
Executive Vice President, Network Services
Replay Networks, Inc.
Agreed and consented to:
NATIONAL BROADCASTING
COMPANY, INC.
By: /s/ Martin Yudkovitz Date: July 30,1999
-----------------------
Name: Martin Yudkovitz
Title: President, NBC MultiMedia, Inc.
<PAGE>
EXHIBIT 10.19
REPLAY NETWORK SERVICE AGREEMENT
--------------------------------
This Replay Network Service Agreement (this "Agreement") is made as of the
---------
30/th/ day of July, 1999 between Replay Networks, Inc., a California corporation
having its place of business at 1945 Charleston Road, Mountain View, California
94043 ("Replay Networks" or "Replay"), Turner Broadcasting System, Inc., a
---------------
Georgia corporation having its principal place of business at One CNN Center,
Atlanta, Georgia 30303 ("Turner"), and Time Warner Inc., a Delaware corporation
------
having its principal place of business at 75 Rockefeller Plaza, New York, New
York 10019 ("Time Warner").
WHEREAS, the parties hereto desire to enter into this Agreement to more
fully describe their relationship and to provide for their respective rights and
obligations as it relates to any Turner programming and the Replay Network
Service as more fully described herein.
In consideration of the foregoing and of the mutual promises contained
below, the parties agree as follows:
1. Definitions
------------
As used in this Agreement, the following terms shall have the following
meanings:
a. "Affiliate" shall mean, as it relates to any party, an entity that
controls, is controlled by, or under common control with, such party.
b. "MFN Rate" shall mean the [***] rate charged by Replay for any of the RNS
offerings, including, but not limited to, Replay Zones and pre-configured Replay
Channels.
c. "ReplayTV Platform" shall mean the hardware for the Replay Network Service
(as defined below) and Replay Networks' reference implementation for such
hardware (including specifications, schematics, bill of materials, FPGA source,
PAL source, manufacturing documentation, and other documentation needed to
manufacture the ReplayTV Platform), the ReplayTV Platform client software
(including applications, operating system, device drivers, electronic program
guide, and other unique Replay software), related peripheral equipment such as
remote controls, and Replay owned patents, trademarks, and other intellectual
property needed to market the ReplayTV Platform. Initially, the ReplayTV
Platform shall consist of a stand-alone implementation (ReplayTV 1000 or
ReplayTV 2000). Future ReplayTV Platforms, offered by Replay and original
equipment manufacturer ("OEM") partners, may integrate additional features.
d. "Replay Network Service" or "RNS" shall mean the Replay Network Personal
Television Service, a television and Internet based service that enables
customized, on-demand television viewing, custom content, and a television
navigation portal via the ReplayTV Platform. Examples of services offered via
the Replay Network Service might include Replay Zones (as
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defined below), sponsored Replay Channels (as defined below), unique sponsored
content, messaging, commerce, software updates, electronic programming guide
data, and time services. The Replay Network Service includes "Basic" services,
"Premium" (monthly or periodic fee) services, and Pay-Per-View services.
e. "Replay Channels" are locally stored personalized channels with associated
television programming. Replay Channels may be created by a user, via explicit
specification of show or theme-based recording criteria. Replay Channels may
also be automatically created from a Replay Zone, based on information provided
by Replay or the content provider. Replay Channels are listed on the Replay
Guide, where all locally stored and available television programming is listed.
f. "Replay Zones" are promotional offerings that, when invoked, automatically
select and record television programming of interest to a user. Replay Zones
are displayed to the user on the Zone Guide, a television portal or launch
location from which pertinent television services may be selected for automatic
recording. When selected by the user, a Replay Zone may immediately select
programming to be recorded or may offer the user more detailed selection
criteria for automatically recording television programming.
g. "Turner Content" shall mean the content (other than the Turner Networks)
provided by Turner that is integrated into the RNS. This content may include
program information, text, pictures, graphics, sound, video and other data
related to television program services or personal television program services
related to each of the television program services.
h. "Turner Networks" shall mean CNN, CNNsi, CNNfn, CNNI, CNN Headline News,
TBS, TNT, TCM, Cartoon Network, and all other future networks owned or operated
by Turner or any successor to Turner.
2. Term
----
The term of this Agreement (the "Term") shall commence as of July 30, 1999 and
expire three years later on July 29, 2002, unless earlier terminated in
accordance with this Agreement. Turner shall have a unilateral right to extend
this Agreement for a second three-year term by providing notice thereof to
Replay no less than [***] prior to the end of the Term.
3. License; Reservation of Rights
------------------------------
a. In consideration of the relationship contemplated by this Agreement, Turner
hereby grants to Replay a [***] license to the [***] and all programming
included in the [***] and the [***], to the extent Turner owns the copyright in
such programming or such [***] or has received the requisite rights in such
programming or such [***] from the copyright holder to grant such license, for
distribution through the ReplayTV Platform and the Replay Network Service [***].
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b. Nothing contained in this Agreement shall constitute a waiver of or an
estoppel against any right of Turner or any of its Affiliates to assert any
right or claim against Replay with regard to any cause of action that Turner or
any of its Affiliates may believe it may have against Replay, all of which
rights are hereby explicitly reserved.
4. Content Rights and Responsibilities
-----------------------------------
a. Turner will be responsible for creating, selecting, producing, and
providing all Turner Content during the Term of this Agreement and for clearing
all rights and obtaining all requisite consents for the use of the Turner
Content in the manner contemplated by this Agreement. Turner represents and
warrants that the Turner Content shall be consistent in quality and standards
with the Turner Networks and accordingly shall not contain programming that is
defamatory, lewd, pornographic or obscene. Replay shall not make any
alterations, modifications, additions, or deletions (including, without
limitation, the overlaying of any text, graphics or interactive links other than
any such text or graphics that are operational or informational as it relates to
the use of the RNS) to any of the Turner Networks, the Turner Content
(including, without limitation, credit obligations, copyright, trademark notices
and the like) or to any programming on the Turner Networks or any Turner Content
in any Replay Channel or Turner Replay Zone, except with the prior approval of
Turner in its absolute discretion. Replay hereby agrees that the requirement
for Turner's prior approval of any such alterations, modifications, additions or
deletions to any programming on the Turner Networks or any Turner Content shall
[***].
b. Replay shall provide a template and interface requirements (the "Interface
Require-ments") to serve as a basis for each of the Replay Channels, Turner
Replay Zones, and other RNS components. Examples of Interface Requirements
include text fonts and sizes, color palettes, and maximum image sizes, for the
purpose of working within the RNS. Replay shall have the right to verify that
all Turner Content meets the Interface Requirements, and to reject any content
that does not meet the requirements. All Turner Content must conform to the RNS
content specifications, to be supplied to Turner, which specifications may be
modified by Replay at its sole discretion from time to time with no less than
thirty days prior notice of any such modification to Turner. Replay shall use
commercially reasonable efforts to implement a process which will allow Turner
to update, modify, delete or otherwise alter Turner Content on each Turner
Replay Channel and Turner Replay Zone on no less than a weekly basis via a
telephone line or other mutually agreed upon electronic interface method. Turner
shall be allowed to update the look and feel of each Turner Replay Channel and
the Turner Replay Zone (subject to the Interface Requirements) at reasonable
time intervals to be mutually agreed by Turner and Replay in accordance with
delivery requirements to be provided to Turner by Replay.
c. All right, title and interest in the Turner Networks and the Turner Content
shall remain the property of Turner. All right, title and interest in the
Replay Zones and the Replay Channels (other than the Turner Networks, the Turner
Content or any element thereof) shall remain the property of Replay. Replay
acknowledges and agrees that all trade names, trademarks and service marks of
Turner and its program suppliers (collectively, the "Turner Marks") shall remain
the property of Turner or such program supplier, as applicable, and nothing in
this Agreement
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shall confer on Replay any right of ownership in any of the Turner Marks. All
uses of the Turner Marks shall inure to the benefit of Turner or such program
supplier, as applicable. Turner acknowledges and agrees that all trade names,
trademarks and service marks of Replay (the "Replay Marks") shall remain the
property of Replay and nothing in this Agreement shall confer on Turner any
right of ownership in any of the Replay Marks. All uses of the Replay Marks
shall inure to the benefit of Replay.
5. Replay Zones
------------
a. Replay shall develop a Replay Zone Guide in which Turner may promote its
network programming. Replay shall provide Turner (or one of its Affiliates) with
prominent positioning [***] for (i) [***] if [***] of the RNS Zone Guide has
[***] or (ii) [***] if [***] of the RNS Zone Guide has [***]. Replay will
provide to Turner (or one of its Affiliates) additional Replay Zone slots within
the [***] Zone Guide pages as follows: (i) [***] on [***] of the RNS Zone Guide
and (ii) [***] within [***] of the RNS Zone Guide, which shall be reduced to
[***] at such time that Turner has been provided [***] on [***] of the RNS Zone
Guide. Subject to the limitations described in the two immediately preceding
sentences, Turner (or one of its Affiliates) shall have the right to move any of
its Replay Zones to different pages within the RNS Zone Guide. When selected by
an RNS user, a Turner Replay Zone will display a full screen of programming
options as developed and maintained by Turner to meet the Interface
Requirements. The Replay Network Service will enable the RNS user to select one
or more of the available programming options set forth in the Turner Replay
Zone, which will automatically provide for future recording of Turner Content or
portions of the Turner Networks. Such automatically recorded Turner programming
shall reside in a Replay Channel which will be branded with a Turner specified
logo, according to a template provided by Replay. Turner will keep the
programming information associated with its Replay Zones current and consistent
with Turner Network programming on a weekly basis.
b. Replay and Turner will work together to establish processes for video and
graphics content download for Turner Replay Zones to ReplayTV Platforms using
the RNS and Turner Networks. The parties agree that the amount of text,
graphics, and video download will be limited to a reasonable, cost-effective
connection time for platforms to the RNS. Downloads exceeding such reasonable
connection time may be subject to an additional fee, to be mutually agreed by
Replay and Turner. Replay will use best efforts to reach an initial deployment
of the Turner Replay Zones in the [***] with a graphics implementation. It is
currently intended that a subsequent software release for ReplayTV Platforms
will support video-oriented promotional content in the Turner Replay Zones.
c. Replay will provide to Turner (or one of its Affiliates) [***] Turner
Replay Zones [***] for the [***]. Turner (or one of its Affiliates) shall
receive additional Replay Zones at a [***] (i) [***] of the Replay [***] for the
sponsorship of a Replay Zone and (ii) the [***] for the sponsorship of a Replay
Zone. Subject to the last sentence of this Section 5(c), Turner agrees that
Turner (or one of its Affiliates) will purchase at least [***] additional Replay
Zones at [***] of the [***]
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described in clauses (i) and (ii) of the immediately preceding sentence for the
Term of this Agreement. Replay and Turner hereby agree that the initial Replay
ratecard for the sponsorship of a Replay Zone shall be [***], subject to market
increases during the Term of the Agreement as determined by Replay.
6. Zone Advertisements
-------------------
a. Billboard and banner advertisements are to be sold by [***] as part of
Turner's Replay Zone sponsorship. [***] may sell up to [***] of the billboard
and banner advertising inventory within any Turner Replay Zone, it being agreed
that the parties shall develop an appropriate method for [***]. Billboard and
banner ads may employ graphics as part of a graphics-based Replay Zone or may
employ video in future video-based Replay Zones. Replay agrees that all
advertising to be placed within the Turner Replay Zones shall be subject to
[***] by Turner, which [***] right shall be [***] in good faith, consistent with
Turner's [***] concerning advertisements or promotional messages to be aired on
the Turner Networks on cable television, also taking into account existing
sponsorships, category or programming [***], or similar arrangements that Turner
may have with certain of its advertisers and, to the extent applicable, any
restrictions imposed on advertisements by any of the professional sports
leagues.
b. Turner and Replay shall agree to (i) [***] billboard and banner
advertisements within Turner Replay Zones and (ii) [***] for use in selling such
advertisements (collectively, the [***]). As market conditions allow from time
to time, Turner and Replay shall review and revise the [***]. Turner shall [***]
for the billboard and banner advertisements that [***] within the Turner Replay
Zones at the [***] set forth in the [***] and shall provide to Replay a monthly
summary of such [***]. Replay shall [***] for the billboard and banner
advertisements that it [***] within the Turner Replay Zones at the [***] set
forth in the [***] and shall provide to Turner a monthly summary of such [***].
