<PAGE>
As filed with the Securities and Exchange Commission on June 22, 2000
Registration No. 333-32628
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
Amendment No. 1
To
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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Cidera, Inc.
(Exact name of registrant as specified in its charter)
----------
Delaware 7389 52-2048092
(State or jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or Industrial Identification Number)
organization) Classification Code
Number)
8037 Laurel Lakes Ct.
Laurel, Maryland 20707
(301) 598-0500
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
----------
Douglas E. Humphrey
Chairman of the Board
Cidera, Inc.
8037 Laurel Lakes Ct.
Laurel, Maryland 20707
(301) 598-0500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------
Copies to:
MICHAEL R. LINCOLN, ESQ. BRENT B. SILER, ESQ.
SIDNEY R. SMITH, ESQ. Hale and Dorr LLP
DARREN K. DeSTEFANO, ESQ. 1455 Pennsylvania Ave., N.W.
Cooley Godward LLP Washington, DC 20004
One Freedom Square (202) 942-8400
Reston Town Center (202) 942-8484 (facsimile)
11951 Freedom Drive
Reston, VA 20190
(703) 456-8000
(703) 456-8100 (facsimile)
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
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 of 1933, 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 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 that specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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--------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 22, 2000
5,750,000 Shares
[CIDERA LOGO]
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of our common stock is expected to be between
$9.00 and $11.00 per share. We have applied to list the common stock on The
Nasdaq Stock Market's National Market under the symbol "CIDR."
The underwriters have an option to purchase a maximum of 862,500 additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 7.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Cidera
------------ ------------- ------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Deutsche Banc Alex. Brown
Donaldson, Lufkin & Jenrette
Robertson Stephens
The date of this prospectus is , 2000.
<PAGE>
[Front cover foldout]
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 3
Risk Factors............................................................... 7
Special Note Regarding Forward-Looking Statements.......................... 16
Use of Proceeds............................................................ 17
Dividend Policy............................................................ 17
Capitalization............................................................. 18
Dilution................................................................... 19
Selected Consolidated Financial Data....................................... 20
Management's Discussion and
Analysis of Financial Condition
and Results of Operations................................................. 21
Business................................................................... 26
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 39
Related Party Transactions................................................. 49
Principal Stockholders..................................................... 52
Description of Capital Stock............................................... 54
Shares Eligible for Future Sale............................................ 57
Underwriting............................................................... 59
Notice to Canadian Residents............................................... 61
Legal Matters.............................................................. 63
Experts.................................................................... 63
Where You Can Find More Information........................................ 63
Index to Consolidated Financial Statements................................. F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Dealer Prospectus Delivery Obligation
Until , 2000 (25 days after the date of this prospectus), all dealers
that effect transactions in these securities, 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 unsold allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information about us and the common stock being sold in this offering and our
financial statements and accompanying notes appearing elsewhere in this
prospectus.
Cidera, Inc.
We provide satellite-based delivery of Internet content. Our satellite-based
data delivery network and proprietary software enable the transmission of
broadcast data to the edge of the Internet, with significantly reduced error
rates and substantial bandwidth savings. Our satellite-based data delivery
network can broadcast over 3.5 trillion bits of data per day at speeds of up to
45 megabits per second to each location equipped with one of our satellite
dishes. Our customers include Internet service providers, or ISPs, content
distributors and corporations.
We currently deliver our customers' broadcast data to over 300 points-of-
presence, or POPs, in North America and Europe. POPs are the access points
where end users connect to the shared Internet infrastructure, or backbone, and
we refer to all POPs collectively as the edge of the Internet. By installing
more satellite dishes at the edge of the Internet, we are able to add customers
within our current service areas without any increase in direct transmission
costs.
Internet use has grown rapidly in recent years. Broadcast traffic,
characterized by multiple transmissions of identical data from one source to
many end users, represents a significant portion of the demand for Internet
transmission capacity, or bandwidth. Because of its point-to-point design, the
land-based Internet does not handle broadcast data efficiently. As the volume
of broadcast data being transmitted over the Internet has grown, the Internet
backbone has become increasingly congested.
To bypass congestion on the Internet backbone and better meet end user
demand, high-bandwidth content is increasingly being stored at multiple servers
located at the edge of the Internet. To do this, ISPs are installing cache
servers at their POPs to temporarily store popular content. In addition,
content distributors who store the Internet content generated by Web site
operators and other third parties on their servers at the edge of the Internet
have emerged. Both of these developments allow end users to access popular
content directly from the POP, without having to traverse the Internet to
retrieve it. ISPs and content distributors currently depend on the land-based
network to move content to the edge of the Internet. However, the land-based
network was designed for point-to-point traffic, not broadcast traffic, and as
a result it suffers from transmission delays and lost data. The cost to ISPs
and content distributors, both in bandwidth consumed and customer
dissatisfaction, is significant.
Our network, consisting of over 300 satellite dishes, leased satellite
capacity and our proprietary software, bypasses the point-to-point land-based
Internet infrastructure and broadcasts content directly to multiple locations
at the edge of the Internet. Our satellite-based network complements the
Internet by freeing land-based bandwidth for point-to-point applications. Our
customers receive data through our satellite dishes located at POPs. Once the
data is received at the POPs, our hardware and proprietary software located at
the POPs enable our customers to deliver the data to their end users. Our
network provides the following benefits:
. enables customers to offer a higher quality of service;
. reduces customer bandwidth costs;
. delivers a solution compatible with existing Internet technologies; and
. provides strong customer service and support.
We currently provide ISPs with Cidera Cache Turbocharging and Cidera Usenet
News Service. Through the first quarter of 2000, substantially all of our net
revenue has come from ISPs who subscribe for these services. In the first half
of this year, we launched Cidera Streaming Media Service and Cidera Big File
Mover,
3
<PAGE>
which we are marketing to content distributors and corporations, and we plan to
release Cidera Virtual Application Server Technology, or Cidera VAST, later
this year. We expect that these services will account for a significant portion
of our net revenue in the future. These services are summarized below.
. Cidera Cache Turbocharging--identifies frequently accessed Web pages and
delivers them directly to the cache servers of our ISP customers.
. Cidera Usenet News Service--continuously feeds Usenet News to our ISP
customers.
. Cidera Streaming Media Service--delivers popular streaming media content
directly to the edge of the Internet.
. Cidera Big File Mover-- delivers large data files by broadcasting the
data to many locations simultaneously.
. Cidera VAST--will provide ISPs and content distributors with the ability
to lease capacity on our servers located at the edge of the Internet to
serve as their primary edge server or to meet event-based, peak or other
demands.
Our goal is to become the leading global satellite-based Internet data
delivery service. To accomplish this goal, we are pursuing a strategy built on
the following initiatives:
. globally expand our network to provide our content provider customers
with a wide distribution area;
. expand and strengthen our customer relationships to promote the expansion
of our network;
. expand our service offerings to leverage our existing and planned
infrastructure;
. build deployment and marketing alliances to strengthen our market
position;
. provide services that complement those of content distributors; and
. maintain technological compatibility.
Risk Factors
We are in the early stage of development, have a limited operating history
and have generated limited net revenue to date. In addition, you should
consider the following:
. we had significant operating losses in 1998, 1999 and for the three
months ended March 31, 2000;
. we had an accumulated deficit of $29.3 million as of March 31, 2000;
. we anticipate incurring substantial operating losses and negative cash
flow for the foreseeable future;
. we operate in a highly competitive industry; and
. our business plan depends on the market's acceptance of satellite-based
delivery of Internet content.
------------
We were incorporated in Delaware under the name SkyCache, Incorporated in
July 1997. We changed our name to Cidera, Inc. in January 2000. Our principal
executive offices are located at 8037 Laurel Lakes Court, Laurel, Maryland
20707 and our telephone number is (301) 598-0500. Our World Wide Web site
address is www.cidera.com. The information on our Web site is not a part of
this prospectus.
Our logo is a federally registered trademark. We have filed U.S. federal
applications to register Cidera, Cidera Cache Turbocharging, Cidera Big File
Mover and Cidera Virtual Application Server Technology as trademarks and
service marks. We have also filed applications to register Cidera as a
trademark and service mark in the United Kingdom and the European Community,
and as a service mark in Canada, Mexico and Japan.
4
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered............ 5,750,000 shares
Common stock to be outstanding
after this offering............ 34,405,021 shares
Use of proceeds................. For the continued expansion of our satellite-
based network, and for working capital and
general corporate purposes.
Proposed Nasdaq National Market
symbol......................... CIDR
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on shares of common stock outstanding as of May 31, 2000. This number
excludes:
. 8,996,242 shares authorized for issuance under our stock benefit plans,
of which 6,858,385 shares were subject to outstanding options at a
weighted average exercise price of $6.67; and
. 1,051,125 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $2.85 per share.
Unless otherwise indicated, all of the information in this prospectus:
. reflects the exercise of warrants prior to the closing of this offering,
resulting in the issuance of shares of series A mandatorily redeemable
convertible preferred stock;
. reflects the automatic conversion of all outstanding shares of our
mandatorily redeemable convertible preferred stock, including the
preferred shares issued upon exercise of the warrants, into 21,401,905
shares of common stock upon completion of this offering; and
. assumes no exercise of the underwriters' over-allotment option.
5
<PAGE>
Summary Financial Data
The following financial information should be read together with our
consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
Inception
(July 7, 1997) Three Months
through Year Ended December 31, Ended March 31,
December 31, ------------------------- ----------------
1997 1998 1999 1999 2000
-------------- ----------- ------------ ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net revenue............. $ 5 $ 5 $ 358 $ 33 $ 187
Gross profit (loss)..... -- (799) (4,141) (675) (2,737)
Operating loss.......... (270) (3,584) (11,799) (1,853) (8,966)
Interest expense........ -- (109) (163) (27) (151)
Interest income......... -- 94 356 19 155
Net loss................ (270) (3,599) (11,607) (1,861) (8,962)
Net loss applicable to
common stockholders.... (270) (3,663) (12,906) (1,888) (14,735)
Basic and diluted net
loss applicable to
common stockholders
per share ............. $(0.05) $ (0.64) $ (2.23) $ (0.33) $ (2.26)
Weighted average number
of shares used in basic
and diluted net loss
applicable to common
stockholders per
share.................. 5,769 5,769 5,793 5,770 6,511
Pro forma basic and
diluted net loss
applicable to common
stockholders per
share.................. $ (0.62) $ (0.36)
Weighted average number
of shares used in pro
forma basic and diluted
net loss applicable to
common stockholders per
share.................. 18,747 25,127
</TABLE>
<TABLE>
<CAPTION>
March 31, 2000
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
investments................................... $34,097 $34,216 $85,966
Working capital................................ 30,978 31,097 82,847
Total assets................................... 48,600 48,719 100,469
Long-term obligations, net of current portion.. 4,790 4,790 4,790
Mandatorily redeemable convertible preferred
stock......................................... 61,762 -- --
Total stockholders' (deficit) equity........... (23,532) 38,350 90,100
</TABLE>
See note 2 to our consolidated financial statements included elsewhere in
this prospectus for information regarding the calculation of basic and diluted
net loss and pro forma basic and diluted net loss applicable to common
stockholders per share.