Each of Turner and Replay agrees that it will not [***] the Turner Replay Zone
billboard and banner advertising [***] except as set forth in the [***], without
the prior approval of the other party hereto.
c. Turner and Replay agree [***] the advertising revenues generated as a
result of the sale of billboard and banner advertisements in Turner Replay
Zones. Such gross advertising revenues received by [***] shall be allocated
first to third party agency commissions [***], second to [***] for recoupment by
[***] of [***] to be paid by [***] to third parties in connection with banner
and billboard advertising as set forth in a detailed accounting, it being agreed
that such fees will be [***] among all of the Replay Zone sponsors that use
banner and billboard advertisements, with the [***] of such revenues to be [***]
between Replay and Turner. Each of Turner and Replay agrees to [***] the other
party such other [***] of such [***] received each month within thirty days of
the end of each month. Each party shall have customary audit rights with respect
to such gross advertising revenues and its respective [***] of such revenues.
Any under-delivery liability
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associated with any such advertising inventory shall be [***] between Turner and
Replay.
7. Lead-in and Lead-out Advertisements
-----------------------------------
a. Replay will use commercially reasonable efforts to develop a method for
inserting lead-in and lead-out advertising spots for Replay Channels before
[***]. Until such time that Replay's technology is capable of managing and
controlling the ad insertions for the Replay Channels, Replay agrees that it
will not insert any content in the lead-in and lead-out spots surrounding any
Turner Content or any portion of any Turner Network. At such time that
advertisements are inserted in the Replay Channels, Replay will provide to
Turner aggregate viewing information for all such advertisement spots.
b. At such time that lead-in and lead-out advertising spots surrounding any
Turner content or any portion of any Turner Network can be sold as provided in
Section 7(a) above, Replay shall be entitled to sell such spots, subject to
prior approval by Turner (as specified below in this Section 7(b)). Pricing for
lead-in and lead-out advertisements surrounding any Turner content or any
portion of any Turner Network shall be [***] (such [***] being hereinafter
referred to as the [***]). As market conditions allow from time to time,
Turner and Replay shall review and revise the [***]. Replay shall be responsible
for invoicing advertisers and providing to Turner a monthly summary of all such
advertisement sales. Replay agrees that it will not discount any such
advertising inventory except as set forth in the [***] without the
prior approval of Turner. Replay agrees that all lead-in and lead-out
advertisements surrounding any Turner content or any portion of any Turner
Network shall be subject to [***] by Turner, which [***] right shall be
exercised in good faith, consistent with Turner's [***] concerning
advertisements or promotional messages to be aired on the Turner Networks on
cable television, also taking into account existing sponsorships, category or
programming [***], or similar arrangements that Turner may have with certain of
its advertisers and, to the extent applicable, any restrictions imposed on
advertisements by any of the professional sports leagues.
c. Turner and Replay agree to [***] the advertising revenues generated
as a result of the sale of lead-in and lead-out advertisements surrounding any
Turner content or any portion of any Turner Network. Such gross advertising
revenues received by Replay shall be allocated first to third party agency
commissions [***] second to [***] for recoupment by [***] of [***] to be paid by
[***] to third parties in connection with lead-in and lead-out advertisements as
set forth in a detailed accounting, it being agreed that such fees will be [***]
among all of the Replay Channels that use lead-in and lead-out advertisements,
with the balance of such revenues to be [***] between Replay and Turner. Replay
agrees to [***] to Turner [***] of such [***] received each month within 30 days
of the end of each month. Turner shall have customary audit rights with respect
to such gross advertising revenues and its [***] of
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such revenues. Any under-delivery liability associated with any such advertising
inventory shall be [***] between Turner and Replay.
8. Advertisement Insertion
------------------------
a. Replay will use commercially reasonable efforts to work with Turner to
develop a method for inserting video advertising or promotional spots into
content from the Turner Networks on Replay Channels for implementation in [***].
[***], these advertisements or promotions may be inserted in addition to or may
replace existing Turner video advertising content; Replay hereby agrees that the
requirement for [***] to such insertion shall [***]. Detailed operational
aspects of this activity shall be established and mutually agreed to by Turner
and Replay. Turner will be responsible for providing the ads and promotions for
such insertion and specifying the program timeslots available for such
advertisement/promotion insertion. Subject to legal requirements, Replay's
internal privacy policy and Replay's agreements with its users of the RNS,
Replay agrees to provide to Turner aggregate viewing information for all such
advertisement spots.
b. [***] agrees to coordinate with [***] as is commercially practicable to
sell and control [***] with [***] the inserted advertising spots for content
from the Turner Networks. Pricing for inserted advertisements shall be [***]
[***] by Turner and Replay (such pricing hereinafter referred to as the
[***]). As market conditions allow from time to time, Turner and Replay shall
review and revise the [***]. [***] shall be responsible for invoicing
advertisers and providing to [***] a monthly summary of all such advertisement
sales. [***] agrees that it will not [***] any such advertising inventory except
as set forth in the [***], without the prior approval of Replay.
c. Turner and Replay agree to share the [***] (as hereinafter defined)
generated as a result of inserted advertisements within Turner Replay Channels.
For purposes of this Section 8, [***] shall mean the [***] revenue received for
inserted advertisements as a result of an applicable rate which is [***] than
the [***] for the advertising previously [***] in which the advertisement is
being inserted. Such incremental advertising revenues received by Turner shall
be allocated first to third party agency commissions [***], second to [***] for
recoupment by [***] of [***] to be paid by [***] to third parties in connection
with inserted advertisements as set forth in a detailed accounting, it being
agreed that such fees will be [***] among all of the Replay Channels that use
inserted advertisements, with the [***] of the revenues to be [***] between
Replay and Turner. Turner agrees to pay to Replay [***] of such [***] received
each month within thirty days of the end of each month. Replay shall have
customary audit rights with respect to such [***] and its [***] of such
revenues. Any under-delivery liability associated with any such advertising
inventory shall be [***] between Turner and Replay.
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d. If Turner provides active promotion video content for insertion in any of
the Turner Replay Zones or within any of the Turner Networks, there will be
[***] to Turner for such active promotions for the Term of this Agreement.
9. Pause Time
----------
a. Replay intends to develop a method for inserting advertising or promotional
spots in the "pause" time that is created through the RNS. [***], subject to
[***] as set forth in Section 9(b) below, shall be entitled to sell the
advertising and promotional inventory in the "pause" time on any Turner Content
or any portion of any Turner Network and shall use best efforts to include
members of the [***] advertising salesforce in sales calls with advertisers or
advertising agencies with respect to such inventory.
b. Pricing for "pause" time inventory on any Turner Content or any portion of
any Turner Network shall be set by [***] (such pricing being hereinafter
referred to as the [***]). As market conditions allow from time to time, [***]
shall review and revise the [***]. [***] shall be responsible for invoicing
advertisers and providing to [***] a monthly summary of all such advertisement
sales. [***] agrees that it will not [***] any such inventory except as set
forth in the [***], without the prior approval of [***]. Replay agrees that all
"pause" time advertisements and promotions on any Turner Content or any portion
of any Turner Network shall be subject to [***] by Turner, which [***] right
shall be [***] in good faith, consistent with Turner's [***] concerning
advertisements or promotional messages to be aired on the Turner Networks on
cable television, also taking into account existing sponsorships, category or
programming [***] or similar arrangements that Turner may have with certain of
its advertisers and, to the extent applicable, any restrictions imposed on
advertisements by any of the professional sports leagues.
c. Turner and Replay agree to [***] the advertising revenues generated as a
result of the sale of "pause" time inventory on any Turner Content or any
portion of a Turner Network. Such gross advertising revenues received by Replay
shall be allocated first to third party agency commissions [***], second to
[***] for recoupment by [***] of [***] to be paid by [***] to third parties in
connection with "pause" time advertisements and promotions as set forth in a
detailed accounting, it being agreed that such fees will be [***] among all of
the Replay Channels that use "pause" time advertisements and promotions, with
the balance of such revenues to be [***] between Replay and Turner. Replay
agrees to pay to Turner [***] of such advertising revenues received each month
within thirty days of the end of each month. Turner shall have customary audit
rights with respect to such gross advertising revenues and its [***] of such
revenues. Any under-delivery liability associated with any such advertising
inventory shall be shared equally between Turner and Replay.
10. Enhanced Zone Sponsored Programming
-----------------------------------
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Turner may also elect to provide, and Replay may include as part of the RNS,
supplemental programming associated with Turner Replay Zone sponsored programs.
Such Turner Content may include video out-takes, bloopers, behind-the-scenes
footage, special interviews, etc. which enhance the programming of the Turner
Networks. Turner may broadcast this enhanced programming content at its
discretion, either before or after the show associated with such program
enhancements has been broadcast, the promotional value of the placement of such
enhancements being taken into account. The RNS will automatically record this
enhanced content and append this content to the Turner Replay Zone sponsored
Replay Channel, subject to non-conflicting tuning requirements and available
storage capacity for applicable ReplayTV Platforms. Replay agrees that there
will be [***] to Turner for any such programming enhancements tied to Turner
Replay Zone sponsored programming for the Term of this Agreement.
11. Pre-Configured Replay Channel
-----------------------------
Replay will use commercially reasonable efforts to pre-configure a Replay
Channel containing up to thirty minutes of deletable pre-recorded Turner
programming content on the ReplayTV Platform. Turner will provide pre-configured
channel content in a mutually agreed format to Replay upon a mutually agreed
schedule. The pre-configured channel will be capable of automatically recording
future programs, based on the Replay Channel parameters defined by Turner.
Replay agrees to [***] to Turner for one pre-configured Replay Channel for the
Term of this Agreement. Turner [***] additional pre-configured Replay Channels
at a [***] which is the [***] (i) [***] for a pre-configured Replay Channel and
(ii) [***] for a pre-configured Replay Channel.
12. Personalized CNN Premium Channel
--------------------------------
a. Replay and Turner shall use commercially reasonable efforts to develop,
launch and implement a mutually acceptable personalized CNN video news service.
The parties currently intend that the personalized news service shall consist of
at [***] of Turner news content broadcast in indexed short stories [***] on CNN
or CNN Headline News. The ReplayTV Platform will record the Turner personal news
broadcast, parse program segments according to consumer preferences for a
personalized news channel, and offer this channel to consumers on a daily basis.
Turner and Replay agree to start development of this service [***]. Turner and
Replay hereto agree that the availability of bandwidth for such service remains
to be determined and that their respective obligations set forth in this Section
12 are conditioned upon a mutually satisfactory and commercially reasonable
arrangement for such bandwidth.
b. Indexed content shall be considered Turner Content and shall be maintained
and updated by Turner, using a template and interface provided by Replay. Turner
will broadcast indexed content during a [***] broadcast interval to be
scheduled. Replay shall develop and operate the system for specifying user news
preferences, downloading and displaying indexed content, and presenting the
premium channel to the user. Replay will provide to Turner viewing statistics
and consumer billing services for the premium channel.
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c. The personalized CNN news channel will be one element of a premium service
offering of the RNS, requiring a monthly subscription fee for consumer service
activation. This service will consist of several personal channels. If there
is a personalized channel using Turner Content in such service, Turner and
Replay agree that the Turner portion of this subscription fee shall be an amount
which is equal to the [***] by the number of [***]. Replay will invoice
consumers and collect payment for the premium service offering and will provide
to Turner a monthly summary of such subscription fees.
d. The subscription revenues from the CNN news service shall be [***] by
Turner and Replay after recoupment of certain costs. Such revenues shall be
allocated equitably as described below to Replay for recoupment by Replay of
[***] paid to third parties by [***] in connection with personalized channels as
set forth in a detailed accounting, it being agreed that such fees will be [***]
among all of the personalized channels offered by Replay, and to Turner for
recoupment of programming cost for such news service as set forth in a detailed
accounting; with the balance of such revenues to be [***] between Turner and
Replay. To ensure equitable treatment of the parties in the recoupment of costs,
revenues will be allocated to the parties' respective costs on a pro rata basis
such that at any time each party shall have recouped the same percentage of its
total costs for any specified time period. Replay agrees to pay to Turner
Turner's share of such revenues received each month within thirty days of the
end of each month. Each party shall have customary audit rights with respect to
the subscription revenues and its respective share of such revenues.
e. Turner and Replay agree to develop and maintain the CNN personal news
service (or other such name to be determined), which shall cover U.S., World,
Politics, Business/Financial, Technology and Weather, but shall not include
local news or sports highlights. Turner agrees to provide such personal news
service (virtual channels with indexed content) solely with Replay Networks for
[***] from deployment. Replay agrees to operate such personal news service [***]
with Turner for such [***] period. Turner and Replay further agree to jointly
promote the CNN personal news service and not to promote any other personal news
service during such [***] period.
f. Turner and Replay agree to exploit reasonable and appropriate opportunities
to promote the CNN personal news service on ReplayTV Platforms. Promotional
opportunities may include advertising on CNN and Turner networks, print
advertisements, point-of-sale promotions, and other marketing vehicles used by
Turner and Replay Networks.
13. Other Personalized Premium Programming
--------------------------------------
a. Replay agrees to provide Turner [***] option during the Term of this
Agreement to create a [***]. The launch of such service is predicated upon the
mutual agreement between Replay and Turner that such service will provide value
to RNS premium subscribers and deliver content that is unique and proprietary;
to the extent such mutual agreement is reached, Turner will use commercially
reasonable efforts to launch such service.
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b. In the event that Replay desires to enter into an agreement with a third
party to create a [***] service, Replay agrees that, for the [***] period from
the launch of a Turner [***] service, the [***] ratio of content for such [***]
service will be substantially similar to the [***] ratio of content on such
third party's television network. Notwithstanding the foregoing, this section is
not intended to limit Replay's ability to produce personalized [***] content
with [***].
14. Turner Replay Channel Branding
------------------------------
Replay will use commercially reasonable efforts to develop the ability to
overlay Turner network brands on Replay Channels containing content broadcast on
a Turner Network, created as a result of show-based, theme-based, or zone-based
program selection. The Turner brand identifier will indicate the Turner Network
on which a program episode was originally broadcast. The Turner brand
identifier will be developed and provided by Turner according to a template
developed and specified by Replay.
15. Electronic-Commerce
-------------------
Replay shall use commercially reasonable efforts to develop the network
capability to support electronic-commerce transactions, including using industry
standard and approved security methods for billing of such transactions. The
parties mutually agree to develop electronic purchasing of Turner goods and
services at a later date using the ReplayTV Platform. The details of this
program, including the schedule for deployment, implementation detail, and
revenue sharing, shall be developed and mutually agreed to in an amendment to
this Agreement.
16. Sharing of Viewership & User Data
---------------------------------
a. Replay shall use best efforts to collect [***] viewership and usage data on
a monthly basis, during the Term of this Agreement, from users of the RNS. This
data will be in aggregate form and may be gathered via statistical sampling.
Replay will summarize this viewership information in the following [***]
information fields to be collected for [***]:
[***]
b. Replay will provide monthly viewership reports to Turner comprising the
information fields shown above. Initial viewership information is targeted to be
available in [***], although the exact date is subject to change due to changes
in Replay development schedules. Replay shall make this data available to
Turner, provided that such data will only be made available in aggregate form,
as permitted by law, as permitted by Replay's internal privacy policy, and by
Replay's agreement with its users of the RNS. Replay will also provide Turner
with the ability to conduct reasonable qualitative and/or quantitative research
among RNS users that also subscribe to personal television services, the scope
of such research being subject to approval by Replay, which approval shall not
be unreasonably withheld. For the purpose of conducting such research (and not
for the purposes of sale to third parties), upon Turner's request, Replay will
provide Turner's designated third party research vendor with access to RNS users
via telephone contact information. In such event, Turner agrees that no contact
information shall be provided by such third party research vendor to Turner and
all data obtained from RNS users by such third party research vendor is to be
shared and used by Turner and Replay for internal research purposes, with strict
respect to the privacy of such RNS users. All data collected by Replay as set
forth herein shall remain the property of Replay and may be used by Turner only
as provided herein. Replay shall provide all of the information described in
this Section 16 to Turner [***].
c. The parties hereto agree that (i) Replay shall not be obligated to provide
to Turner any of the aforedescribed information to the extent that such
information is specifically identifiable as information relating to programming
that is broadcast on any network other than the Turner networks and (ii) without
Turner's prior approval, Replay shall not provide to any third party any of the
aforedescribed information to the extent that such information is specifically
identifiable as information relating to programming that is broadcast on any of
the Turner Networks, it being understood and agreed that this Section 16(c) is
not intended to prohibit the provision by Replay of any of the aforedescribed
information in aggregate form, such that individual programs, networks or
programmers cannot be identified.
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17. Future Service Offerings
------------------------
Replay will manage the delivery of software upgrades to the ReplayTV Platform
via the RNS. Software updates will provide for field-upgradeable Replay Zones,
Replay Channels, features, interfaces, and bug fixes. During the Term of this
Agreement, Turner and Replay may agree to develop additional service offerings
that will become future elements of the RNS and may be downloaded to the
installed base of ReplayTV Platforms. Such service offerings shall be mutually
agreed to on a project-by-project basis, including the amount of financial,
creative, production, and technical resources each party shall commit.
18. Test Periods; Bandwidth
-----------------------
a. Turner and Replay agree that, for no less than the first [***] period of
the Term of this Agreement, the parties will conduct a test (the "Test") of the
Replay Network Service and
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<PAGE>
its functionality. The Test shall consist of an initial [***] period during
which Turner and Replay will test the revenue potential and efficiencies of
billboard and banner advertisements that are downloaded to the Replay Network
Service via the telephone connection that will exist with each RNS user.
Following the initial period of the Test (which may be extended beyond the
initial [***] period upon mutual agreement of Turner and Replay) and provided
that (i) Turner and Replay agree and (ii) there has been [***] of the insertion
of such non-video content, the parties shall proceed with the second period of
the Test. Such second period shall be a [***] period during which Turner agrees
to distribute video content of no more than [***] in length within unsold
commercial pods on one or more of the nationally-distributed Turner Networks (as
determined by Turner), not to exceed an aggregate of [***] of such video content
in any twenty-four hour period.
b. During the Test, Turner agrees to initiate discussions with its
distributors regarding the willingness of such distributors to provide bandwidth
for additional content for the creation of Turner premium channels, enhanced
zone-sponsored programming, e-commerce or other services on the Replay Network
Service and to use commercially reasonable efforts to reach an agreement with
such distributors with respect to the provision of such bandwidth.
Notwithstanding the foregoing, Turner shall have [***] if Turner determines, in
its sole discretion, that it would be disadvantageous to Turner to so continue,
it being understood that Turner will exercise the right to [***] in good faith,
taking into account that any such bandwidth is an opportunity for Replay to
provide additional services not only to Turner, but also to other programmers.
Replay acknowledges that such discussions with distributors may address issues
such as [***] which may require the parties hereto to [***] in this Agreement in
order to preserve the economic value of this Agreement for each party. To the
extent that Turner is successful in reaching agreement with cable operators with
respect to the provision of bandwidth, Replay agrees that such bandwidth shall
first be used to provide new content or services to Turner (or any of its
Affiliates) as Turner shall direct.
c. Notwithstanding the outcome of the discussions referred to in paragraph (b)
above, following the Test and through the remainder of the Term of this
Agreement, Turner agrees to continue to distribute short-form video content as
described in paragraph (a) above with respect to the second period of the Test.
19. Customer Support and Billing
----------------------------
Replay or OEM partners shall provide all customer support for ReplayTV Platforms
and the RNS service. Replay shall be responsible for end-user billing of premium
and subscription services.
20. Program Management
------------------
Replay agrees to assign a program manager to Turner for the purpose of
supporting Turner Content updates and managing the Turner portion of the RNS.
21. Marketing, Promotion, and Advertising
-------------------------------------
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13
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a. Replay agrees to provide Turner (or any of its Affiliates) with up to [***]
ReplayTV Platforms [***]. All ReplayTV Platforms provided to Turner (or any of
its Affiliates) will contain the highest memory/storage capacity available at
the time of order. Turner agrees that, to the extent Turner conducts any
consumer testing of the Replay TV Platforms, it will consult with and involve
Replay in any such testing and provide to Replay all of the data collected as a
result of such testing.
b. Turner and Replay agree to issue a joint press release announcing the
relationship contemplated by this Agreement. Except as required by law, neither
Turner nor Replay will issue a press release or other public announcement
concerning this Agreement or the contents hereof, without the prior consent of
the other party, which consent shall not be unreasonably withheld. Replay will
be the first personal television alliance publicly announced by Turner.
c. During the Term of this Agreement, Turner and Replay agree to work together
to exploit reasonable and appropriate opportunities to promote the Replay
Network Service and Personalized CNN News (when available) on a mutually
acceptable basis and as commercially practicable on the Turner Networks, the
Turner websites and at locations owned or controlled by Turner. Such promotions
shall exhibit the Replay Networks logo and tag line during broadcast events.
d. During the Term of this Agreement, Replay agrees to use commercially
reasonable efforts to include the Turner network brands in Replay promotions and
advertisements for the ReplayTV Platform. In addition, the personalized CNN
News will be highlighted in Replay and content provider marketing materials (PR,
promotion, advertising, point-of-sale, etc.) as soon as such service becomes
commercially available.
e. During the Term of this Agreement, to the extent commercially practicable
Turner shall make promotional items available for sponsorship give-aways at
Replay events when applicable and Replay agrees to provide up to [***] ReplayTV
Platforms [***] for Turner sweepstakes give-aways.
f. As soon as commercially practicable following execution of this Agreement,
(i) Turner agrees to provide links from the Turner website locations to the
Replay websites as specified by Replay and (ii) Replay agrees to provide
reciprocal links from Replay's websites to destination URLs specified by Turner.
g. Turner shall have the right to display the Replay Networks logo on Turner
print and on- or off-network television advertising. Such logo may be displayed
as a small icon in a peripheral portion of the Turner advertisement or
promotion. All such Turner print and on- or off-network television advertising
displaying the Replay Networks logo shall be subject to the prior approval of
Replay, which approval shall not be unreasonably withheld. Reply Networks shall
have the right to display the Turner logos and names in a peripheral portion of
Replay advertisements and promotion media. All such Replay advertisements and
promotional media displaying the Turner logos and names shall be subject to the
prior approval of Turner, which approval shall not be
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<PAGE>
unreasonably withheld. Except as expressly provided herein, neither party hereto
shall have the right to use the trademarks, tradenames, servicemarks, logos or
any other mark or name identifying the other party without the prior written
consent of the owner of such name or mark.
22. Programming Fees and Discounts; Other Terms
-------------------------------------------
a. Within thirty days after the execution of this Agreement by each of the
parties hereto, Turner shall pay to Replay a [***] in the amount of [***].
Replay share bear any and all additional costs and expenses incurred by it in
the performance of its obligations under this Agreement. Turner will bear all
costs and expenses incurred in the creation of the Turner Networks and the
Network Content, unless otherwise provided herein. During the Term of this
Agreement and any extension, renewal or restatement hereof, for all RNS related
fees, charges and expenses, Turner and its Affiliates shall receive the [***]
(i) the [***] and (ii) the [***] discount (no less than [***] off of the Replay
ratecard rate) available on RNS offerings.
b. If Replay has entered into or enters into any agreement with any third
party media company, studio, network or content provider with respect to any of
the matters addressed in this Agreement or any other current or future RNS
offerings or services, which third party agreement provides any more favorable
terms (each, a "More Favorable Term") than the comparable terms in this
Agreement, then and in that event, Replay shall promptly notify Turner of each
such More Favorable Term. The availability of any More Favorable Term may be
subject to one, or a clearly defined few, conditions, that is or are logically
linked and directly tied to such More Favorable Term and which conditions
provide a direct, immediate or foreseeable benefit to Replay; provided, that
Turner shall not be obligated to perform any condition that Turner cannot
reasonably perform or that is designed in such a way to make performance by
Turner impracticable, unlikely or impossible or that Turner previously has
performed or rendered a substantially equivalent performance hereunder. Turner
shall have the option, at any time within [***] after Turner's receipt of notice
of any More Favorable Term, to elect by written notice to Replay, to accept such
More Favorable Term, together with any permitted conditions, in substitution for
the comparable term in this Agreement.
23. Confidentiality and Nondisclosure
---------------------------------
a. Each party (the "receiving party") shall treat as confidential all
Confidential Information (as hereinafter defined) of the other party (the
"disclosing party") and shall not use such Confidential Information except as
set forth in this Agreement. Each receiving party shall disclose Confidential
Information of the disclosing party only to its directors, officers, employees
and consultants and those of its affiliates who are required to have such
information in order for the receiving party to carry out the transactions
contemplated by this Agreement and who have been advised of the obligations set
forth in this Section 23. The receiving party shall promptly notify the
disclosing party of any actual or suspected misuse or unauthorized disclosure of
the disclosing party's Confidential Information.