In the consolidated balance sheet data pro forma column, we have adjusted
the actual numbers to reflect the following events:
. the exercise prior to the closing of this offering of warrants resulting
in the issuance of 132,699 shares of series A mandatorily redeemable
convertible preferred stock and our receipt of $119,250 in aggregate
exercise proceeds; and
. the automatic conversion of all of the outstanding shares of our
mandatorily redeemable convertible preferred stock, including the
preferred shares issued upon exercise of the warrants, into 21,401,905
shares of common stock upon the closing of this offering.
In the consolidated balance sheet data pro forma as adjusted column, we have
further adjusted the pro forma numbers to give effect to our sale of 5,750,000
shares of common stock in this offering at an assumed initial public offering
price of $10.00 per share and to our receipt of $51.8 million in estimated net
proceeds. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
You should consider carefully the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. If any of the
following risks occur, our business could be harmed, the price of our common
stock could decline and you might lose all or part of your investment.
Our business is difficult to evaluate because we have a limited operating
history.
We were founded in July 1997 and began selling Cidera Cache Turbocharging
and Cidera Usenet News Service in late 1998. We recently introduced Cidera
Streaming Media Service and Cidera Big File Mover and plan to introduce
additional services in 2000. Accordingly, we have limited meaningful historical
financial data upon which you can evaluate us and our prospects. We expect to
encounter risks and uncertainties often encountered by early stage companies in
new and rapidly evolving markets. Many of these risks are described in detail
in this "Risk Factors" section. To address these risks, we must, among other
things:
. make significant expenditures and incur significant expenses to develop
our business and network;
. increase the number and types of businesses that use our network;
. educate customers about the benefits of satellite-based delivery of
Internet content;
. keep pace with technological developments and emerging industry
standards; and
. attract, integrate, retain and motivate qualified personnel.
If we are unable to address these risks and uncertainties or we are unable
to execute our strategy, our business would be harmed.
We have a history of losses, expect to incur future net losses and may never
achieve profitability, which could result in the decline in our stock price.
We have never been profitable and have incurred significant net losses since
inception. In 1997, 1998 and 1999 and the first quarter of 2000, we incurred
net losses of $270,000, $3.6 million, $11.6 million and $9.0 million,
respectively. As of March 31, 2000, we had an accumulated deficit of $29.3
million. We expect to continue to incur net losses in the future. We cannot be
certain that our net revenue will grow or that we will achieve sufficient net
revenue to achieve profitability. Our operating expenses are largely based on
anticipated net revenue trends and a high percentage of our expenses are and
will continue to be fixed for the foreseeable future. We expect to continue to
incur significant and increasing sales and marketing, research and development,
administrative and other expenses. As a result, we will need to generate
significantly higher net revenue to achieve and maintain profitability. If our
net revenue grows more slowly than we anticipate or if our operating expenses
increase more than we expect or cannot be reduced in the event of lower net
revenue, we may not achieve or maintain profitability.
We have high fixed costs relating to satellite capacity and we may be unable to
generate sufficient net revenue to cover these expenses.
The contracts with our satellite capacity providers require fixed periodic
payments over their terms, typically from three to seven years, regardless of
how much capacity we use. We anticipate that this will continue to be the case
in the future. As we increase our customer base, we expect that the cost of
obtaining satellite capacity will also increase. In 1999, we incurred expenses
to our satellite providers of $1.3 million and generated only $358,000 in net
revenue from our customers. Unless we are able to increase our net revenue to
cover these fixed costs, we will not achieve profitability and would be unable
to execute our business plan.
7
<PAGE>
Our net revenue and operating results may vary significantly from quarter to
quarter, which could adversely affect our stock price.
Our quarter-to-quarter net revenue and operating results may vary
significantly due to a number of factors, many of which are beyond our control.
These fluctuations may cause our operating results to be below the expectations
of public market analysts and investors and, as a result, the price of our
common stock may fall. Factors that could cause quarterly fluctuations include:
. variations in demand for our services;
. our ability to develop and attain market acceptance of new services;
. timing and size of sales of our services;
. new product and service introductions and enhancements by us and our
competitors; and
. changes in our pricing policies or the pricing policies of our
competitors.
As a result of these factors, we believe that period-to-period comparisons
of our net revenue and operating results are not necessarily meaningful.
The long sales cycle for some of our services may cause our net revenue and
operating results to vary significantly, which could adversely affect our stock
price.
In many cases, a potential customer's decision to purchase our services
involves an elaborate evaluation and testing process, which typically take six
to twelve months. As a result, our sales cycle for these services is likely to
be lengthy and could span several quarters. Throughout the sales cycle, we
spend considerable time and expense educating and providing information to
prospective customers about the use and benefits of our services. Therefore,
while we incur significant expenses early in the sales cycle, we will likely
not recognize revenue relating to these efforts for several quarters.
Furthermore, if potential customers ultimately choose not to purchase our
services, we could incur substantial costs that will not be offset by
corresponding net revenue. These long sales cycles may also contribute to the
variability of our net revenue and results of operations from quarter to
quarter.
We have limited sales and marketing experience; if we do not expand our direct
and indirect sales organizations, our business may not grow and we may never
achieve profitability.
We currently have limited sales and marketing experience. This limited
experience may restrict our ability to commercialize our services. In addition,
although we have historically marketed to ISPs, our new services are targeted
primarily at content distributors and corporations, with whom we have more
limited marketing experience. Our services require a sophisticated sales effort
targeted at a limited number of key people within our prospective customers'
organizations. This sales effort requires trained sales personnel. We need to
expand our marketing and sales organization in order to increase market
awareness of our services, accelerate deployment of our network and generate
increased revenue.
Hiring customer service and support personnel is very competitive in our
industry because there are a limited number of people available with the
necessary technical skills and understanding of our market. Once we hire these
personnel, they require extensive training. If we are unable to expand our
customer service and support organizations or train these personnel as rapidly
as necessary, we may not be able to maintain satisfied existing customers,
which would compromise our ability to achieve or maintain profitability.
We are in the process of developing our direct sales force and plan to hire
additional qualified sales personnel. Competition for these individuals is
intense, and we might not be able to hire the kind and number of sales
personnel we need. In international markets, where we rely largely on the
services of independent agents, we may have difficulty locating qualified
agents. In addition, we believe that the execution of our business plan will
depend upon our ability to establish relationships with a variety of
distribution partners. If we are unable to expand our direct and indirect sales
operations, we may not be able to increase market awareness or sales of our
services, which may prevent us from achieving and maintaining profitability.
8
<PAGE>
If we fail to effectively manage the expansion of our operations, our revenue
could be reduced and our business and financial results could suffer.
Our ability to offer our services and implement our business plan in a
rapidly evolving market requires an effective planning and management process.
We have expanded our operations rapidly since our inception. The number of our
employees has grown from 39 at December 31, 1998 to 223 at May 31, 2000. This
growth has placed, and our anticipated growth in future operations will
continue to place, a significant strain on our management systems and
resources. We expect that we will need to continue to improve our financial and
managerial controls, reporting systems and procedures, and will need to
continue to expand, train and manage our work force both domestically and
internationally.
We are integrating new members of our senior management team and this could
disrupt our operations.
We have recently hired and plan to hire in the near future a number of key
employees and executives. Edward D. Postal, our chief financial officer, and
Richard J. Hanna, our chief executive officer, both joined us in March 2000. To
be integrated into our company, these individuals will need to spend a
significant amount of time learning our business model and management system,
in addition to performing their regular duties. Accordingly, the integration of
these new personnel may result in some disruption to our ongoing operations. If
we fail to complete this integration in an efficient manner, our business and
financial results will suffer.
Our business will not grow unless the market accepts satellite-based data
delivery services generally, and our services in particular.
Our future growth depends on the commercial acceptance of our satellite-
based data delivery services. The market for these services is new and unproven
and these services may not achieve widespread market acceptance. Furthermore,
we have only recently begun to commercially market Cidera Streaming Media
Service and Cidera Big File Mover and we intend to release Cidera VAST in the
near future. Our future revenue growth will depend, in large part, on customer
acceptance of these services. Our current and prospective customers may require
features and capabilities that our current service offerings do not have. To
achieve market acceptance for our services, we must effectively and promptly
anticipate and adapt to customer requirements and offer services that meet
customer demands. Our failure to offer services that satisfy customer
requirements would seriously harm our business and financial results. The
development of new or enhanced services is a complex and uncertain process. We
may experience design, manufacturing, marketing and other difficulties that
could delay or prevent the development, introduction or marketing of new
services as well as prevent enhancements to our existing services. If our
target customers do not adopt or purchase our current and planned services, our
net revenue will not grow significantly and our financial results will be
seriously harmed.
Our business plan depends on the continued deployment of our satellite dishes
at ISP POPs.
A key element of our business plan is to expand our network by installing
more satellite dishes at ISP POPs, both domestically and internationally. As of
May 31, 2000, we had over 300 satellite dishes at locations on the edge of the
Internet. By the end of 2000, our plans call for us to significantly increase
that number. If we experience difficulties or delays in this deployment, our
ability to expand our business and ultimately achieve profitability may be
compromised.
In order to accelerate deployment of our dishes at ISP POPs, we have pursued
a strategy of offering services that are attractive to ISPs, such as Cidera
Usenet News Service and Cidera Cache Turbocharging. Some of our existing and
planned services are targeted to customers other than ISPs. Our ability to sell
services to them will depend upon increased deployment of dishes at ISP POPs.
For this reason, the successful introduction and growth of our services for
non-ISP customers may depend upon continued demand for our ISP services. If the
demand for ISP services does not continue, we could lose potential net revenues
from our non-ISP customers, which represent a significant portion of our
anticipated net revenues.
9
<PAGE>
Our business strategy depends upon the continuation of several industry trends,
including the increasing popularity of data distribution at the edge of the
Internet and increasing demand for rich media content and services.
Our services are designed to complement and enhance many existing content
delivery technologies, such as caching and DSL and cable modem delivery. Thus,
in large part, the increased use of our services depends on the continued trend
to use these technologies. We have developed our satellite-based data delivery
services in response to a number of other recent Internet industry trends. If
any of these trends do not continue, demand for our services might not grow or
could even decline. These trends include:
. the emergence and continued growth of content distributors, who
distribute content of third parties to servers located closer to end
users; and
. the increasing popularity of rich content, such as streaming video and
audio, that is often of a broadcast nature, and is therefore conducive
to satellite-based delivery.
The Internet industry is subject to rapid and continuous evolution and is
highly unpredictable. It is possible that new standards may emerge that would
reverse some or all of these trends. This could have a negative impact on our
business and financial performance.
Our business will suffer if we do not maintain compatibility with third-party
technologies employed in streaming media and caching.