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b. For purposes of this Agreement, "Confidential Information" of a disclosing
party shall mean any non-public and/or proprietary information of such party,
including, without limitation, technical data, trade secrets, plans for products
or services, marketing plans, software, and financial documents or data, in
whatever form or medium. "Confidential Information" shall not include any
information that (i) is in the public domain or has entered the public domain
through no fault of the receiving party; (ii) was known to the receiving party
at the time of disclosure to the receiving party, as demonstrated by files in
existence at the time of disclosure; (iii) was independently developed by the
receiving party without any use of the Confidential Information, as demonstrated
by files created at the time of such independent development; or (iv) becomes
known to the receiving party from a source other than the disclosing party,
which disclosure is not in violation of the disclosing party's rights.
c. If the receiving party receives a subpoena or order for the disclosure of
Confidential Information of the disclosing party, the receiving party shall
provide prompt notice of such subpoena or order to the disclosing party to
enable the disclosing party to seek a protective order or otherwise prevent or
restrict such disclosure. Upon expiration or termination of this Agreement,
each party shall promptly return all Confidential Information of the other
party.
24. Indemnification
---------------
a. Replay will indemnify, defend and hold harmless Turner and its affiliated
companies (and each of their respective present and former employees, agents,
directors, shareholders and parent and subsidiary companies) against and from
any and all claims, damages, penalties, liabilities, costs and expenses
(including, without limitation, reasonable fees and disbursements of counsel and
court costs, but excluding lost profits and consequential damages) arising out
of or relating to (i) the breach by Replay of any of its covenants or
obligations under this Agreement and (ii) the use of any of Replay's equipment
or software, to the extent that such use infringes, or is alleged to infringe,
any U.S. copyright, mask work, patent or trademark, or misappropriates, or is
alleged to misappropriate, any trade secret.
b. Turner will indemnify, defend and hold harmless Replay and its affiliated
companies (and each of their respective present and former employees, agents,
directors, shareholders and parent and subsidiary companies) against and from
any and all claims, damages, penalties, liabilities, costs and expenses
(including, without limitation, reasonable fees and disbursements of counsel and
court costs, but excluding lost profits and consequential damages) arising out
of or relating to (i) the breach by Turner of any of its covenants or
obligations under this Agreement and (ii) any claim that the Turner Networks or
the Turner Content (A) infringes on, or constitutes a misappropriation of any
third party's copyright, patent, trademark, trade secret or other proprietary or
intellectual property right, or right of publicity or privacy; (B) is defamatory
or trade libelous; (C) is lewd, pornographic or obscene; or (D) violates any
laws regarding unfair competition, anti-discrimination or false advertising;
provided, that Replay shall, to like extent, indemnify, defend and forever hold
- --------
Turner and the corresponding Turner entities, harmless from and against any and
all claims, damages, penalties, liabilities, costs and expenses (including,
without limitation, reasonable fees and disbursements of counsel and court
costs, but excluding lost profits and consequential damages) arising out of any
deletion from, alteration of, or addition to,
16
<PAGE>
the Network Content by Replay or creation of any material by Replay (such as the
creation of promotional material).
c. In the event that legal proceeding are instituted or a claim is asserted
which may give rise to indemnification, the party seeking indemnification (the
"Indemnified Party") shall provide prompt notice of such proceeding or claim to
the party from whom indemnification is sought (the "Indemnifying Party"). The
Indemnifying Party shall be entitled to defend against, negotiate, settle or
otherwise deal with any such proceeding or claim, represented by counsel of its
own choice at its own expense; provided, that the Indemnified Party may
--------
participate in any such proceeding, with counsel of its own choice at its own
expense, and no settlement of any such claim may be effected without the consent
of the Indemnified Party, which consent will not be unreasonably withheld.
25. Termination of Agreement; Survival of Provisions
------------------------------------------------
a. This Agreement may be terminated as follows:
(i) by the mutual agreement of the parties hereto;
(ii) by any party upon a breach by another party of a material term of
this Agreement and such breach shall remain unremedied for at least
[***] after notice from a non-breaching party; or
(iii) by any party if any of the following events shall occur with
respect to another party (A) a receiver is appointed for such other
party or its assets; (B) such other party becomes insolvent, is
generally unable to pay its debts as they become due, makes an
assignment for the benefit of its creditors or seeks relief under
any bankruptcy or insolvency law; (C) if proceedings are commenced
against such other party under any bankruptcy or insolvency law,
such proceedings have not been vacated within [***] of the
commencement thereof; or (D) if such other party is liquidated,
dissolved or ceases to do business.
b. The provisions of Sections 4(a), 8(a), 23, 24 and 25 of this Agreement
shall survive the termination or expiration of this Agreement.
26. Time Warner Entities
--------------------
a. The parties hereto agree to use best efforts to engage in discussions with
each of the other divisions of Time Warner with respect to the negotiation of a
mutually agreeable arrangement between Replay and each such other division on
terms and conditions substantially similar to the terms and conditions set forth
in this Agreement to the extent such terms and conditions are relevant and
applicable to such other arrangements. Notwithstanding the foregoing, nothing
contained herein shall prohibit any other division of Time Warner from
negotiating terms that are different from the terms contained herein, or which
augment or supplement the terms contained herein.
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b. Replay hereby agrees that Time Warner and its Affiliates shall be entitled
to designate up to [***] representatives to the Replay Advisory Council for the
Term of this Agreement and any extensions hereof. The Replay Advisory Council
shall meet on a quarterly basis at times mutually agreed and shall provide a
forum for the discussion of industry developments and advances in technology as
they relate to Replay's strategy and operations.
27. Miscellaneous
-------------
a. The relationship of the parties established by this Agreement is that of
independent contractors, and nothing contained in this Agreement will be
construed (i) to give any party the power to direct and control the day-to-day
activities of the other, (ii) to constitute the parties as partners, joint
ventures, co-owners or otherwise as participants in a joint or common
undertaking, or (iii) to allow any party to create or assume any obligation on
behalf of the other for any purpose whatsoever.
b. If the performance of this Agreement or any obligations hereunder is
prevented, restricted or interfered with by reason of fire or other casualty or
accident, strikes or labor disputes, war or other violence, any law, order,
proclamation, regulation, ordinance, demand or requirement of any government
agency, or any other act or condition beyond the reasonable control of the
parties hereto, the party so affected upon giving prompt notice to the other
parties shall be excused from such performance during such prevention,
restriction or interference.
c. This Agreement contains the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes and terminates all
prior arrangements or understandings (whether written or oral) with respect
thereto. The terms of this Agreement may be amended or waived only by a written
instrument signed by each of the parties hereto. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon the parties and
their respective successors and assigns.
d. None of the parties shall assign this Agreement or any of its rights,
obligations or privileges hereunder without the prior written consent of the
other parties hereto, which consent shall not be unreasonably withheld;
provided, that Turner or Time Warner may so assign to any of its Affiliates and
any party may so assign in connection with the sale of all or substantially all
of its assets. Subject to the foregoing, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties. 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.
e. This Agreement and all acts and transactions pursuant hereto and the rights
and obligations of the parties hereto shall be governed, construed and
interpreted in accordance with the laws of the State of California without
giving effect to principles of conflicts of law.
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f. This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
instrument.
g. The section headings used in this Agreement are used for convenience only
and are not to be considered in construing or interpreting this Agreement.
h. Any notice required or permitted by this Agreement shall be in writing and
shall be deemed sufficient upon receipt, when delivered personally or by
courier, overnight delivery service or confirmed facsimile, or forty-eight hours
after being deposited in the regular mail as certified or registered mail
(airmail if sent internationally) with postage prepaid, if such notice is
addressed to the party to be notified at such party's address as set forth
above, or as subsequently modified by written notice.
i If one or more provisions of this Agreement are held to be unenforceable
under applicable law, the parties agree to renegotiate such provision in good
faith, in order to maintain the economic position enjoyed by each party as close
as possible to that under the provision rendered unenforceable. In the event
that the parties cannot reach a mutually agreeable and enforceable replacement
for such provision, then (i) such provision shall be excluded from this
Agreement, (ii) the balance of this Agreement shall be interpreted as if such
provision were so excluded and (iii) the balance of this Agreement shall be
enforceable in accordance with its terms.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first written
above.
Replay Networks, Inc.
By /s/ Anthony Wood
----------------------
Name: Anthony Wood
Title: CEO
Turner Broadcasting System, Inc.
/s/ Louise S. Sams
-----------------------------------
Name: Louise S. Sams
Title: VP/General Counsel
Time Warner Inc.
By /s/ Richard Bressler
------------------------------
Name: Richard Bressler
Title: Chairman & CEO
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AMENDMENT NO. 1 TO REPLAY NETWORK SERVICE AGREEMENT
THIS AMENDMENT NO. 1 TO REPLAY NETWORK SERVICE AGREEMENT (the "Amendment")
is entered into as of the 10th day of February, 2000 by ReplayTV, Inc.
(formerly, Replay Networks, Inc.) ("Replay"), Turner Broadcasting System, Inc.
("Turner") and Time Warner Inc. ("Time Warner"). The capitalized terms used
herein without definition shall have the meaning assigned to such terms in the
Replay Network Service Agreement referred to below.
WITNESSETH
WHEREAS, Replay, Turner and Time Warner are parties to that certain Replay
Network Service Agreement dated July 30, 1999 (the "Agreement");
WHEREAS, Replay, Turner and Time Warner desire to amend the Agreement as
set forth herein;
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereby agree as follows:
1. Amendment to Section 16. Section 16 of the Agreement is replaced in its
-----------------------
entirety as follows:
- --------------------------------------------------------------------------------
16. Data
----
a. Consistent with applicable laws, any applicable Replay privacy policy and
with Replay's agreement with its users of the RNS, Replay will collect
viewership and usage data during the Term of this Agreement, from users of the
RNS. This data will only be available in aggregate form and may be gathered via
statistical sampling. Replay will summarize this viewership information and
provide monthly viewership reports to Turner comprising the aggregate data
collected in a format to be mutually agreed upon between the parties.
b. Again, subject to applicable laws, Replay privacy policies and Replay's
agreement with its users of the RNS, Replay will also provide Turner with the
ability to conduct reasonable qualitative and/or quantitative research among RNS
users that also subscribe to personal television services, the scope of such
research being subject to approval by Replay, which approval shall not be
unreasonably withheld. For the purpose of conducting such research (and not for
the purposes of sale to third parties), upon Turner's request, Replay will
provide Turner's designated third party research vendor with access to RNS users
via telephone contact information. In such event, Turner agrees that no contact
information shall be provided by such third party research vendor to Turner and
all data obtained from RNS users by such third party research vendor is to be
shared and used by Turner and Replay for internal research purposes, with strict
respect to the privacy of such RNS users.
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c. All data collected by Replay as set forth herein shall remain the
property of Replay and may be used by Turner only as provided herein. Replay
shall provide all of the information described in this Section 16 to Turner
[***].
d. The parties hereto agree that (i) Replay shall not be obligated to
provide to Turner any of the aforedescribed information to the extent that such
information is specifically identifiable as information relating to programming
that is broadcast on any network other than the Turner Networks and (ii) without
Turner's prior approval, Replay shall not provide to any third party any of the
aforedescribed information to the extent that such information is specifically
identifiable as information relating to programming that is broadcast on any of
the Turner Networks, it being understood and agreed that this Section 16(c) is
not intended to prohibit the provision by Replay of any of the aforedescribed
information in aggregate form, such that individual programs, networks or
programmers cannot be identified.
- --------------------------------------------------------------------------------
2. Change of name of Replay Networks, Inc. In January, 2000, Replay Networks,
---------------------------------------
Inc. changed its name to ReplayTV, Inc. All references to Replay Networks,
Inc. in the Agreement are hereby amended to ReplayTV, Inc.
3. Governing Law. This Amendment and all acts and transactions pursuant
-------------
hereto and the rights and obligations of the parties hereto shall be
governed by, construed and interpreted in accordance with the laws of the
State of California without giving effect to principles of conflict of law.
4. Authorization. Each party represents and warrants to each other that it has
-------------
been duly authorized to execute and deliver this document and to perform
its obligations hereunder, and the person signing on such party's behalf
has the power and authority to do so.
5. Effect of this Amendment. This Amendment is limited precisely as written
------------------------
and shall not constitute a modification of any other provision of the
Agreement. Except as specifically modified or amended by this Amendment,
the Agreement remains in full force and effect in accordance with its
terms.
6. Effective Date. This Amendment shall be deemed to be effective upon the
--------------
execution hereof by each of the parties hereto.
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7. Counterparts. This Amendment may be executed in two or more counterparts,
------------
each of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their authorized representatives as of the date first above written.