A key element of our business strategy is to maintain the compatibility of
our services with the most popular third-party technologies that our customers
will use. Our target markets are likely to be characterized by rapid
technological change, frequent new product and service introductions and
changes in customer requirements. We may be unable to respond quickly or
effectively to these developments. If new industry standards emerge for caching
or streaming media that our services do not promote or support, and we are
unable to create compatible services, our services may not achieve commercial
acceptance. In this event, our business and financial results would be
seriously harmed.
We rely on a limited number of third-party satellite providers.
Our operations are dependent upon the transmission capacity of our third-
party satellite providers. We obtain satellite capacity for our operations in
North America from GE American Communications, Inc. and in Europe from GE
Capital Europe Limited. Our contracts with these entities are for terms of
seven years. In addition, we have recently obtained satellite capacity for our
planned expansion into Latin America and Asia from Loral Skynet and PanAmSat,
respectively. Our contracts with Loral Skynet and PanAmSat are for terms of
three years.
One or more of our satellite providers may decide to provide services that
compete with ours, which might make them unwilling to renew our contracts upon
their expiration. For example, an affiliate of Loral Skynet has recently
announced that it intends to provide streaming media services using satellite.
Additionally, PanAmSat recently announced its intention to provide services
similar to ours. If our third-party satellite providers are unable or unwilling
to provide us with satellite capacity for any reason, we may be unable to find
replacement capacity on reasonable terms, if at all. If we fail to obtain
necessary capacity, we could lose customers or revenue, our reputation could be
harmed and our business and financial results could suffer.
Our satellite capacity needs may exceed our projections and it may be difficult
to add capacity on reasonable terms, if at all.
We may need additional satellite capacity as we take on additional customers
or otherwise increase the amount of content broadcast through our network. We
are currently using approximately 50% of our contracted-for capacity in North
America. In addition, we have entered into agreements with content distributors
which would require us to consume significantly more capacity in the near
future. We may not be
10
<PAGE>
able to obtain additional capacity on reasonable terms, if at all. Failure to
obtain required additional capacity would limit our growth.
Any disruption in our network could lead to significant costs, lost revenue and
harm to our reputation.
In order to provide our customers with fast, efficient and reliable Internet
data delivery, we must protect our satellite-based network, particularly at the
sites where we receive and transmit data to and from the network, against
damage from:
. human error;
. physical or electronic security breaches;
. fire, earthquake, flood and other natural disasters;
. power loss;
. sabotage and vandalism; and
. similar events.
Despite precautions we have taken, the occurrence of any of these events or
other unanticipated problems at one or more of our uplink or downlink sites
could result in service interruptions or significant damage to our equipment.
We do not have a back-up satellite network in place, which could increase the
effects of disruptions in our network.
If we lose access to satellite transmission capacity for an extended period
of time, we could lose customers or net revenue, our reputation could be harmed
and our business and financial results could suffer. To provide complete back-
up service, we would require capacity on a second satellite over each continent
and a second dish at each POP. We do not yet have back-up capacity in Europe
and we do not have a second dish at any POP. Until we have both back-up
satellites and installed back-up dishes in our service areas, any interruption
in satellite transmission by our third-party satellite providers may adversely
affect the operation of our network and our business generally.
The markets in which we operate are highly competitive and we may be unable to
compete successfully against new entrants with greater resources.
We compete in markets that are new, intensely competitive, highly fragmented
and rapidly changing. Many of our potential competitors have longer operating
histories, greater name recognition and substantially greater financial,
technical and marketing resources than we do. These potential competitors may
be able to respond more quickly than we can to new or emerging technologies and
changes in customer requirements. Some of our potential competitors may bundle
their services with other software or hardware in a manner that may discourage
content distributors from purchasing any service we offer or ISPs from
installing our systems.
As competition in the Internet content delivery market continues to
intensify, new solutions will emerge. We are aware of other companies that are
focusing, or may in the future focus, significant resources on developing and
marketing services that will compete with ours. We do not have exclusive
contracts with our customers and our customers may shift from using our
services to those of our competitors at any time without penalty. We are aware
of three other companies, iBEAM Broadcasting Corp., PanAmSat and Loral
CyberStar, that are providing, or have announced they will provide, delivery of
streaming media through satellite networks.
Increased competition could result in:
. price and net revenue reductions and lower profit margins;
. loss of customers; and
. loss of market share.
11
<PAGE>
Our current customers could become competitors which would reduce our ability
to generate revenue.
Many of our current and potential customers whose Internet content
distribution services we seek to enhance could attempt to eliminate the need
for our services by developing competing technologies. Those entities include:
. Internet content distributors that seek to accelerate delivery of Web
pages, such as Akamai, Road Runner and Digital Island;
. Internet webcasting companies that deliver streaming media through land-
based networks, such as INTERVU, which was acquired by Akamai; and
. Internet software vendors that reduce the cost of content distribution
by storing content near the end user, such as Inktomi.
Direct competition from current customers would reduce the number of potential
customers for our services, resulting in reduced revenues.
Our business will be adversely affected if we are unable to protect our
intellectual property rights from third-party challenges.
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property
rights. These legal rights afford only limited protection. Despite our efforts
to protect these rights, unauthorized parties may attempt to copy or otherwise
use our technology. Policing unauthorized use of our intellectual property is
difficult, and we cannot be certain that the steps we have taken will prevent
their unauthorized use or misappropriation, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as laws in the
United States.
Although we have received a patent that provides limited protection for our
cache management technology, we do not have patents covering the other
technology we use that would preclude or inhibit competitors from entering our
market. Cache management technology represents a small portion of our current
and projected revenue. The balance of our intellectual property is protected by
copyright trademark and trade secret laws. Our current patent, any future
patents and patents licensed by us may be challenged or may not provide us with
any competitive advantages. On May 25, 2000, we received a letter from a
potential competitor notifying us that it intends to seek a re-examination of
our patent by the U.S. Patent and Trademark Office. While we have no reason to
believe that the patent will be invalidated, it is possible that the Patent and
Trademark Office could invalidate the patent or force us to narrow the scope of
the claims of the patent. To date, we have not have received notice of the
filing of any such request for re-examination. Moreover, at present, none of
our technology is patented abroad. We cannot be certain that any future patent
applications will be granted, that any future patent will not be challenged,
invalidated or circumvented, or that rights granted under any patent that may
be issued will provide competitive advantages to us. Finally, patent and
copyright protection may be unavailable for much of our technology.
Our services use technology that may infringe upon the proprietary rights of
others, and we may be liable for significant damages as a result.
Other companies, including our competitors, may have or obtain patents or
other proprietary rights that would prevent, limit or interfere with our
ability to sell our services. As a result, we may be found to infringe on the
proprietary rights of others. If an infringement claim against us is upheld, we
may be unable to license the infringed technology. On April 7, 2000, we
received a letter from a competitor which suggested that our technology might
infringe an unidentified patent of the competitor. While we have no reason to
believe that our technology infringes on the rights of others, companies in the
Internet market are increasingly bringing suits alleging infringement of their
proprietary rights, particularly patent rights. Any litigation or claims,
whether or not valid, could result in substantial costs and diversion of
resources. Intellectual property litigation or claims could force us to do one
or more of the following:
. cease selling services that rely upon, are derived from or incorporate
the challenged intellectual property;
12
<PAGE>
. obtain a license from the holder of the infringed intellectual property
right, which license may not be available on reasonable terms; and
. redesign our services.
If we are forced to take any of these actions, our business may be seriously
harmed.
If we are unable to retain our key employees, our ability to compete could be
harmed.
Execution of our business strategy depends upon the continued services of
our management, including our chairman of the board, Douglas E. Humphrey, chief
executive officer, Richard J. Hanna, chief operating officer, Robert Marggraf,
chief financial officer, Edward D. Postal, and executive vice president of
operations, Robert M. Dunham. Each of these individuals, together with our
engineering staff, other key technology, sales, marketing, accounting, finance
and support personnel, have critical industry experience and relationships that
we rely on in implementing our business plan. None of our officers or key
employees are bound by an employment agreement for any specific term. The loss
of the services of any of our officers or other key employees could delay the
development and introduction of and negatively impact our ability to sell our
service.
We face risks associated with international operations that could harm our
business.
In 1999 and the three months ending March 31, 2000, we derived 29% and 36%,
respectively, of our net revenue from customers located outside the United
States. Of the more than 300 satellite dishes that we have installed, 81 are
located in Canada and Europe. In addition to our Canadian and European
operations, we expect to expand our network to Latin America, Asia and
Australia in the future. We believe that we must continue to expand our
international operations. We expect to commit significant resources to our
international expansion, including the installation of satellite dishes and
sales and marketing activities. Because our sales are denominated in U.S.
dollars, an increase in the value of the U.S. dollar relative to foreign
currencies could make our services more expensive and, therefore, potentially
less competitive in international markets, resulting in a decrease in our
international sales. As we expand our international operations, we will be
increasingly subject to a number of risks associated with international
business activities which may increase our costs, lengthen our sales cycle and
require significant management attention. These risks include:
. general economic conditions in international markets;
. tariffs, export controls and other trade barriers;
. potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
. political instability; and
. limited ability to enforce agreements, intellectual property rights and
other rights in some foreign countries.
If we are unable to obtain or renew licenses necessary to operate our satellite
uplink facilities from the Federal Communications Commission and similar
foreign governmental agencies, we will be unable to operate our network.
In the United States, we require a license granted by the Federal
Communications Commission to operate the facilities from which we transmit data
to our leased satellites. This license expires on January 16, 2008. Similar
licenses will be required in other countries as we expand our international
operations. If we are not granted or fail to renew a license, then we would be
unable to continue to operate our business in the affected areas unless we
could make alternative arrangements.
13
<PAGE>
Internet laws could adversely affect our business.
Laws and regulations which apply to communications and commerce over the
Internet are becoming more prevalent, including laws regarding children's
privacy, copyrights, taxation and the transmission of sexually explicit
material. The law of the Internet remains largely unsettled, even in areas
where there has been some legislative action. It may take years to determine
whether and how existing laws such as those governing intellectual property,
privacy, libel and taxation apply to the Internet. In addition, the growth and
development of the market for online commerce may prompt calls for more
stringent consumer protection laws, both in the United States and abroad, that
may impose additional burdens on companies conducting business online. The
adoption or modification of laws or regulations relating to the Internet, or
interpretations of existing law, could restrict the type and amount of data we
may deliver over our network. This could have the effect of reducing the number
of potential customers for our services which would adversely affect our
business and results of operations.
We could be liable for the content broadcast over our network by our customers.
We have no control over the nature of the content broadcast over our network
on behalf of our customers, and the data may be encrypted in a way that makes
it impossible for us to review. The transmission of this data may violate laws
of the United States or other countries in which we operate or plan to do
business, such as laws prohibiting the distribution of child pornography. For
this reason, we could incur legal or criminal liability for the content we
transmit on behalf of our customers, which could hurt our business and
reputation.
We may be subject to regulation, taxation, enforcement or other liabilities in
unexpected jurisdictions.
We provide our services to customers located throughout the United States
and in several foreign countries. Because of the nature of satellite
transmissions, we may broadcast data into additional foreign countries where we
do not have customers. As a result, we may be required to qualify to do
business, or be subject to tax or other laws and regulations, in these
jurisdictions even if we do not have a physical presence, employees or property
in these jurisdictions. The application of these multiple sets of laws and
regulations is uncertain, but we could find we are subject to regulation,
taxation, enforcement or other liability in unexpected ways, which could harm
our business and financial results.
Our stock price may be volatile which could result in litigation against us and
substantial losses for investors purchasing shares in this offering.
Prior to this offering, you could not buy or sell our common stock publicly.
An active public market for our common stock may not develop or be sustained
after the offering. The market for technology stocks has been extremely
volatile. Factors that could cause the price of our common stock in the public
market to fluctuate significantly from the price paid by investors in this
offering include:
. the addition or departure of key personnel;
. variations in our quarterly operating results;
. announcements by us or our competitors of significant contracts, new
products or services offerings or enhancements, acquisitions,
distribution partnerships, joint ventures or capital commitments;
. changes in financial estimates by securities analysts;
. our sales of common stock or other securities in the future;
. changes in market valuations of networking, Internet and
telecommunications companies; and
. fluctuations in stock market prices and volumes, generally.
14
<PAGE>
Volatility in the market price of our common stock may prevent investors
from being able to sell their common stock at or above our initial public
offering price. In addition, volatility or a prolonged decline in our common
stock price could reduce our liquidity and capital resources and limit our
ability to execute our business plan, including the ability to attract and
retain employees.
In the past, class action litigation has often been brought against
companies following periods of volatility in the market price of their common
stock. We may become involved in this type of litigation in the future.
Litigation is often expensive and consumes management's attention and
resources, which could materially harm our business and results of operations.
Our executive officers, directors and entities affiliated with them will
together control 62% of our voting stock and will have the ability to control
matters requiring stockholder approval.
The executive officers and directors and entities affiliated with them will,
in the aggregate, beneficially own approximately 62% of our outstanding common
stock following the completion of this offering. These stockholders, if acting
together, would be able to control all matters requiring approval by our
stockholders, including the election of directors and the approval of mergers
or other business combination transactions.
Provisions of our charter documents and Delaware law may make it difficult for
a third party to acquire our company and could depress the price of our common
stock.
Delaware corporate law, our certificate of incorporation and our bylaws
contain provisions that could delay, defer or prevent a change in control of
our company or our management. These provisions could also discourage proxy
contests and make it more difficult for you and other stockholders to elect
directors and take other corporate actions. As a result, these provisions could
limit the price that investors are willing to pay in the future for shares of
our common stock. These provisions include:
. classifying the board of directors into three groups serving staggered
terms;
. authorizing the board of directors to issue additional preferred stock;
. prohibiting cumulative voting in the election of directors;
. limiting the persons who may call special meetings of stockholders;
. prohibiting stockholder action by written consent; and
. establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
Future sales of our common stock may depress our stock price.
Sales of a substantial number of shares of common stock in the public market
following this offering could cause the market price of our common stock to
decline. Based upon shares of common stock outstanding on May 31, 2000, after
this offering, we will have 34,405,021 shares of common stock outstanding. All
the shares sold in this offering will be freely tradable. The remaining shares
of common stock will be eligible for sale in the public market beginning upon
the expiration of lock-up agreements with our underwriters, subject to the
restrictions of Rule 144. These lock-up agreements expire 180 days after the
date of this prospectus, although the underwriters could release some or all of
the shares subject to the lock-up agreements prior to that time without any
notice. Additionally, holders of 27,170,554 shares have rights that would
require us to register their shares for sale beginning as soon as the lock-up
agreements expire. After this offering we also intend to register up to
approximately 10,000,000 additional shares of our common stock for sale upon
exercise of outstanding options issued pursuant to compensatory benefit plans
or reserved for future issuance pursuant to our stock option plans.
15
<PAGE>
We do not intend to pay dividends.
We have never declared or paid any cash dividends on our capital stock and
we do not anticipate paying any cash dividends in the foreseeable future.
Investors purchasing stock in our offering will experience immediate and
substantial dilution.
The initial public offering price of our common stock is expected to be
substantially higher than the pro forma book value per share of our outstanding
common stock immediately after the offering. Accordingly, if you purchase our
common stock in this offering, you will incur immediate dilution of
approximately $7.43 in the pro forma book value per share of our common stock
from the price you pay for our common stock, assuming an the initial public
offering price of $10.00 per share.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. In some cases, you can identify forward-looking statements by
terms such as "anticipate," "believe," "could," "estimate," "expect," "intend,"
"may," "should," "will," "predict," "potential," "continue" or "would," the
negative of such terms or other comparable terminology. These statements are
only predictions. Actual events or results may differ materially. In evaluating
these statements, you should specifically consider various factors, including
the risks described above and in other parts of this prospectus. These factors
may cause our actual results to differ materially from any forward-looking
statement. Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future results, levels
of activity performance or achievements.
16
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the offering will be approximately
$51.8 million, after deducting the estimated underwriting discount and
commissions and estimated offering expenses. Our net proceeds from the offering
will be approximately $59.8 million if the underwriters exercise their over-
allotment option in full.
We currently expect to use the net proceeds primarily for the continued
expansion of our satellite-based network, and for working capital and general
corporate purposes. We expect to spend approximately $12 million of the net
proceeds for expansion of our network and the remainder for working capital and
general corporate purposes. The amount of net proceeds that we actually expend
will vary significantly depending on a number of factors, including future
revenue growth, if any, and the amount of cash we generate from operations.
Thus, we will have significant discretion in applying the net proceeds of this
offering.
Pending our use of the net proceeds, we plan to invest the net proceeds in
investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid or declared any cash dividends on our common stock or
other securities and do not anticipate paying cash dividends in the foreseeable
future. We currently intend to retain all future earnings, if any, for use in
the operation of our business.
17
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
. on an actual basis;
. on a pro forma basis to give effect to the exercise of warrants prior to
the closing of this offering, resulting in the issuance of 132,699 shares
of series A mandatorily redeemable convertible preferred stock and our
receipt of $119,250 in aggregrate exercise proceeds; and the automatic
conversion of all the outstanding shares of mandatorily redeemable
convertible preferred stock, including the shares issued upon exercise of
the warrants, into 21,401,905 shares of common stock upon the closing of
this offering; and
. on a pro forma as adjusted basis to give effect to the sale of 5,750,000
shares of common stock in this offering, at an assumed initial public
offering price of $10.00 per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses
payable by us.
<TABLE>
<CAPTION>
As of March 31, 2000
-----------------------------
Pro Pro Forma
Actual Forma As Adjusted
------- ------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term portion of capital lease obligations... $ 3,979 $ 3,979 $ 3,979
------- ------- -------
Mandatorily redeemable convertible preferred
stock:
Series A, $.01 par value; 7,500,000 shares
authorized; 7,267,282 shares issued and
outstanding, actual; no shares authorized,
issued or outstanding, pro forma and pro forma
as adjusted................................... 6,594 -- --
Series B, $.01 par value; 9,887,403 shares
authorized, issued, and outstanding, actual;
no shares authorized, issued or outstanding,
pro forma and pro forma as adjusted........... 21,287 -- --
Series C, $.01 par value; 4,114,521 shares
authorized, issued and outstanding, actual; no
shares authorized, issued or outstanding pro
forma and pro forma as adjusted............... 33,881 -- --
------- ------- -------
Total mandatorially redeemable convertible
preferred stock............................. 61,762 -- --
------- ------- -------
Stockholder's equity (deficit):
Undesignated preferred stock, $0.01 par value,
30,000,000 shares authorized; no shares issued
or outstanding, actual, pro forma and pro
forma as adjusted............................. -- -- --
Common stock, $0.01 par value, 100,000,000
shares authorized; 7,166,087 shares issued and
outstanding, actual; 28,567,992 shares issued
and outstanding, pro forma; 34,317,992 shares
issued and outstanding, pro forma as
adjusted...................................... 72 286 343
Additional paid-in capital..................... 16,802 78,470 130,163
Deferred compensation.......................... (3,154) (3,154) (3,154)
Note receivable - stockholder.................. (7,980) (7,980) (7,980)
Accumulated other comprehensive income......... 40 40 40
Accumulated deficit............................ (29,312) (29,312) (29,312)
------- ------- -------
Total stockholders' equity (deficit)......... (23,532) 38,350 90,100
------- ------- -------
Total capitalization....................... $42,209 $42,209 $94,079
======= ======= =======
</TABLE>
This table excludes the following shares:
. 5,729,214 shares of common stock issuable upon the exercise of stock
options outstanding under our stock option plans and stock option
agreements as of March 31, 2000 at a weighted average exercise price of
$5.82 per share.
. 1,051,125 shares of common stock issuable upon the exercise of
outstanding warrants as of March 31, 2000, at a weighted-average exercise
price of $2.85 per share; and
. 3,354,057 common shares available for future grant or issuance under our
stock option plans as of March 31, 2000.
From March 31, 2000 to May 31, 2000, options have been exercised to purchase
an aggregate of 87,029 shares of common stock and we have issued additional
options to purchase an aggregate of 1,216,200 shares, net of option
cancellations.
18
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 2000 was $36.6
million, or approximately $1.28 per share. Pro forma net tangible book value
per share represents the amount of our total tangible assets less total
liabilities, divided by the 28,567,992 shares of common stock outstanding,
after giving effect to:
. the exercise of warrants prior to the closing of this offering,
resulting in the issuance of 132,699 shares of series A mandatorily
redeemable convertible preferred stock and our receipt of $119,250 in
aggregate exercise proceeds; and
. the automatic conversion of all of the outstanding shares of our
mandatorily redeemable convertible preferred stock, including the
preferred shares issued upon exercise of the warrants, into shares of
common stock upon the closing of this offering.
After giving effect to the sale of 5,750,000 shares of common stock in this
offering at an assumed initial public offering price of $10.00 per share and
the receipt of the estimated net proceeds therefrom, the pro forma net tangible
book value as of March 31, 2000 would have been $88.3 million, or $2.57 per
share. This represents an immediate increase in pro forma net tangible book
value of $1.29 per share to existing stockholders and an immediate dilution of
$7.43 per share to purchasers of common stock in the offering. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share........................... $10.00
Pro forma net tangible book value per share as of March 31,
2000........................................................... $1.28
Pro forma increase in net tangible book value per share
attributable to this offering.................................. 1.29
-----
Pro forma net tangible book value per share after this offering... 2.57
------
Pro forma dilution per share to new investors..................... $ 7.43
======
</TABLE>
The following table sets forth on the pro forma basis discussed above, as of
March 31, 2000, the difference between the number of shares of common stock
purchased, the total consideration paid and the average price per share paid by
existing stockholders and by the new investors, before deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us, at an assumed initial public offering price of $10.00 share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ --------------------
Number Percent Amount Percent
---------- ------- ------------ -------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 28,567,992 83.2% $ 71,380,799 55.4%
New investors....................... 5,750,000 16.8 57,500,000 44.6
---------- ----- ------------ -----
Total............................. 34,317,992 100.0% $128,880,799 100.0%
========== ===== ============ =====
</TABLE>
If the underwriters exercise their over-allotment option in full, the number
of shares held by new investors will increase to 6,612,500 shares, or 18.8% of
the total shares of common stock outstanding, and the number of shares held by
existing stockholders will be 81.2% of the total shares of common stock
outstanding after this offering.