ReplayTV, Inc.
By /s/ Layne Britton
-----------------------------------
Name: Layne Britton
Title: Executive Vice President, RTVS
Turner Broadcasting System, Inc.
By /s/ Louise S. Sams
------------------------------------
Name: Louise S. Sams
Title: Vice President and General Counsel
Time Warner Inc.
By /s/ Thomas McEnerney
-----------------------------------
Name: Thomas McEnerney
Title: Vice President
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EXHIBIT 10.23
REPLAY NETWORK SERVICE AGREEMENT
--------------------------------
This Replay Network Service Agreement (this "Agreement") is made as of the ___
day of March, 2000 between ReplayTV, Inc., a Delaware corporation having its
place of business at 1945 Charleston Road, Mountain View, California 94043
("Replay Networks" or "Replay"), FOX Broadcasting Company ("FBC") a Delaware
corporation having its principal place of business at 10201 West Pico Boulevard,
Los Angeles, CA 90035.
WHEREAS, the parties hereto desire to enter into this Agreement to more fully
describe their relationship and to provide for their respective rights and
obligations as it relates to programming exhibited on FOX Network(s) (as defined
below) and the Replay Network Service as more fully described herein.
In consideration of the foregoing and of the mutual promises contained below,
the parties agree as follows:
1. Definitions
-----------
As used in this Agreement, the following terms shall have the following
meanings:
a. "FOX Entity" shall mean each network, television station or other entity
that is controlled by, or is wholly or partially owned by FBC or Fox
Entertainment Group, Inc., either directly or indirectly.
b. "FOX Network" shall mean any FOX Entity which FBC elects to promote on the
RNS (as defined below) pursuant to the terms of this Agreement.
c. "Lead-in, Lead-out Advertisements" shall mean advertisements or promotional
content prior to and following, respectively, playback of any FOX Network
programming.
d. "MFN Rate" shall mean the [***] rate charged by Replay for any of the RNS
offerings, including, but not limited to, Replay Zones and pre-configured Replay
Channels.
e. "Pause Advertisements" shall mean advertisements or promotional content
displayed when a viewer pauses Fox Network programming.
f. "ReplayTV Platform" shall mean the hardware for the Replay Network Service
(as defined below) and Replay Networks' reference implementation for such
hardware (including specifications, schematics, bill of materials, FPGA source,
PAL source, manufacturing documentation, and other documentation needed to
manufacture the ReplayTV Platform), the ReplayTV Platform client software
(including applications, operating system, device drivers, electronic program
guide, and other unique Replay software), related peripheral equipment such as
remote controls, and Replay owned patents, trademarks, and other intellectual
property needed to market the ReplayTV
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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Platform. Initially, the ReplayTV Platform shall consist of a stand-alone
implementation (ReplayTV 1000 or ReplayTV 2000). Future ReplayTV Platforms,
offered by Replay and original equipment manufacturer ("OEM") partners, may
integrate additional features.
g. "Replay Network Service" or "RNS" shall mean the Replay Network Personal
Television Service, a television and Internet based delivery service that
enables customized, on-demand television viewing, custom content, and a
television navigation portal via the ReplayTV Platform. Examples of services
offered via the Replay Network Service might include Replay Zones (as defined
below), sponsored Replay Channels (as defined below), unique sponsored content,
messaging, commerce, software updates, electronic programming guide data, and
time services. As used in this Agreement, the term Replay Network Service or
RNS does not include any delivery or viewing of any content (including, without
limitation, the FOX Networks) over the internet other than the FOX Content which
is expressly licensed to Replay for delivery (but not viewing) over the
internet. The Replay Network Service includes "Basic" services, "Premium"
(monthly or periodic fee) services, and Pay-Per-View services.
h. "Replay Channels" are locally stored personalized channels with associated
television programming. Replay Channels may be created by a user, via explicit
specification of show or theme-based recording criteria. Replay Channels may
also be automatically created from a Replay Zone, based on information provided
by Replay or the content provider. Replay Channels are listed on the Replay
Guide, where all locally stored and available television programming is listed.
i. "Replay Zones" are promotional offerings that, when invoked, automatically
select and record television programming of interest to a user. Replay Zones are
displayed to the user on the Zone Guide, a television portal or launch location
from which pertinent television services may be selected for automatic
recording. When selected by the user, a Replay Zone may immediately select
programming to be recorded or may offer the user more detailed selection
criteria for automatically recording television programming.
j. "FOX Content" shall mean the content (other than the content of the FOX
Networks) that FBC elects to integrate into the RNS. This content may include
program information, text, pictures, graphics, sound, video and other data
related to television program services or personal television program services
related to each of the television program services.
2. Term
----
The term of this Agreement (the "Term") shall commence as of March 9, 2000
and expire one year later on March 8, 2001, unless earlier terminated in
accordance with this Agreement. FBC shall have a unilateral right to extend the
Term of this Agreement for two additional periods of one year each by providing
notice thereof to Replay no less
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than [***] prior to the end of the Term.
3. License; Reservation of Rights
------------------------------
a. In consideration of the relationship contemplated by this Agreement, FBC
hereby grants to Replay a [***] license to the [***] and all programming
included in the [***] and the [***], to the extent FBC owns the copyright in
such programming or such [***] or has received the requisite rights in such
programming or such [***] from the copyright holder to grant such license, for
[***] distribution through the ReplayTV Platform and the Replay Network Service
[***]. It is expressly understood that nothing herein shall be construed to
grant Replay a license to any FOX Entity that is not a FOX Network or a license
to exhibit [***] to the public for a fee or other consideration. It is expressly
understood that Replay intends to deliver, and is licensed to deliver, [***]
from Replay servers to Replay devices using communication services utilizing the
internet for storage on Replay devices only.
b. Nothing contained in this Agreement, the existence of this Agreement, nor
the issuance of any press release concerning or relating to this Agreement shall
constitute a waiver of or an estoppel against any right of any FOX Entity to
assert any right or claim against Replay with regard to any cause of action that
any FOX Entity may believe it may have against Replay, all of which rights are
hereby explicitly reserved.
4. Content Rights and Responsibilities
-----------------------------------
a. FBC will be responsible for creating, selecting, producing, and providing
all FOX Content during the Term of this Agreement and for clearing all rights
and obtaining all requisite consents for the use of the FOX Content in the
manner contemplated by this Agreement. FBC represents and warrants that the FOX
Content shall be consistent in quality and standards with the FOX Networks and
accordingly shall not contain programming that is defamatory, lewd, pornographic
or obscene. Replay shall not make any alterations, modifications, additions, or
deletions (including, without limitation, the overlaying of any advertisements
or promotional materials, text, graphics or interactive links other than any
such text or graphics that are operational or informational as it relates to the
use of the RNS) to any of the FOX Networks, the FOX Content (including, without
limitation, credit obligations, copyright, trademark notices and the like) or to
any programming on the FOX Networks or any FOX Content in any Replay Channel or
Replay Zone, except with the prior approval of FBC in its absolute discretion.
In addition, Replay agrees that it will not modify, insert or delete any
advertising or promotional materials in any programming on the FOX Networks or
in the FOX Content without the prior approval of FBC in its absolute discretion.
Replay hereby agrees that the requirement for FBC's prior approval of any such
alterations, modifications, additions or deletions to any advertisements or
promotional materials in programming on the FOX Networks or any FOX Content
shall [***]. Notwithstanding anything to the contrary in this Agreement,
Replay
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acknowledges that FBC does not believe that Replay has any rights to include
[***] without the prior approval of FBC in its absolute discretion.
Notwithstanding anything to the contrary in this Agreement, FBC acknowledges
that Replay believes it has all necessary rights to include [***] without the
prior approval of FBC. Notwithstanding anything to the contrary in this
Agreement, FBC and Replay agree that nothing contained in this Agreement shall
constitute:
i. a waiver of any right or claim against the other party;
ii. an estoppel against the right of the other party to assert any claim;
iii. an admission by Replay that it lacks a right or requires a license or
other permission from FBC; or
iv. an admission by FBC that a right has been granted or a concession has
been made to Replay that a license or other permission is not
required from FBC;
with respect to [***]. All such rights and claims are expressly reserved.
b. Replay shall provide a template and interface requirements (the "Interface
Requirements") to serve as a basis for each of the Replay Channels, FOX Network
Replay Zones (hereinafter "Fox Zone"), and other RNS components. Examples of
Interface Requirements include text fonts and sizes, color palettes, and maximum
image sizes, for the purpose of working within the RNS. Replay shall have the
right to verify that all [***] meets the Interface Requirements, and to
reject any content that does not meet the requirements. All [***] must
conform to the RNS content specifications, to be supplied to FBC, which
specifications may be modified by Replay at its sole discretion from time to
time with no less than thirty days prior notice of any such modification to FBC.
Replay shall use commercially reasonable efforts to implement a process which
will allow FBC to update, modify, delete or otherwise alter [***] on each
FOX Network Replay Channel and FOX Zone on no less than a weekly basis via a
telephone line or other mutually agreed upon electronic interface method. FBC
shall be allowed to update the look and feel of each FOX Network Replay Channel
and the FOX Zone (subject to the Interface Requirements) at reasonable time
intervals to be mutually agreed by FBC and Replay in accordance with delivery
requirements to be provided to FBC by Replay.
c. As between FBC and Replay, all right, title and interest in the FOX
Networks and the FOX Content shall remain the property of FBC. All right, title
and interest in the Replay Zones and the Replay Channels (other than the FOX
Networks, the FOX Content or any element thereof) shall remain the property of
Replay. Replay acknowledges and agrees that all trade names, trademarks and
service marks of FBC and its program suppliers (collectively, the "FBC Marks")
shall remain the property of FBC or such program supplier, as applicable, and
nothing in this Agreement shall confer on Replay any right of ownership in any
of the FBC Marks. All uses of the FBC
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Marks shall inure to the benefit of FBC or such program supplier, as applicable.
FBC acknowledges and agrees that all trade names, trademarks and service marks
of Replay (the "Replay Marks") shall remain the property of Replay and nothing
in this Agreement shall confer on FBC any right of ownership in any of the
Replay Marks. All uses of the Replay Marks shall inure to the benefit of Replay.
d. Replay shall include in its user instruction manuals (no earlier than the
next scheduled revision to such manuals) a statement that says -- ,"It is the
intent of Replay that this product be used in full compliance with the copyright
laws of the United States and that prior permission from copyright owners may be
required for certain public performances and certain commercial uses."
5. Replay Zones
------------
a. Replay shall develop a Replay Zone Guide in which FBC may promote the
programming of [***]. Replay shall provide FBC with prominent positioning to be
used for [***] on [***] of the RNS Zone Guide for [***]. In the event FBC
exercises its option to purchase at least [***] additional [***], Replay shall
provide FBC with prominent positioning to be used for [***] on [***] of the RNS
Zone Guide for (i) [***] if [***] of the RNS Zone Guide has [***] or (ii) [***]
if [***] of the RNS Zone Guide has [***]. Replay will have [***] on the [***] of
the RNS Zone Guide. In the event FBC exercises its option for additional Fox
Zones provided in paragraph 5(c) for [***] additional [***], Replay will provide
FBC additional FOX Zone slots within the [***] RNS Zone Guide pages as follows:
(i) [***] on [***] of the RNS Zone Guide and (ii) unless FBC has been provided
with [***] on [***] as described above, [***] within pages [***] of the RNS Zone
Guide. In the event FBC exercises its option for additional Zones provided in
paragraph 5(c) for [***] additional [***], Replay will provide FBC additional
FOX Zone slots within the [***] RNS Zone Guide pages as follows: (i) [***] on
[***] of the RNS Zone Guide and (ii) [***] within [***] of the RNS Zone Guide.
The number of Fox Zones on pages [***] shall be reduced to [***] at such time
that FBC has been provided [***] on [***] of the RNS Zone Guide. Subject to the
limitations described in the two immediately preceding sentences, FBC shall have
the right to move any of its FOX Zones to different pages within the RNS Zone
Guide. When selected by an RNS user, a FOX Zone will display a full screen of
programming options as developed and maintained by FBC to meet the Interface
Requirements. RNS will enable the RNS user to select one or more of the
available programming options set forth in the FOX Zone, which will
automatically provide for future recording of FOX Content or portions of the FOX
Networks. Such automatically recorded FOX Network programming shall reside in a
FOX Network Replay Channel which will be branded with a FBC specified logo,
according to a template provided by Replay. FBC will keep the
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programming information associated with the FOX Zones current and consistent
with FOX Network programming on a weekly basis. FBC shall be free to determine
[***] are promoted in a Zone and may promote [***] in each Replay Zone.
b. Replay and FBC will work together to establish processes for video and
graphics content download for FOX Zones to ReplayTV Platforms using the RNS and
FOX Networks. The parties agree that the amount of text, graphics, and video
download will be limited to a reasonable, cost-effective connection time for
platforms to the RNS. Downloads exceeding such reasonable connection time may
be subject to an [***], to be mutually agreed by Replay and FBC.