The table above assumes no exercise of stock option or warrants outstanding
at March 31, 2000, except for the warrants whose exercise is assumed in the pro
forma calculation. As of March 31, 2000, there were options and additional
warrants outstanding to purchase 6,780,339 shares of common stock at a weighted
average exercise price of $5.36 per share. To the extent that all of these
outstanding options or warrants had been exercised as of March 31, 2000, net
tangible book value per share would have been $3.03 and total dilution per
share to new investors would have been $6.97.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data for the period
July 7, 1997 (Inception) through December 31, 1997 and for the years ended
December 31, 1998 and 1999 and the consolidated balance sheet data as of
December 31, 1998 and 1999 are derived from our consolidated financial
statements which have been audited by PricewaterhouseCoopers LLP, independent
accountants, and are included elsewhere in this prospectus. The consolidated
balance sheet data as of March 31, 2000 and the consolidated statement of
operations data for the three months ended March 31, 1999 and 2000 are derived
from unaudited consolidated financial statements included elsewhere in this
prospectus. The unaudited statements include all adjustments, consisting only
of normal recurring adjustments, that we believe are necessary for a fair
presentation. The consolidated balance sheet data at December 31, 1997 are
derived from our audited consolidated financial statements not included in this
prospectus. Our historical results,including those for the three months ended
March 31, 2000, are not necessarily indicative of results to be expected for
any future period. The data set forth below should be read in conjunction with
our consolidated financial statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. See note 2 to our
consolidated financial statements appearing elsewhere in this prospectus for
information regarding shares used in computing net loss and pro forma basic and
diluted net loss applicable to common stockholders per share.
<TABLE>
<CAPTION>
Period from
July 7, 1997
(Inception) Year Ended Three Months
through December 31, Ended March 31,
December 31, ----------------- -----------------
1997 1998 1999 1999 2000
------------ ------- -------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net revenue................. $ 5 $ 5 $ 358 $ 33 $ 187
Cost of services............ 5 804 4,499 709 2,924
------ ------- -------- ------- --------
Gross profit (loss)......... -- (799) (4,141) (676) (2,737)
------ ------- -------- ------- --------
Research and development.... 83 731 1,278 195 970
Sales and marketing......... 106 1,259 3,794 577 3,390
General and administrative.. 81 795 2,586 405 1,869
------ ------- -------- ------- --------
Operating loss.............. (270) (3,584) (11,799) (1,853) (8,966)
Interest expense............ -- (109) (163) (27) (151)
Interest income............. -- 94 356 19 155
------ ------- -------- ------- --------
Net loss.................... (270) (3,599) (11,606) (1,861) (8,962)
Dividends and accretion on
Series A, B and C
Mandatorily Redeemable
Convertible Preferred
Stock...................... -- (64) (1,299) (27) (5,773)
------ ------- -------- ------- --------
Net loss applicable to
common stockholders........ $ (270) $(3,663) $(12,905) $(1,888) $(14,735)
====== ======= ======== ======= ========
Basic and diluted net loss
applicable to common
stockholders per share.... $(0.05) $ (0.64) $ (2.23) $ (0.33) $ (2.26)
====== ======= ======== ======= ========
Weighted average number of
shares used in basic and
diluted net loss applicable
to common stockholders per
share...................... 5,769 5,769 5,793 5,770 6,511
====== ======= ======== ======= ========
Pro forma basic and diluted
net loss applicable to
common stockholders per
share...................... $ (0.62) $ (0.36)
======== ========
Weighted average number of
shares used in pro forma
basic and diluted net loss
applicable to common
stockholders per share..... 18,747 25,127
======== ========
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
---------------------- As of March 31,
1997 1998 1999 2000
---- ------- -------- ---------------
(in thousands)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash, cash equivalents and
short-term investments... $ 47 $ 2,369 $ 8,581 $ 34,097
Working capital........... 30 1,814 6,790 30,978
Total assets.............. 112 3,786 16,306 48,600
Long-term obligations, net
of current portion....... -- 589 2,773 4,790
Mandatorily redeemable
convertible preferred
stock.................... -- 5,865 27,127 61,762
Total stockholders equity
(deficit)................ 80 (3,349) (15,948) (23,532)
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with our financial
statements and related notes appearing elsewhere in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ from those indicated in forward-
looking statements.
Overview
We provide satellite-based delivery of Internet content. ISPs, content
distributors and corporations engage us to deliver Internet data such as
streaming media, Usenet News and other popular Web content directly to the edge
of the Internet. We currently deliver this content to more than 300 POPs in
North America and Europe.
We commenced operations in July 1997 and initially focused our efforts on
developing our proprietary software and then on marketing our services to ISPs
in order to establish an installed base of our satellite dishes. We began
offering Cidera Cache Turbocharging and Cidera Usenet News Service to ISPs in
September 1998. When an ISP signs up for either of these services, we install
one of our satellite dishes at its POP, which allows the ISP to receive the
service. In this way, we used Cidera Cache Turbocharging and Cidera Usenet News
Services as a method to accelerate the deployment of our network of satellite
dishes. Since our inception, we have incurred significant net losses, and as of
March 31, 2000, we had an accumulated deficit of $29.3 million.
Once we had deployed a sufficiently large network of our satellite dishes at
ISP POPs, we began offering our services to content distributors and
corporations. These services currently include Cidera Streaming Media Service
and Cidera Big File Mover. We began commercially offering Cidera Streaming
Media Service on January 1, 2000. To date, we have agreements with three
content distributors to use this service: Akamai, Road Runner and Digital
Island. We commercially introduced Cidera Big File Mover in April 2000 and we
expect to have customers for this service by the end of 2000. We also intend to
offer Cidera VAST to content distributors and corporations by the end of 2000.
To date, we have derived substantially all of our net revenue from Cidera
Cache Turbocharging and Cidera Usenet News Service. ISPs subscribe for these
services under contracts which typically range from six months to one year.
Cidera Cache Turbocharging is currently available to ISPs on a yearly
subscription basis for $350 to $400 per month. Cidera Usenet News Service is
currently available on a yearly subscription basis for $350 to $800 per month.
We bill these subscription fees one month in advance, but recognize net
revenues in the month in which we provide the services.
While Cidera Streaming Media Service and Cidera Big File Mover have not
generated any net revenue to date, we expect that they will begin doing so by
the fourth quarter of 2000 and that, in the future, they will account for a
significant portion of our net revenue. We price Cidera Streaming Media Service
based upon the content distributor's usage frequency and required amount of
bandwidth. We price Cidera Big File Mover based upon a number of factors,
including the size of the file the customer wants to transfer, the number of
downlink sites to which we are asked to deliver the file, and other customer-
specified delivery requirements. In the future, we may also derive net revenue
from our Cidera VAST service.
During 1999 and the three months ended March 31, 2000, 29% and 36%,
respectively, of our net revenue was derived from customers based outside the
United States. We expect that customers based outside the United States will
account for a larger proportion of our net revenue in future periods.
Cost of services consists of fees paid to satellite providers for use of
satellite bandwidth, fees paid to ISPs for terrestrial bandwidth, depreciation
of network hardware and personnel costs associated with the installation,
management and maintenance of the network. We enter into contracts for
satellite capacity with third-party providers with terms typically ranging from
three years to seven years. These contracts commit us to monthly service fees
for use of a fixed amount of satellite capacity, regardless of usage. We expect
that our cost of services per customer will decrease in the future as we spread
these fixed costs over an expanding customer base.
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Research and development expenses consist primarily of salaries and related
personnel costs and costs related to the design, development, testing,
deployment and enhancement of our services, and depreciation of hardware
associated with these efforts. To date, we have expensed our research and
development costs as incurred. We believe that research and development is
critical to our strategic product development objectives and intend to enhance
our technology to meet the changing requirements of the market demand. As a
result, we expect our research and development expenses to increase in the
future.
Sales and marketing expenses consist primarily of salaries and related costs
of sales and marketing personnel, recruiting expenses and professional fees. We
expect that sales and marketing expenses will increase in the future as we hire
additional personnel, initiate additional marketing programs, establish sales
offices in new locations and incur costs related to the expansion of our
product lines and territories.
General and administrative expenses consist primarily of salaries and
related costs of executive, administrative and finance personnel and recruiting
expenses, professional fees and legal and accounting services. We expect that
general and administrative expenses will increase in the future as we hire
additional personnel, expand our operations and incur additional costs related
to the growth of our business and our operations as a public company.
Interest income (expense), net consists of interest earned on our cash, cash
equivalents and short-term investments, net of interest expense on equipment
leases and short-term borrowings.
Equity-related compensation charges, while not specifically displayed on our
operating statement, are a significant component of our net loss. At December
31, 1999, deferred stock compensation, which is a component of stockholders'
equity (deficit), was $2.4 million. This amount is being amortized ratably over
the vesting periods of the applicable stock options and restricted shares,
typically four years. These charges will be applied to the appropriate
operating statement line item on a case-by-case basis. We expect to incur
equity-related compensation expense relating to options outstanding on December
31, 1999 of at least $500,000 annually from 2000 to 2003.
Results of Operations
Comparison of the three months ended March 31, 2000 to the three months ended
March 31, 1999
Net Revenue. Net revenue increased $154,000 from $33,000 for the three
months ended March 31, 1999 to $187,000 for the three months ended March 31,
2000. The increase in net revenue was primarily attributable to growth in our
customer base from approximately 40 billed customers at March 31, 1999 to
approximately 190 billed customers at March 31, 2000. We do not expect that we
will be able to sustain this net revenue growth rate in future periods.
Cost of Services. Cost of services increased $2.2 million from $709,000 for
the three months ended March 31, 1999 to $2.9 million for the three months
ended March 31, 2000. The increase in cost of services was primarily
attributable to an increase in North American satellite communication costs,
representing $640,000 of the increase, the implementation of our service
offering in Europe, representing $533,000, the establishment of a continuously
staffed network operations center, representing $104,000, the acquisition of
land-based bandwidth to support operations, representing $214,000, and an
increase in personnel, payroll and related expenses, representing $285,000, as
well as depreciation of additional equipment, representing $357,000.
Research and Development. Research and development expenses increased
$774,000 from $196,000 for the three months ended March 31, 1999 to $970,000
for the three months ended March 31, 2000. The increase in research and
development expenses was primarily attributable to an increase in personnel,
payroll and related expenses, representing $319,000 of the increase, as well as
depreciation of additional equipment of $105,000.
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Sales and Marketing. Sales and marketing expenses increased $2.8 million
from $577,000 for the three months ended March 31, 1999 to $3.4 million for the
three months ended March 31, 2000. The increase in sales and marketing expenses
was primarily attributable to an increase in sales and marketing personnel,
accounting for $771,000 of the increase, and increased marketing expenses to
support the deployment of our services, accounting for $1.7 million.
General and Administrative. General and administrative expenses increased
$1.5 million from $405,000 for the three months ended March 31, 1999 to $1.9
million for the three months ended March 31, 2000. The increase in general and
administrative expenses was primarily attributable to increases in personnel
and related expenses of $440,000 and an increase in professional fees of
$600,000.
Interest Income (Expense), Net. Interest income (expense), net was $(8,000)
for the three months ended March 31, 1999 and was $4,000 for the three months
ended March 31, 2000. The change in interest income (expense), net was
primarily attributable to interest income earned on the proceeds from the
issuance of our Series B mandatorily redeemable convertible preferred stock,
partially offset by increased interest expense on capital lease borrowings.
Comparison of the year ended December 31, 1999 to the year ended December 31,
1998
Net Revenue. Net revenue increased $353,000 from $5,000 for the year ended
December 31, 1998 to $358,000 for the year ended December 31, 1999. The
increase in net revenue was attributable to growth in our customer base from 20
billed customers at the close of 1998 to 150 billed customers at the close of
1999. We do not expect that we will be able to sustain this net revenue growth
rate in future years.
Cost of Services. Cost of services increased $3.7 million from $805,000 for
the year ended December 31, 1998 to $4.5 million for the year ended December
31, 1999. The increase in cost of services was primarily attributable to the
implementation of our service offering in Europe, representing $944,000 of the
increase, the establishment of a continuously staffed network operations
center, representing $582,000, the acquisition of additional land-based
bandwidth to support operations, representing $367,000, and an increase in
personnel, payroll and related expenses, representing $989,000, as well as
depreciation of additional equipment, representing $707,000.
Research and Development. Research and development expenses increased
$547,000 from $731,000 for the year ended December 31, 1998 to $1.3 million for
the year ended December 31, 1999. The increase in research and development
expenses was primarily attributable to an increase in personnel, payroll and
related expenses, accounting for $316,000 of the increase, as well as
depreciation of additional equipment, accounting for $209,000.
Sales and Marketing. Sales and marketing expenses increased $2.5 million
from $1.3 million for the year ended December 31, 1998 to $3.8 million for the
year ended December 31, 1999. The increase in sales and marketing expenses was
primarily attributable to an increase in sales and marketing personnel,
representing $1.1 million of the increase, as well as increased marketing
expenses of $626,000 to support the deployment of our services.
General and Administrative. General and administrative expenses increased
$1.8 million from $795,000 for the year ended December 31, 1998 to $2.6 million
for the year ended December 31, 1999. The increase in general and
administrative expenses was primarily attributable to increases in personnel
and related expenses of $581,000 and an increase in professional fees for
recruitment services of $494,000.
Interest Income (Expense), Net. Interest income (expense), net was $(15,000)
for the year ended December 31, 1998 and was $193,000 for the year ended
December 31, 1999. Interest income (expense), net improved due to the increase
in interest income earned on the proceeds from the issuance of our series B
mandatorily redeemable convertible preferred stock.
Comparison of the period from July 7, 1997 (Inception) to December 31, 1997 to
the year ended December 31, 1998
Net Revenue. Net revenue remained relatively stable at $5,000 both for the
period from July 7, 1997 to December 31, 1997 and for the year ended December
31, 1998. Net revenue for the 1997 period was attributable to consulting income
related to various efforts undertaken on behalf of other start-up companies.
These efforts ended on December 31, 1997. Revenue for the year ended December
31, 1998 resulted from the initiation of our Cache Turbocharging and Usenet
News Service offerings.
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Cost of Services. Cost of services increased $800,000 from $5,000 for the
period from July 7, 1997 to December 31, 1997 to $805,000 for the year ended
December 31, 1998. Cost of services for the 1997 period were related to the
consulting engagements discussed above. The increase in cost of services for
the year ended December 31, 1998 was primarily attributable to our initial
acquisition of land-based bandwidth and satellite capacity, which accounted for
$442,000 of the increase, as well as increased personnel and related expenses
of $202,000.
Research and Development. Research and development expenses increased
$648,000 from $83,000 for the period from July 7, 1997 to December 31, 1997 to
$731,000 for the year ended December 31, 1998. The increase in research and
development expenses was due primarily to increased payroll and associated
expenses due to increased staffing, accounting for $444,000 of the increase,
and payments for satellite bandwidth to conduct our research and development,
accounting for $204,000.
Sales and Marketing. Sales and marketing expenses increased $1.2 million
from $106,000 for the period from July 7, 1997 to December 31, 1997 to $1.3
million for the year ended December 31, 1998. The increase in sales and
marketing expenses was primarily attributable to the increase in sales and
marketing personnel of approximately $420,000, as well as increased marketing
expenses of $506,000 to develop marketplace recognition and conduct basic
market research.
General and Administrative. General and administrative expenses increased
$714,000 from $81,000 for the period from July 7, 1997 to December 31, 1997 to
$795,000 for the year ended December 31, 1998. The increase in general and
administrative expenses was primarily attributable to increases in personnel
and related expenses, accounting for $379,000 of the increase, as well as
depreciation of additional equipment, representing $168,000.
Interest Income (Expense), Net. Interest income (expense), net was $250 for
the period from July 7, 1997 through December 31, 1997 and was $(15,000) for
the year ended December 31, 1998. The change in interest income (expense), net
was primarily attributable to increased interest expense associated with
equipment leases for long term purchase of hardware at our network operations
center and uplink facilities.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of our capital stock. We have also financed our purchase of capital
equipment through borrowings on long-term debt agreements totalling
approximately $4.1 million. At March 31, 2000, cash, cash equivalents and
short-term investments totaled $34.1 million.
We have had significant negative cash flows from our operating activities
since our inception. Cash used in operating activities was $267,000 for the
period from July 7, 1997 to December 31, 1997, $3.4 million for the year ended
December 31, 1998, $9.9 million for the year ended December 31, 1999 and $7.5
million for the three months ended March 31, 2000. Net cash flows from
operating activities in each period reflect increasing net losses and, to a
lesser extent, receivables and other current assets, offset in part by
increased accounts payable and accrued expenses.
Cash used in investing activities was $36,000 for the period from July 7,
1997 to December 31, 1997, $126,000 for the year ended December 31, 1998, $8.3
million for the year ended December 31, 1999 and $9.2 million for the three
months ended March 31, 2000. Cash used for investing activities reflects
purchases of short-term investments in 1999 and purchases of property and
equipment in all years, primarily computers, receivers and other hardware
associated with the deployment of our network.
Cash provided by financing activities was $350,000 for the period from July
7, 1997 to December 31, 1997, $5.9 million for the year ended December 31,
1998, $20.5 million for the year ended December 31, 1999 and $36.2 million for
the three months ended March 31, 2000. Cash provided by financing activities
for these periods was derived primarily from private sales of convertible
preferred stock.
We currently expect that the equipment to build out our network over the
next twelve months will cost between $50 and $60 million and we expect to
finance this expansion primarily through the proceeds of this offering and
equipment lease transactions. We have equipment lines of credit aggregating
approximately $7.5 million collateralized by the property and equipment. At
March 31, 2000, approximately $6.6 million was outstanding under these lines of
credit. Borrowings under these equipment lines of credit have maturities of
three years and a weighted average interest rate of approximately 9%. We do not
plan to repay amounts outstanding under these agreements with the proceeds of
the offering.
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<PAGE>
During 1998, we signed a line of credit with a financial institution for
borrowings of up to $750,000. The interest rate on borrowings is prime plus
1.5% and the financial institution has a lien on all corporate assets. As of
March 31, 2000, we have no borrowings outstanding on the line.
On February 28, 2000, we issued an aggregate of 3,445,916 shares of series C
mandatorily redeemable convertible preferred stock for aggregate proceeds of
$30.1 million. On March 15, 2000, we issued an additional 668,605 shares of
series C mandatorily redeemable convertible preferred stock for aggregate
proceeds of $5.9 million. We issued these shares to Investor AB, GE Capital
Equity Investments, Dell USA, MCI Worldcom Venture Fund, PSINet Strategic
Investments, Edward D. Postal, John and Adam Landry, Wayne Correia, Arno
Penzias, Thom and Diane Degnan and John Sidgmore. The series C stock has
cumulative preferred dividends of 8% per year. Each share of series C stock
will automatically convert into one share of common stock upon the closing of
this offering.
At our present level of operations, we believe that the net proceeds from
this offering, together with our current cash, cash equivalents and marketable
securities, will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. We do not
expect to generate cash from operations in the next twelve months or for the
foreseeable future. Therefore it is likely that we will need to sell additional
equity or debt securities before cash generated from operations is sufficient
to meet our liquidity requirements. If additional funds are raised through the
issuance of debt securities, these securities could have rights, preferences
and privileges senior to those accruing to holders of common stock, and the
term of this debt could impose restrictions on our operations. The sale of
additional equity or convertible debt securities could result in additional
dilution to our stockholders, and we cannot be certain that additional
financing will be available in amounts or on terms acceptable to us, if at all.
If we are unable to obtain this additional financing, we may be required to
reduce the scope of our planned technology, services or product development and
sales and marketing efforts, which could harm our business, financial condition
and operating results.
Market Risk
We do not use derivative financial instruments. We generally place our
marketable security investments in high credit quality instruments, primarily
U.S. Government obligations and corporate obligations with contractual
maturities of less than one year. We do not expect any material loss from our
marketable security investments and therefore believe that our potential
interest rate exposure is not material to our results of operations, financial
position or cash flows for any period presented in this prospectus. In future
periods, we may be subject to market risk primarily from interest rate and
foreign currency exchange risk.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of FASB Statement No. 133." We are required to
adopt SFAS 133 for all fiscal quarters of all fiscal years beginning after June
15, 2000. SFAS 133 establishes methods of accounting for derivative financial
instruments and hedging activities. Because we currently hold no derivative
financial instruments as defined by SFAS 133 and do not currently engage in
hedging activities, we do not expect that adoption of SFAS 133 will have a
material effect on our financial condition and results of operations.
In December 1999, the Securities and Exchange Commission issued SAB 101,
"Revenue Recognition in Financial Statements," which summarizes certain of the
SEC staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. In March 2000, the SEC issued SAB
101A, "Revenue Recognition in Financial Statements," which defers the effective
date of SAB 101 from January 1, 2000 to April 1, 2000. Our revenue recognition
policies are consistent with SAB 101.