Replay will use best efforts to reach an initial deployment of the FOX Zones in
the second quarter of 2000 with a graphics implementation. It is currently
intended that a subsequent software release for ReplayTV Platforms will support
video-oriented promotional content in the FOX Zones.
c. Replay will provide to FBC up to [***] FOX Zones [***] for the Term. FBC
shall receive additional FOX Zones at a [***] (i) [***] of the Replay [***]
for the sponsorship of a Replay Zone and (ii) the [***] for the sponsorship of a
Replay Zone. FBC agrees that FBC (or a FOX Entity) will purchase [***] at [***]
of the [***] described in clauses (i) and (ii) of the immediately preceding
sentence for the Term of this Agreement and shall receive its [***] of the [***]
as a result of agreeing to this purchase. During the initial term of this
Agreement (but not during any additional period), FBC may elect to purchase up
to [***] additional Replay Zones at the rates described in the previous sentence
and, if FBC does so elect, FBC shall receive [***] of the [***] Zones described
in the first paragraph of this sentence for each Replay Zone it elects to
purchase pursuant to this sentence. Replay and FBC hereby agree that the initial
Replay [***] for the sponsorship of a Replay Zone shall be [***] , subject to
market increases during the Term of the Agreement as determined by Replay. For
purposes of this paragraph, a unit shall be considered to be an active unit in
any month during which the unit communicates with the RNS on at least one
occasion. Payments for Replay Zones shall commence on the [***] of (i) the [***]
in which Replay Zones are made available for FBC's use and (ii) the [***] in
which Replay commences charging all other participants who are contractually
obligated to pay for Replay Zone usage. Replay will only charge FBC for [***]
pursuant to the terms of this Agreement. Replay is only obligated to make FOX
Zones available on units licensed under Paragraph 3(a).
6. Advertising Services
--------------------
Subject to Section 19 (b) hereof, upon FBC's election, the parties will
negotiate in good faith for a period of [***] regarding opportunities
presented by such technology, including the method, mechanics and economics of
inserting or substituting advertisements and/or lead-in/lead-out advertisements,
zone and/or pause time
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advertisements into any FOX Content or any programs broadcast by one or more FOX
Networks (each an "Advertising Service"). In the event that the parties fail to
reach agreement prior to the expiration of the [***] period, Replay shall
promptly offer FBC the option to utilize for the benefit of any FOX Network any
and all Advertising Services that FBC desires pursuant to the More Favorable
Terms (as defined below) that Replay has offered to any other entity for
utilization of such Advertising Service(s).
7. Enhanced Zone Sponsored Programming
-----------------------------------
FBC may also elect to provide, and Replay may include as part of the RNS,
supplemental programming associated with FOX Zone sponsored programs. Such FOX
Content may include video out-takes, bloopers, behind-the-scenes footage,
special interviews, etc. which enhance the programming of the FOX Networks. The
applicable FOX Network may broadcast this enhanced programming content at its
discretion, either before or after the show associated with such program
enhancements has been broadcast, the promotional value of the placement of such
enhancements being taken into account. The RNS will automatically record this
enhanced content and append this content to the FOX Zone sponsored Replay
Channel, subject to non-conflicting tuning requirements and available storage
capacity for applicable ReplayTV Platforms. Replay agrees that there will be
[***] to FBC for any such programming enhancements tied to FOX Zone sponsored
programming for [***].
8. Pre-Configured Replay Channel
-----------------------------
Replay will use commercially reasonable efforts to pre-configure a FOX Network
Replay Channel containing up to [***] of deletable, pre-recorded FOX
Network programming content on the ReplayTV Platform. FBC will provide pre-
configured channel content in a mutually agreed format to Replay upon a mutually
agreed schedule. The pre-configured channel will be capable of automatically
recording future programs, based on the Replay Channel parameters defined by
FBC. Replay agrees to [***] to FBC for [***]for the Term of this Agreement. FBC
[***] additional pre-configured FOX Channels at a [***] which is the [***] (i)
[***] for a pre-configured Replay Channel and (ii) [***] for a pre-configured
Replay Channel.
9. Personalized, Premium Services
------------------------------
At FBC's election, the parties shall negotiate with each other in good faith the
terms on which they will cooperate to develop, launch and implement
personalized, premium FOX Network channel(s) during the Term. The launch of any
such service is predicated upon the mutual agreement of FBC and Replay that such
service will provide value to RNS premium subscribers and deliver content that
is unique and proprietary. To the extent that such mutual agreement is reached,
FBC and Replay will use reasonable commercial efforts to launch such service(s).
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10. FOX Network Replay Channel Branding
-----------------------------------
Replay will use commercially reasonable efforts to develop the ability to
overlay FOX Network brands on Replay Channels containing content broadcast on a
FOX Network, created as a result of show-based, theme-based, or zone-based
program selection. The FOX Network brand identifier will indicate the FOX
Network on which a program episode was originally broadcast. The FOX Network
brand identifier will be developed and provided by FBC according to a template
developed and specified by Replay. Replay agrees that there will be [***] to
FBC for any such branding pursuant to this paragraph.
11. Electronic-Commerce
-------------------
Replay shall use commercially reasonable efforts to develop the network
capability to support electronic-commerce transactions, including using industry
standard and approved security methods for billing of such transactions. At
FBC's election, the parties shall discuss in good faith developing electronic
purchasing of goods and services at a later date using the ReplayTV Platform.
The details of this program, including the schedule for deployment,
implementation detail, and economic terms, shall be developed and mutually
agreed to in an amendment to this Agreement.
12. Data
----
a. Consistent with applicable laws, any applicable Replay privacy policy and
with Replay's agreement with its users of the RNS, Replay will collect
viewership and usage data during the Term of this Agreement, from users of the
RNS. This data will only be available in aggregate form and may be gathered via
statistical sampling. Replay will summarize this viewership information and
provide monthly viewership reports to FBC comprising the aggregate data
collected in a format to be mutually agreed upon between the parties.
b. Again, subject to applicable laws, Replay privacy policies and Replay's
agreement with its users of the RNS, Replay will also provide FBC with the
ability to conduct reasonable qualitative and/or quantitative research among RNS
users that also subscribe to personal television services, the scope of such
research being subject to approval by Replay, which approval shall not be
unreasonably withheld. For the purpose of conducting such research (and not for
the purposes of sale to third parties), upon FBC's request, Replay will provide
FBC's designated third party research vendor with access to RNS users via
telephone contact information. In such event, FBC agrees that no contact
information shall be provided by such third party research vendor to FBC and all
data obtained from RNS users by such third party research vendor is to be shared
and used by FBC and Replay for internal research purposes, with strict respect
to the privacy of such RNS users.
c. All data collected by Replay as set forth herein shall remain the property
of
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Replay and may be used by FBC only as provided herein. Replay shall provide
all of the information described in this Section 16 to FBC [***].
d. The parties hereto agree that (i) Replay shall not be obligated to provide
to FBC any of the aforedescribed information to the extent that such information
is specifically identifiable as information relating to programming that is
broadcast on any network other than the Fox Networks and (ii) without FBC's
prior approval, Replay shall not provide to any third party any of the
aforedescribed information to the extent that such information is specifically
identifiable as information relating to programming that is broadcast on any of
the Fox Networks, it being understood and agreed that this Section 16(c) is not
intended to prohibit the provision by Replay of any of the aforedescribed
information in aggregate form, such that individual programs, networks or
programmers cannot be identified.
13. Future Service Offerings
------------------------
Replay will manage the delivery of software upgrades to the ReplayTV Platform
via the RNS. Software updates will provide for field-upgradeable Replay Zones,
Replay Channels, features, interfaces, and bug fixes. During the Term of this
Agreement, FBC and Replay may agree to develop additional service offerings that
will become future elements of the RNS and may be downloaded to the installed
base of ReplayTV Platforms. Such service offerings shall be mutually agreed to
on a project-by-project basis, including the amount of financial, creative,
production, and technical resources each party shall commit.
14. Customer Support and Billing
----------------------------
Replay or OEM partners shall provide all customer support for ReplayTV Platforms
and the RNS service. Replay shall be responsible for end-user billing of premium
and subscription services.
15. Program Management
------------------
Replay agrees to assign a program manager to the FOX Networks for the purpose of
supporting FOX Content updates and managing the FOX Network portion of the RNS.
The support will be provided as reasonably necessary and without additional
charge.
16. Marketing, Promotion, and Advertising
-------------------------------------
a. Replay agrees to provide FBC with [***] ReplayTV Platforms [***]. All
ReplayTV Platforms provided to FBC will contain the highest memory/storage
capacity available at Effective Date.
b. Nothing in this Agreement shall obligate either party to share data with
the other party except (i) as outlined in Section 12(a); (ii) to the extent
Replay shares data
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developed by it alone, and not in conjunction with third parties, with other
media partners, Replay shall offer to share such data with FBC under the similar
terms and conditions; (iii) to the extent Replay and third party media partners
jointly develop data, Replay shall offer to share such data with FBC if the
third party media partner approves of such sharing and then subject to similar
terms and conditions as those terms and conditions under which Replay provides
such data to third party media companies.
c. FBC and Replay agree to issue a joint press release announcing the
relationship contemplated by this Agreement. Except as required by law, neither
FBC nor Replay will issue a press release or other public announcement
concerning this Agreement or the contents hereof, without the prior consent of
the other party, which consent shall not be unreasonably withheld.
d. During the Term of this Agreement, FBC and Replay agree to work together to
exploit reasonable and appropriate opportunities to promote the Replay Network
Service and each premium service, if any, on a mutually acceptable basis.
e. During the Term of this Agreement, Replay agrees to use commercially
reasonable efforts to include the FOX Network brands in Replay promotions and
advertisements for the ReplayTV Platform.
17. Right of First Negotiation
--------------------------
a) At FBC's election, Replay shall negotiate with FBC in good faith for a
period of [***] with respect to the utilization of future service offerings
referred to in Section 9, Section 11 and Section 13 (including without
limitation new Advertising Services) implemented on the RNS after the effective
date hereof. Notwithstanding the foregoing, Replay agrees that it will not
commence negotiations with any third party with respect to utilization of future
service offerings referred to in Section 9, Section 11 and Section 13 earlier
than the date on which Replay attempts, by written notice to FBC, to commence
such negotiations with FBC. If Replay reaches agreement with any third party
during the Term for any feature or service which was the subject of previous
negotiations with FBC pursuant to this Section 17, then Replay shall promptly
advise FBC and, upon request, offer to any FOX Network such feature or service
on identical terms, excluding any terms which cannot be reduced to a monetary
figure.
b) Notwithstanding anything to the contrary herein, in the event that Replay
desires to develop a premium service for the delivery of [***] of any nature
(the "Covered Matter"), Replay must negotiate with FBC first, [***] in good
faith and for a period of [***] regarding the terms on which it would
be willing to develop such service. The [***] period will commence upon [***]
notice from either party. At no time prior to or during such [***] negotiation
period shall Replay discuss with any third party any contract or agreement with
respect to the Covered Matter.
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18. Display of Logos
----------------
Each FOX Network shall have the right to display the Replay Networks logo on
such FOX Network's print and on or off-network television advertising. Such logo
may be displayed as a small icon in a peripheral portion of the FBC
advertisement or promotion. All such FBC print and on- or off-network television
advertising displaying the Replay Networks logo shall be subject to the prior
approval of Replay, which approval shall not be unreasonably withheld. Reply
Networks shall have the right to display the FOX Network logos and names in a
peripheral portion of Replay on- and off-network advertisements and promotion
media. All such Replay advertisements and promotional media displaying the FOX
Network logos and names shall be subject to the prior approval of FBC. Except as
expressly provided herein, neither party hereto shall have the right to use the
trademarks, tradenames, servicemarks, logos or any other mark or name
identifying the other party or any licensor of the other party without the prior
written consent of the owner of such name or mark.