In March 2000, the FASB issued FIN No. 44, "Accounting for Certain
Transactions Involving Stock Compensation--an Interpretation of APB Opinion No.
25." The intepretation clarifies the application of Opinion 25 for certain
issues. The interpretation is effective July 1, 2000, but some conclusions may
be applied earlier. We do not believe the adoption of the interpretation will
have a material effect on our financial condition and results of operations.
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BUSINESS
Overview
We deliver Internet data such as streaming media, Usenet News and other
popular Web content through our satellite-based distribution network directly
to the edge of the Internet. Our customers include ISPs, content distributors
and corporations. We currently deliver this content to more than 300 POPs in
North America and Europe. The number of locations to which a satellite can
broadcast data within its service area is unlimited. For this reason, we are
able to add locations within our current service areas without any increase in
direct transmission costs by installing more satellite dishes.
We currently use our satellite-based network to deliver popular Internet
content through our four service offerings. Through the first quarter of 2000,
substantially all of our revenue has come from ISPs who subscribe for Cidera
Usenet News Service and Cidera Cache Turbocharging. To date, we have not
received significant revenue from content distributors or corporations as we
have only recently released our service offerings targeting these entities,
Cidera Streaming Media Service and Cidera Big File Mover. However, we expect
that content distributors and corporations will account for a significant
portion of our revenue in the future.
Industry Background
The Internet is a network of thousands of interconnected computer networks.
The Internet can be divided into three primary components: Internet points-of-
presence, or POPs, which are the physical locations where a group of end users
connect to the Internet; the Internet backbone, which is the infrastructure
linking these POPs together; and the local loop, which is the connection
between end users and a POP. POPs are typically maintained by Internet service
providers, or ISPs, and an ISP may operate one or more POPs. We refer to all
POPs collectively as the edge of the Internet.
Growth in Broadcast Data
Internet use has grown rapidly in recent years as a result of increases in
the number of Internet users, the proliferation of PCs and other Internet-
enabled devices and the availability of faster and cheaper Internet access.
International Data Corporation, or IDC, estimates that the number of Internet
users worldwide will grow from approximately 196 million in 1999 to
approximately 502 million by 2003 and that 65% of these users will be located
outside of the United States by 2003. Growth in the amount and variety of
content and service offerings available on the Web has further increased
Internet use. IDC estimates that the amount of data transmitted over the
Internet will increase from 56 trillion bits per day in 1998 to 2,507 trillion
bits per day in 2002, a compounded annual growth rate of 158%.
The Internet is a point-to-point network through which each end user
establishes a connection between a personal computer and the computer that
contains the desired content. The Internet was originally designed for email,
file transfer and other point-to-point traffic. However, an increasing amount
of Internet traffic is of a broadcast nature, characterized by multiple
transmissions of identical data from one source to many end users. Examples of
broadcast data include live streaming media and highly popular Web pages that
are accessed by many users over a short period of time. According to Jupiter
Communications, page views on the top 10 content sites will increase from 12.2
million page views per day to 27.9 million over the next four years. As the
volume of broadcast data being transmitted over the Internet has grown, the
Internet backbone has become increasingly congested.
Because of the strain being placed on the Internet backbone, ISPs are
increasingly experiencing difficulties in providing high quality service. These
difficulties include longer response times, poor quality audio and video
streaming and less-satisfied end users. According to a survey conducted by
Jupiter Communications, 75% of high traffic Web sites were criticized by their
end users for slow page delivery, and 42% were criticized for pages failing to
load.
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In an attempt to improve the end user's experience, a number of technologies
have emerged to improve performance of the local loop, such as digital
subscriber lines, or DSL, and cable modem connections. These technologies,
which are commonly referred to as broadband technologies, provide end users
with faster connections to their local POP. Forrester Research estimates that
47% of end users will access the Internet through broadband connections by
2004. While faster local Internet connections improve performance between the
end user and the POP, they do not alleviate the congestion on the Internet
backbone. As a result, the ability of these technologies to deliver improved
performance remains limited by the bottleneck on the Internet backbone. In
fact, the deployment of broadband access has resulted in further congestion on
the backbone by increasing the demand by end users for high-bandwidth, rich
media content, particularly streaming media.
Content Distribution from the Edge of the Internet
To bypass the congestion on the Internet backbone and better meet end user
demand, high-bandwidth content is increasingly being stored at multiple servers
located at the edge of the Internet. One method of storing this content at the
edge of the Internet is called caching. ISPs are installing cache servers at
their POPs, which temporarily store popular Internet content. This allows ISPs'
subscribers to access this content from the POP without having to traverse the
Internet to retrieve it. In addition to improving the end user's experience,
caching has the added benefit of reducing ISPs' bandwidth costs. While caching
is an effective means to store popular static content at the POP, it provides
little improvement to live streaming content since this content is delivered in
real time to end users and therefore is not capable of being stored.
In addition, content distributors have emerged to assist in locating content
at the edge of the Internet. Content distributors are entities that place their
servers at many locations across the Internet. Web site operators and other
Internet content generators engage these content distributors to assemble their
Internet content and store it on the distributors' dispersed networks of
servers. This content is then readily accessible to end users in much the same
way as the content that is stored in ISP caches. In addition to storing static
content on their servers, content distributors also deliver live streaming
media from these servers. This emergence of caching and content distributors
has helped to bypass the congestion on the Internet backbone.
Transporting Content to the Edge of the Internet
In order to move content to servers at the edge of the Internet, content
distributors and ISPs still rely on the land-based Internet backbone. In doing
so, they must use significant amounts of costly bandwidth. Content
distributors' bandwidth consumption is increased by the need to send copies of
the same data over the land-based Internet backbone to each of their
distributed servers.
Not only does land-based distribution of content to the edge of the Internet
consume significant bandwidth, but it also results in the degradation of the
content quality. When this data is transmitted over the Internet, it is divided
into many packets. As those packets traverse the land-based Internet backbone,
each packet typically crosses multiple networks that are connected to each
other at a limited number of connections called peering points. These peering
points are frequently congested, which often results in transmission delays and
lost data. According to a study by Dataquest, streaming media travels through
an average of 20 routers and experiences average packet loss of 25%. When data
is lost, either the data transmission process is repeated until all of the data
is transmitted successfully, or the data arrives corrupted. As content
distributors increasingly attempt to distribute live streaming media, these
difficulties are magnified. Packet loss and transmission delays are
particularly problematic with live streaming media because lost data cannot be
resent and packets arriving out of sequence due to transmission delays may not
be accessed in their original sequence. Packet loss and transmission delays
cause video images to be jerky and often cause the transmission to stop and
start while the end user's computer is waiting for the necessary packets to
arrive. This degradation in quality is among the fundamental causes of
unsatisfactory performance of many Internet-based applications.
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The Cidera Solution
We operate an international satellite-based network that delivers high-
bandwidth Internet content to the edge of the Internet. We currently deliver
this content on behalf of ISPs and content distributors to more than 300 POPs
in North America and Europe. Our network provides an alternative to the land-
based Internet backbone for the delivery of broadcast content to the edge of
the Internet.
Satellite technology enables a single transmission of data to be
simultaneously broadcast to an unlimited number of sites within the satellite's
service area. This eliminates the need to send separate copies of broadcast
content to each POP over the land-based Internet backbone. Satellite
transmission of Internet content also bypasses the multitude of routers that
characterize the land-based Internet backbone, thereby significantly reducing
packet loss and improving the quality of data delivery. We believe our network
is complementary to the existing Internet backbone because, by lifting
broadcast content from the land-based backbone, our services free up capacity
for the point-to-point transmissions that the Internet was originally designed
to handle.
The principal components of our network are our uplink sites, which are the
places where we transmit content to the satellites; the satellites upon which
we lease capacity from third-party commercial satellite providers; and our
downlink equipment, located at the POPs, where the transmitted content is
received and distributed. Content distributors deliver content to our uplink
sites through either wireline connections dedicated to this purpose or high-
speed traditional Internet connections. We then transmit this data from our
uplink satellite dishes to geostationary satellites on which we lease
transmission capacity. These satellites, in turn, broadcast the content to all
downlink satellite dishes located within their satellite footprints. When the
data is received at the downlink sites, our hardware and proprietary software
sorts the content and delivers it to the appropriate server within the POP,
such as an ISP's cache or a content distributor's server. Once the content has
reached the proper server at the edge, ISPs can distribute it over the local
loop to the their subscribers.
Our solution provides benefits to both ISPs and content distributors that
subscribe to our satellite-based delivery service. These benefits include:
. Enabling our Customers to Offer a Higher Quality of Service. Both ISPs
and content distributors can reduce network overloads by using our
satellite-based network to transmit data to the edge. By avoiding the
congestion problems and packet loss associated with the existing land-
based network, our customers can increase the speed of access to the data
and quality of the data provided to the end user. Our solution is
designed to permit content distributors to deliver graphics, video,
audio, animation, software downloads and other high-bandwidth content
that cannot be effectively delivered through the existing land-based
networks. This enhances the quality of the end user's experience.
. Reducing Customer Bandwidth Costs. Our satellite-based delivery service
allows content distributors and ISPs to reduce their bandwidth costs by
eliminating the need to transmit separate copies of the same data to each
POP via the land-based Internet. Content distributors who use our service
need to broadcast only one copy of their data over our network to reach
POPs at the edge of the Internet. Additionally, ISPs who use our network
avoid having to consume land-based bandwidth to repeatedly retrieve
broadcast content, since we deliver this content directly to the POP via
satellite. In bypassing the existing land-based networks, our services
free up the bandwidth that was previously devoted to delivering and
receiving this data.
. Delivering a Solution Compatible with Existing Internet Technologies. We
have designed our network and technology to be compatible with leading
Internet hardware, software, protocols, formats and standards. For
example, our network is compatible with cache servers from leading
hardware providers, including Cisco, Entera, Inktomi, Network Appliance
and Novell. In addition, we support all major
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streaming formats, including RealNetworks G2, Microsoft Windows Media
Technology and Apple QuickTime. This technical neutrality makes our data
delivery solution easy and efficient for ISPs and content distributors to
implement.
. Providing Strong Customer Service and Support. To assist our clients with
installation, integration and maintenance issues, we maintain a staff of
consulting engineers and customer support personnel. In addition, we have
an advanced network operations center which enables us to continuously
monitor the performance of our network.
The Cidera Strategy
Our goal is to become the leading global satellite-based Internet data
delivery service. To accomplish this goal, we are pursuing a strategy built on
the following initiatives:
. Globally Expand our Network. We have deployed more than 300 satellite
dishes throughout North America and Europe. We intend to expand our
network in both North America and Europe by deploying additional
satellite dishes. Further expansion of our network will make our services
more valuable to content distributors by enabling them to reach more end
users at the edge of the Internet. In addition, we intend to expand our
data delivery network in emerging high-growth Internet markets in Latin
America, Asia and the Pacific Region by establishing a direct sales
force, retaining independent sales agents, and leasing satellite capacity
for each region. We have recently contracted for satellite capacity in
Latin America and Asia and hired a channel manager for Latin America. We
believe that our satellite-based services will be attractive to
international customers given the limited availability and high costs of
bandwidth in these regions.