19. Programming Fees and Discounts; Other Terms
-------------------------------------------
a. Within thirty days after the execution of this Agreement by each of the
parties hereto, FBC shall pay to Replay a [***] in the amount of
[***]. Replay shall bear any and all additional costs and expenses incurred by
it in the performance of its obligations under this Agreement. FBC will bear all
costs and expenses incurred in the creation of the FOX Networks and the FOX
Content, unless otherwise provided herein. During the Term of this Agreement and
any extension, renewal or restatement hereof, for all RNS related fees, charges
and expenses, each FOX Network shall receive the [***] of (i) the [***] and (ii)
the [***] discount (no less than [***] off of the Replay [***]) available on RNS
offerings.
b. Replay represents and warrants that, if Replay has entered into or enters
into any agreement with any third party media company, studio, network or
content provider with respect to any of the matters addressed in this Agreement,
any Advertising Service, any premium personalized service, any electronic
commerce service or any other current or future RNS offerings or services, which
agreement provides any such third party any more favorable terms (each, a "More
Favorable Term") than the comparable terms addressed in this Agreement or agreed
to by the parties pursuant to Sections 6,9, 11 and 13 hereof, then and in that
event, Replay shall promptly notify FBC of each such More Favorable Term. The
availability of any More Favorable Term may be subject to one, or a clearly
defined few, conditions, that is or are logically linked and directly tied to
such More Favorable Term and which conditions provide a direct, immediate or
foreseeable benefit to Replay; provided, that no FOX Network shall be obligated
to perform any condition that such entity cannot reasonably perform or that is
designed in such a way to make performance by a FOX Network impracticable,
unlikely or impossible or that any FOX Network previously has performed or
rendered a substantially equivalent performance hereunder. FBC shall have the
option, at any time
11
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<PAGE>
within [***] after FBC's receipt of notice of any More Favorable Term, to
elect by written notice to Replay, to accept such More Favorable Term, together
with any permitted conditions, in substitution for the comparable term in this
Agreement.
FBC acknowledges that it has waived its right under this paragraph 19(b) to
cause Replay to offer FBC any of the following terms:
a) a [***] initial term followed by a unilateral option for FBC
to extend the term for an additional [***]
b) more than [***] Replay Zones; and
c) the right to cause Replay to develop e-commerce capability; to provide
[***] Replay units to FBC for its use; or to promote the FBC/Replay
relationship on Replay's website.
No more than [***] during each 12 month period of the term, FBC may require
Replay to provide a written statement, signed by an officer of Replay,
certifying that Replay has fully complied with the provisions set forth in this
paragraph 19(b).
20. Confidentiality and Nondisclosure
---------------------------------
a. Each party (the "receiving party") shall treat as confidential all
Confidential Information (as hereinafter defined) of the other party (the
"disclosing party") and shall not use such Confidential Information except as
set forth in this Agreement. Each receiving party shall disclose Confidential
Information of the disclosing party only to its directors, officers, employees
and consultants and those of its corporate affiliates who are required to have
such information in order for the receiving party to carry out the transactions
contemplated by this Agreement and who have been advised of the obligations set
forth in this Section 20. The receiving party shall promptly notify the
disclosing party of any actual or suspected misuse or unauthorized disclosure of
the disclosing party's Confidential Information.
b. For purposes of this Agreement, "Confidential Information" of a disclosing
party shall mean any non-public and/or proprietary information of such party,
including, without limitation, the terms of this Agreement, technical data,
trade secrets, plans for products or services, marketing plans, software, and
financial documents or data, in whatever form or medium. "Confidential
Information" shall not include any information that (i) is in the public domain
or has entered the public domain through no fault of the receiving party; (ii)
was known to the receiving party at the time of disclosure to the receiving
party, as demonstrated by files in existence at the time of disclosure; (iii)
was independently developed by the receiving party without any use of the
Confidential Information, as demonstrated by files created at the time of such
independent development; or (iv) becomes known to the receiving party from a
source other than the disclosing party, which disclosure is not in violation of
the disclosing party's rights.
c. If the receiving party receives a subpoena or order for the disclosure of
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WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
12
<PAGE>
Confidential Information of the disclosing party or is otherwise required to
disclose such information by law, the receiving party shall provide prompt
notice of such subpoena or order to the disclosing party to enable the
disclosing party to seek a protective order or otherwise prevent or restrict
such disclosure. Upon expiration or termination of this Agreement, each party
shall promptly return all Confidential Information of the other party.
d. The restrictions on use and disclosure of Confidential Information recited
in this Section shall expressly survive any termination or expiration of this
Agreement and shall remain in full force and effect for a period of [***]
following any such termination or expiration.
21. Indemnification
---------------
a. Replay will indemnify, defend and hold harmless each FOX Entity (and each
of their respective present and former employees, agents, directors,
shareholders and parent and subsidiary companies) against and from any and all
claims, damages, penalties, liabilities, costs and expenses (including, without
limitation, reasonable fees and disbursements of counsel and court costs, but
excluding lost profits and consequential damages) arising out of or relating to
(i) the breach by Replay of any of its covenants or obligations under this
Agreement (ii) the use of any of Replay's equipment or software, to the extent
that such use infringes, or is alleged to infringe, any U.S. copyright, mask
work, patent or trademark, or misappropriates, or is alleged to misappropriate,
any trade secret and (iii) any claim of infringement or misappropriation of any
third party's copyright, patent, trademark, trade secret or other proprietary or
intellectual property right or right of publicity which arises as a result of
Replay's use of any material with respect to which Fox has given Replay
reasonable prior notice that Fox does not have the requisite rights to grant to
Replay for such use.
b. FBC will indemnify, defend and hold harmless Replay and each entity that it
controls, is controlled by or is under common control with (and each of their
respective present and former employees, agents, directors, shareholders and
parent and subsidiary companies) against and from any and all claims, damages,
penalties, liabilities, costs and expenses (including, without limitation,
reasonable fees and disbursements of counsel and court costs, but excluding lost
profits and consequential damages) arising out of or relating to: (i) the breach
by FBC of any of its covenants or obligations under this Agreement; and (ii) any
claim that the FOX Networks or the FOX Content (A) infringes on, or constitutes
a misappropriation of any third party's copyright, patent, trademark, trade
secret or other proprietary or intellectual property right, or right of
publicity or privacy; (B) is defamatory or trade libelous; (C) is lewd,
pornographic or obscene; or (D) violates any laws regarding unfair competition,
anti-discrimination or false advertising; provided that Replay shall, to like
--------
extent, indemnify, defend and forever hold each FOX Entity harmless from and
against any and all claims, damages, penalties, liabilities, costs and expenses
(including, without limitation, reasonable fees and disbursements of counsel and
court costs, but excluding lost profits and
13
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WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
consequential damages) arising out of any deletion from, alteration of, or
addition to, the FOX Content by Replay or creation of any material by Replay
(such as the creation of promotional material).
c. In the event that legal proceeding are instituted or a claim is asserted
which may give rise to indemnification, the party seeking indemnification (the
"Indemnified Party") shall provide prompt notice of such proceeding or claim to
the party from whom indemnification is sought (the "Indemnifying Party"). The
Indemnifying Party shall be entitled to defend against, negotiate, settle or
otherwise deal with any such proceeding or claim, represented by counsel of its
own choice at its own expense; provided that the Indemnified Party may
--------
participate in any such proceeding, with counsel of its own choice at its own
expense, and no settlement of any such claim may be effected without the consent
of the Indemnified Party, which consent will not be unreasonably withheld.
22. Termination of Agreement; Survival of Provisions
------------------------------------------------
a. This Agreement may be terminated by either party as follows:
(i) by any party upon a breach by another party of a material term of this
Agreement and such breach shall remain unremedied for at least [***] after
notice from a non-breaching party; and
(ii) by any party if any of the following events shall occur with respect to
another party (A) a receiver is appointed for such other party or its assets;
(B) such other party becomes insolvent, is generally unable to pay its debts as
they become due, makes an assignment for the benefit of its creditors or seeks
relief under any bankruptcy or insolvency law; (C) if proceedings are commenced
against such other party under any bankruptcy or insolvency law, such
proceedings have not been vacated within [***] of the commencement thereof;
or (D) if such other party is liquidated, dissolved or ceases to do
business.
b. The provisions of Sections 4 and 19 of this Agreement shall survive the
termination or expiration of this Agreement.
23. FOX Entities
------------
a. If FBC elects, Replay shall engage in discussions with any FOX Entity with
respect to the negotiation of a mutually agreeable arrangement between Replay
and each such FOX Entity on terms and conditions substantially similar to the
terms and conditions set forth in this Agreement to the extent such terms and
conditions are relevant and applicable to such other arrangements.
Notwithstanding the foregoing, nothing contained herein shall prohibit any other
FOX Entity from negotiating terms that are different from the terms contained
herein, or which augment or supplement the terms contained herein.
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WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
14
<PAGE>
b. Replay hereby agrees that FBC shall be entitled to designate up to three
representatives to the Replay Advisory Council for the Term of this Agreement
and any extensions hereof. The Replay Advisory Council shall meet on a quarterly
basis at times mutually agreed and shall provide a forum for the discussion of
industry developments and advances in technology as they relate to Replay's
strategy and operations.
24. Miscellaneous
-------------
a. The relationship of the parties established by this Agreement is that of
independent contractors, and nothing contained in this Agreement will be
construed: (i) to give any party the power to direct and control the day-to-day
activities of the other; (ii) to constitute the parties as partners, joint
ventures, co-owners or otherwise as participants in a joint or common
undertaking; or (iii) to allow any party to create or assume any obligation on
behalf of the other for any purpose whatsoever.
b. If the performance of this Agreement or any obligations hereunder is
prevented, restricted or interfered with by reason of fire or other casualty or
accident, strikes or labor disputes, war or other violence, any law, order,
proclamation, regulation, ordinance, demand or requirement of any government
agency, or any other act or condition beyond the reasonable control of the
parties hereto, the party so affected upon giving prompt notice to the other
parties shall be excused from such performance during such prevention,
restriction or interference.
c. This Agreement contains the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes and terminates all
prior arrangements or understandings (whether written or oral) with respect
thereto. The terms of this Agreement may be amended or waived only by a written
instrument signed by each of the parties hereto. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon the parties and
their respective successors and assigns.
d. None of the parties shall assign this Agreement or any of its rights,
obligations or privileges hereunder without the prior written consent of the
other parties hereto, which consent shall not be unreasonably withheld;
provided, that FBC may so assign to any FOX Entity in connection with a sale of
all or substantially all of its assets. Subject to the foregoing, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective permitted successors and assigns of the parties. 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.
e. This Agreement and all acts and transactions pursuant hereto and the rights
and obligations of the parties hereto shall be governed, construed and
interpreted in
15
<PAGE>
accordance with the laws of the State of California without giving effect to
principles of conflicts of law.
f. This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
instrument.
g. The section headings used in this Agreement are used for convenience only
and are not to be considered in construing or interpreting this Agreement.
h. Any notice required or permitted by this Agreement shall be given in
writing and shall be deemed sufficient upon receipt, when delivered personally
or by courier, overnight delivery service or confirmed facsimile, or forty-eight
hours after being deposited in the regular mail as certified or registered mail
(airmail if sent internationally) with postage prepaid, if such notice is
addressed to the party to be notified at such party's address as set forth
above, or as subsequently modified by written notice.
i. If one or more provisions of this Agreement are held to be unenforceable
under applicable law, the parties agree to renegotiate such provision in good
faith, in order to maintain the economic position enjoyed by each party as
close as possible to that under the provision rendered unenforceable. In the
event that the parties cannot reach a mutually agreeable and enforceable
replacement for such provision, then (i) such provision shall be excluded from
this Agreement, (ii) the balance of this Agreement shall be interpreted as if
such provision were so excluded and (iii) the balance of this Agreement shall be
enforceable in accordance with its terms.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives as of the date first written above.
ReplayTV, Inc.
By: /s/ Kim LeMasters
Name: Kim LeMasters
Title: Chief Executive Officer and Chairman
FOX BROADCASTING COMPANY
By: /s/ Robert Quicksilver
Name: Robert Quicksilver
Title: President
17
<PAGE>
EXHIBIT 10.24
February 29, 2000
Mr. Rob Kenneally
1709 Chevy Chase Drive
Beverly Hills, CA 90210
Dear Rob,
On behalf of the Board of Directors, I am pleased to offer you the position of
Executive Vice President of RTVS for ReplayTV, Inc. I have attached the details
of your offer in an Appendix to this letter. This offer expires on March 1,
2000.
Rob, there are many exciting challenges directly ahead and we have high
expectations for the Company. I am confident that with your skills and
experience, you will make a great contribution and will develop your skills at
the same time. We think you'll find this new venture to be a fun and exciting
place to work. You'll be working with a small group of excellent, dedicated
professionals producing an innovative new consumer electronics product and
service. We're looking forward to working with you!
Best regards,
Kim LeMasters
CEO
<PAGE>
February 29, 2000
Page 1
Appendix
The following sets forth the terms of your employment relationship with
ReplayTV, Inc. (the "Company").
-------
1) Position.
--------
a) You will serve as the Executive Vice President of RTVS. You will report
directly to the Company's CEO. All RTVS employees will report to you.
b) You agree to the best of your ability and experience that you will at
all times loyally and conscientiously perform all of the duties and
obligations required of and from you pursuant to the express and
implicit terms hereof, to the reasonable satisfaction of the Company.
During the term of your employment, you further agree that you will
devote all of your business time and attention to the business of the
Company, the Company will be entitled to all of the benefits and profits
arising from or incident to all such work services and advice, you will
not render commercial or professional services of any nature to any
person or organization, whether or not for compensation, without the
prior written consent of the Company's CEO, and you will not directly or
indirectly engage or participate in any business that is competitive in
any manner with the business of the Company. (Excludes charitable and
non-profit political activities)
c) Your start date will be March 1, 2000. ("Start Date").
2) Compensation.
------------
a) Base Salary. You will be paid a monthly salary of $20,833.33, which is
-----------
equivalent to $250,000 on an annualized basis. Your salary will be
payable in two equal payments per month pursuant to the Company's
regular payroll policy.
b) You will receive a sign on bonus of $25,000 less taxes to offset any
benefits requirements.
You will also be eligible to participate in the Company's annual
incentive bonus program. The CEO will develop jointly with you the goals
and objectives on which your annual incentive bonus award will be based.
You will be guaranteed to receive for your first year, a bonus of 40% of
your base salary. Based on the achievement level of both the Company and
your individual performance goals, as determined in accordance with the
applicable annual bonus program, you will be eligible to receive an
annual incentive bonus of up to 40% of your base salary in successive
years.
c) Annual Review. Your base salary will be reviewed each calendar year as
-------------
part of the Company's normal salary review process.
3) Stock.
-----
On your Start Date the Board of Directors will grant you an option to
purchase 630,000 shares of the Company Common Stock. The exercise price for
these options will be the fair market value of the Company Common Stock on
your Start Date, $11.05, approved by the Board of Directors.
The options will vest according to a 4 year exercise schedule which calls
for the initial vesting of 12.5% of the total number of shares after the
first 6 months of continuous service, and provides for monthly vesting at
the rate of an additional 1/48th of the total number of shares at the close
of each month of employment, over the remainder of the vesting schedule.
The option will be an incentive stock option to the maximum allowed by the
tax code and will be subject to the terms of the Company's Stock Option Plan
and the Stock Option Agreement between you and the Company. Accordingly, the
Board will allow you to elect which portion of the shares you obtain in the
form of: 1) immediate purchase under Section 83(b) of the Internal Revenue
Code, subject to re-purchase; 2) Incentive Stock Option; 3) Non-Qualified
Options. Corporate counsel at Venture Law Group will be available to assist
you in evaluating the tax benefits of these different stock and option
<PAGE>
February 29, 2000
Page 2
programs. The grant of the option will be subject to your execution of a
mutually acceptable option agreement.
In connection with the exercise of your option, the Company will provide
a loan of up to $1,000,000. This loan will be evidenced by a full
recourse promissory note, which will be secured by the shares purchased
and will provide for interest at the minimum Applicable Federal Rate,
compounded annually. The term of this Note shall be five years, and any
interest accrued will be due at such time as the principal is due.
4) Job Location
------------
a) You will have the right to decide where you would like to establish the
RTVS office (which will be your primary office) within Los Angeles, and
the Company does have the right to reasonably limit rent.
5) Travel, Living, and Home Office Equipment
-----------------------------------------
a) You will be required from time to time to be present at Corporate
Headquarters as well as undertake other business travel. Such travel
shall be pursuant to the Company's travel policy, applicable to
executive staff members at ReplayTV. In addition, the necessary business
items, such as cell phone, DSL, home computer will be provided per
policy for senior executives.
6) Staffing
--------
a) There is an immediate need for additional staffing in the RTVS area. You
will be responsible for building and staffing your organization, per the
approved FY2000 Budget. Our VP of Human Resources will assist you in
driving this process. If you should chose to hire your executive
assistant/coordinator, the normal company guidelines will be followed
and administered and be approved by the VP of Human Resources and the
CEO.
7) Benefits.
--------
a) Insurance Benefits. The Company will provide you with standard medical,
------------------
vision and dental insurance benefits. There is no waiting period to be
eligible for our standard benefits package applicable to senior
executives. In addition, the Company currently indemnifies all Officers
to the maximum extent permitted by law. Upon entering into the Company's
standard form of Indemnification Agreement, the Company will advance any
expenses for which indemnification is available to the extent allowed by
applicable law.
b) Vacation, Sick Leave and Holidays. You will be entitled to three weeks
---------------------------------
paid vacation/sick leave per year, plus nine (9) paid holidays and two
(2) floating holidays.
c) 401(K). You will be eligible to participate in the Company's standard
------
401(K) plan. Currently, there is no company match in this plan.
8) Severance Agreement. (standard language for items a, b, c, d, and e)
-------------------
a) If your employment is terminated by the Company or its successor for any
reason other than Cause (as defined below) or you become subject to an
Involuntary Termination (as defined below), within 12 months of a Change
in Control (as defined below), you will be entitled to receive
continuation of your base salary and insurance benefits for a period of
6 months and continued vesting under all stock options or restricted
stock purchases for the greater of twelve (12) months from the date of
termination or vesting of fifty (50%) percent of the shares that remain
unvested at the time of such termination.
<PAGE>
February 29, 2000
Page 3
b) In the event 8a does not apply, and your employment is terminated by the
Company or its successor for any reason other than Cause (as defined
below) or you become subject to an Involuntary Termination (as defined
below), you will be entitled to receive continuation of your base salary
and insurance benefits and continued vesting under all stock options or
restricted stock purchases for a period of 6 months following the date
of termination of your employment. (This is our standard language at the
EVP level.)
c) "Change in Control" shall mean i) the Company's merger or consolidation
-----------------
with another entity, or a series of related transactions, as a result of
which the shareholders of the Company immediately prior to the
transaction own less than 50% of the voting power of the entity
surviving or ii) the sale of substantially all of the assets of Replay.
Cause" shall mean (I) gross negligence or willful misconduct in the
-----
performance of your duties to the Company where such gross negligence or
willful misconduct has resulted or is likely to result in substantial
and material damage to the Company or its subsidiaries, (ii) repeated
unexplained or unjustified absence from the Company, (iii) a material
and willful violation of any federal or state law causing material harm
to the standing and reputation of the Company; (iv) commission of any
act of fraud with respect to the Company; (v) your material breach of
this agreement if not cured within 10 days of notification by the
Company or a material breach of your Employee Inventions and
Confidentiality Agreement; (vi) conviction of a felony or a crime
involving moral turpitude causing material harm to the standing and
reputation of the Company, in each case as determined in good faith by
the Board of Directors of the Company.
d) "Involuntary Termination" shall include any termination by the Company
-----------------------
other than for Cause and shall include your voluntary termination, upon
30 days prior written notice to the Company, following (i) a material
reduction or change in job duties, responsibilities and requirements
inconsistent with your position with the Company and your prior duties,
responsibilities and requirements (taking into account the difference in
job title and duties that may occur following an acquisition but that do
not actually result in a material change in your job duties,
responsibilities, and requirements); or (ii) any reduction of your base
compensation (other than in connection with a general decrease in base
salaries for most similarly situated employees).
e) If due to the benefits provided under this letter agreement, you are
subject to any excise tax due to characterization of any amount payable
hereunder as excess parachute payments pursuant to Sections 280G and
4999 of the Internal Revenue Code, Replay will pay the excise taxes
otherwise payable by you under Section 4999 (but not any income or
excise taxes on such payment of taxes by Replay on your behalf) with
respect to any amounts payable to you under this agreement, up to a
maximum of $1,000,000.
9) Confidentiality of Terms. You agree to follow the Company's strict policy
------------------------
that employees must not disclose, either directly or indirectly, any
information, including any of the terms of this agreement, regarding salary,
bonuses or stock purchase or option allocations to any person, including
other employees of the Company; provided, however, that you may discuss such
terms with members of your immediate family and any legal, tax or accounting
specialists who provide you with individual legal, tax or accounting advice,
and you may disclose such information in connection with litigation.
<PAGE>
February 29, 2000
Page 4
10) Employee Inventions and Confidentiality Agreement. As an employee of
-------------------------------------------------
Replay Networks, you will have access to certain Company confidential
information and you may, during the course of your employment, develop
certain information or inventions related to the Company's operations,
products or services which will be the property of the Company. To protect
the interest of the Company, you will be required to sign the Company's
standard "Employee Inventions and Confidentiality Agreement" as a condition
of your employment.
11) At-Will Employment. Notwithstanding the Company's obligation described in
------------------
Section 8 above, your employment with the Company will be on an "at will"
basis, meaning that either you or the Company may terminate your employment
at any time for any reason or no reason, without further obligation or
liability except as expressly set forth to the contrary herein.
To indicate your acceptance of this offer, please sign and date this letter in
the space provided below and return it to Human Resources, attention: Laura
Warfel. This letter sets forth the terms of your employment with the Company
and supersedes any prior representations or agreements, whether written or oral.
This letter may not be modified or amended except by written agreement, signed
by the Company and by you.
Very truly yours,
REPLAY NETWORKS, INC.
By: /s/ Kim LeMasters
-----------------------------
Name/Title: Kim LeMasters, CEO
---------------------
ACCEPTED AND AGREED:
/s/ Rob Kenneally
- ------------------------
Rob Kenneally
________________________
Date
<PAGE>
EXHIBIT 10.25
Dan Levin
141 Corona Way
Portola Valley, CA 94028
November 23, 1998
Dear Dan,
I've been very impressed by your experience and enthusiasm, and I am pleased to
offer you the position of Vice President, Engineering for Replay Networks. In
this role you will be responsible for leading, managing, and staffing all of
Replay's engineering efforts. You will also participate in the Company's
business planning as a key executive.
Your start date would be 12/28/98, and is subject to the successful completion
of a one-month contract as Acting Vice President, Engineering.
Your base salary will be $140K per year payable twice each month. You would also
receive options for 225,000 shares of common stock in our company. These options
will vest over three years and will be subject to our standard Option Agreement.
The first one third will vest after 12 months, and the remainder will vest
monthly. Vesting will, of course, depend on your continued employment with the
company. Your employment with the company will be on an "at will" basis.
You will receive Health and Dental benefits. We also offer 15 paid vacation or
sick days (Flexible Time Off) per year plus 7 holidays. You will need to sign
our standard employment agreement prior to starting work.
If your employment with Replay Networks is terminated by Replay for any reason
other than "cause", you will be granted 6 (or less, the number to be mutually
agreed to in the next 30 days) months of salary and health benefits as severance
pay.
There are many exciting challenges directly ahead and we have high expectations
for the company. I am confident that with your skills and experience, you will
make a great contribution and will develop your own skills at the same time. We
think you'll find this new venture to be a fun and exciting place to work.
You'll be working with a small group of excellent, dedicated professionals
producing an innovative new consumer electronics product. We hope you will find
this opportunity to be challenging, rewarding, and fun. We're looking forward to
working with you!
Sincerely,
/s/ Anthony J. Wood
Anthony J. Wood
CEO
<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 February 22, 2000 relating to the financial statements of
ReplayTV, Inc., which appears in such Registration Statement. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
March 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 11,731 686
<SECURITIES> 24,419 25
<RECEIVABLES> 1,477 0
<ALLOWANCES> 13 0
<INVENTORY> 1,700 0
<CURRENT-ASSETS> 1,043 225
<PP&E> 3,051 157
<DEPRECIATION> 300 25
<TOTAL-ASSETS> 43,449 1,068
<CURRENT-LIABILITIES> 6,751 1,328
<BONDS> 0 0
0 0
26 8
<COMMON> 6 4
<OTHER-SE> 36,666 (272)
<TOTAL-LIABILITY-AND-EQUITY> 43,449 1,068
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 37,527 3,256
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (960) 28
<INCOME-PRETAX> (36,567) (3,284)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (36,567) (3,284)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (36,567) (3,284)
<EPS-BASIC> (4.83) (0.48)
<EPS-DILUTED> (4.83) (0.48)
</TABLE>