. Expand and Strengthen our Customer Relationships. Our target customers
are currently ISPs, content distributors and corporations. We intend to
aggressively pursue additional customers through the use of an expanded
sales force and targeted advertising. We believe that ISPs will be
reluctant to install more than one dish at their POPs to accommodate
multiple satellite-based providers. Therefore, we believe there is a
significant first-mover advantage in the satellite delivery of Internet
content. By quickly securing additional customers, deploying our physical
network, and securing placement of our satellite dishes in the facilities
of ISPs and business enterprises, we believe that we will be able to
establish ourselves as the leader in satellite-based data delivery. In
addition, we intend to provide extensive customer support services to
create customer loyalty and to market new services as they become
available.
. Expand our Service Offerings. We believe that our network can be easily
expanded to provide a variety of value-added services for the delivery of
additional classes of broadcast data. By extending our service offerings
to include Cidera VAST, we believe we can address additional needs of
ISPs, content distributors and corporations. We also believe our
satellite-based network will be attractive to corporations seeking to
host and deliver applications from a distributed network of servers at
the edge of the Internet. We intend to continue to focus on identifying
new applications for our satellite broadcast data delivery network and
aggressively market those applications.
. Build Deployment and Marketing Alliances to Strengthen Market
Position. We have entered into agreements with leading Internet
companies, including Akamai, Exodus, bCandid, Road Runner and Digital
Island, to promote the deployment of our satellite dishes and to jointly
market our services. We intend to continue to pursue relationships with
other technology leaders, including Internet software and hardware
companies, application service providers and network providers. We
believe these relationships will accelerate the deployment of our
technology and services, increase our brand recognition and improve our
access to our target customer base.
. Provide Services that Complement those of Content Distributors. We
provide content distributors with a cost-effective means to deliver
content to the edge of the Internet. We plan to continue to serve as an
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integral delivery vehicle for content distributors, thereby enhancing
their service offerings. By maintaining our focus on content delivery, we
believe that our services will continue to complement, rather than compete
with, those of content distributors.
. Maintain Technological Compatibility. We have designed our network and
technology to be compatible with the prevailing Internet hardware,
software, protocols, formats and standards. As new technologies and
standards are developed, we intend to ensure that our network
architectures are designed to support major emerging technologies. By
maintaining technological compatability, we believe that our service will
be attractive to a wide variety of potential customers.
Cidera Services
We currently offer four services over our satellite-based network. We
provide ISPs with Cidera Cache Turbocharging and Cidera Usenet News Service. We
recently launched Cidera Streaming Media Service and Cidera Big File Mover,
which we market to content distributors and corporations. We plan to release
Cidera VAST later this year.
Cidera Cache Turbocharging
Caches are servers that temporarily store popular Internet content at a POP,
thereby allowing an ISP's subscribers to access this content from the POP
without having to traverse the Internet to retrieve it. When an Internet user
requests particular content, if this content is presently stored in the ISP's
cache, it is delivered to the end user directly from the cache server. If the
requested content is not stored in the cache server, the request is then
directed onto the Internet backbone to the origin of the content. ISPs may
choose from a number of sophisticated cache management software systems that
determine which content should be stored in the cache server and how long the
content should be stored. These systems rely on the land-based Internet
backbone to update the content stored in the cache, forcing the ISP to consume
significant amounts of bandwidth.
Cidera Cache Turbocharging is a service that delivers content directly to
caches over our satellite-based data delivery network, rather than using land-
based Internet bandwidth. Cidera Cache Turbocharging dynamically identifies
popular Web content based on the combined requests of all of our ISP customers'
subscribers. This content is then automatically broadcast in real time over our
satellite-based network directly into the caches of our ISP subscribers.
Because these cache updates are broadcast directly to the POP, our ISP
customers do not have to consume any bandwidth in this process.
We work with major Web cache vendors to insure compatibility between Cidera
Cache Turbocharging and the vendors' product offerings. As of May 31, 2000, we
have certified ten Web cache vendors, including Cisco, Entera, Inktomi, Network
Appliance and Novell, as Cidera compatible.
Cidera Cache Turbocharging is currently available to ISPs on a yearly
subscription basis for $350 to $400 per month.
Cidera Usenet News Service
Usenet News is an Internet-based bulletin board in the public domain that
allows individuals to post messages to forums grouped loosely by topic of
interest. Usenet News operates in a broadcast fashion. When an end user posts a
message to a forum, that posting is then transmitted over the Internet until
all Usenet News servers receive the message. These Usenet News servers are
typically located at ISP POPs. Because every Usenet News message is eventually
delivered to every Usenet News server, it is a more efficient use of bandwidth
to broadcast this data over a satellite-based network than over the land-based
Internet.
Cidera Usenet News Service delivers a continuous satellite-based Usenet News
feed that our ISP customers can use to stock their news servers. By receiving
this feed from Cidera, ISPs are able to save bandwidth that they previously
devoted to retrieving Usenet News from the land-based Internet backbone. As of
May 31, 2000, the Cidera Usenet News Service feed averaged 12 million bits per
second, or Mbps, the equivalent of eight T1 lines.
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<PAGE>
Cidera Usenet News Service is currently available to ISPs on a yearly
subscription basis for $350 to $800 per month.
Cidera Streaming Media Service
Cidera Streaming Media Service delivers popular live streaming media content
directly to the edge of the Internet. Cidera Streaming Media Service supports
the most popular streaming media formats, including RealNetworks' RealSystem
G2, Microsoft's Windows Media Technology and Apple QuickTime 4, as well as
native IP multicast. We have licensed technologies from Real Networks and
Microsoft, as well as developed our proprietary software and methods to enable
the effective use of one-way satellite broadcasting to deliver live streaming
media.
Content distributors and corporations use Cidera Streaming Media Service by
delivering a live audio or video stream to our uplink facility, either through
an existing high-speed Internet connection or a dedicated leased line. Next,
the stream is encoded with our proprietary software for satellite delivery and
broadcast over our satellite-based network. When the transmission is received
at the POP, it is decoded into the appropriate format and fed into a media
server. The media server, typically supplied by a content distributor, provides
the live stream for viewing by end users.
Cidera Streaming Media Service became commercially available on January 1,
2000 and we currently have three customers: Akamai, Road Runner and Digital
Island. Because the service is new, we have agreed to a test phase for each of
these content distributors. Akamai has completed its initial test phase of the
service and the implementation phase has now begun. We expect that we will
recognize revenue from Akamai by the end of the fourth quarter of 2000. Road
Runner and Digital Island have also begun the test phases under their
agreements.
We price Cidera Streaming Media Service based upon usage frequency and the
amount of bandwidth consumed.
Cidera Big File Mover
Cidera Big File Mover is a file delivery service that uses our satellite-
based delivery network. It is designed for customers who repetitively deliver
data files to many geographically diverse locations. We released the service
for general availability in April 2000. While we do not yet have any customers
for Cidera Big File Mover, we expect that we will by the end of 2000.
Cidera Big File Mover customers transfer information to our uplink facility
using a high-speed connection. The file is then encoded and broadcast over our
satellite-based network. Our hardware and software at the remote locations
receive and decode the file, then pass it directly into a file server, where it
can be accessed by the end user.
Information that can be delivered using Cidera Big File Mover includes
software updates and upgrades, video on demand files and corporate applications
requiring the delivery of large data files. We expect that users of Cidera Big
File Mover will include content distributors and corporations that want to
distribute large data files ranging from tens of megabytes to several gigabytes
per day.
We price Cidera Big File Mover service based upon a number of factors,
including the size of the file, the number of downlink sites and other
customer-specified delivery requirements.
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<PAGE>
Cidera VAST (Anticipated General Availability by End of 2000)
Cidera Virtual Application Server Technology, or Cidera VAST, is a flexible
solution to the problems associated with locating servers at the edge of the
Internet. Cidera VAST is currently in development, with beta trials expected in
the fourth quarter of 2000 and general availability expected by the end of
2000. Cidera VAST will allow customers to lease space on servers owned by us
and located at the edge of the Internet. Currently, each content distributor
must procure, install and manage its servers and arrange for back-up server
capacity in the event of primary server failure.
We will implement Cidera VAST by installing an expandable unit in the data
centers of our customers, with direct connections to their local networks and a
Cidera satellite dish installed on the premises. The unit will contain up to 12
available processors, each of which can function as a server for a content
distributor or ISP customer. The inherent flexibility of Cidera VAST will
permit a customer to use a processor in a Cidera VAST unit as its primary
server, as well as lease additional processors as needed to meet event-based
and peak demands. Customers leasing space on Cidera VAST will also have the
ability to relocate a function to a spare Cidera VAST processor in the event
that its primary processor fails. Cidera VAST is designed to allow our
customers to outsource the ownership and maintenance of a large number of
distributed servers while providing for the security of data and applications
required by our customers.
Network Architecture
Our network architecture is illustrated below. The shaded area indicates our
equipment. The three principal components of the network are the master uplink,
capacity on the satellite and the satellite receiving dish, or downlink.
[GRAPHIC DEPICTION OF CIDERA NETWORK ARCHITECTURE]
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<PAGE>
Data Receipt and Uplinking
We receive data to be distributed through our network at our uplink
facility. This facility provides the ability to transmit data to satellites
covering our service area for broadcast to our dishes located at the edge of
the Internet. We use our proprietary software to assemble and package the data
for satellite transmission. The uplink transmitter is currently capable of
transmitting 45 Mbps of data to the satellite, and can be upgraded to transmit
additional data.
Satellite Transmission
We lease satellite capacity on the GE-4 Satellite for broadcasting data to
North America and the GE-1E Satellite for broadcasting data to Europe. The
satellites receive and continuously broadcast data at up to 45 Mbps throughout
North America and Europe. We have contracted for similar capabilities using
satellites that cover Latin America and Asia. The number of downlink locations
to which the satellite can broadcast the data is effectively unlimited within
the area covered by the satellite.
Data Delivery
Each downlink facility is configured to receive data from a satellite and
deliver that data to servers located at the POP. A service adapter that
contains our proprietary software separates the data according to its content
type and delivers it to the appropriate servers. End users can then access the
data through their connections to the POP. At the current 45 Mbps rate, each
downlink is capable of receiving 3.9 trillion bits of data per day. This would
otherwise be delivered using the terrestrial Internet backbone.
Proprietary Software
Our proprietary software is a key element of our solution. The software:
.manages the flow of data through
our network;
.converts data between Internet and broadcast protocols; and
.manages the delivery of Internet
services.
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Customers
Our primary customers are ISPs and content distributors. Additionally, we
intend to target large corporations with widely distributed facilities.
Internet Service Providers
We provide ISPs with the capability to leverage their existing bandwidth,
thereby increasing their revenues and operating margins. In 1999, ISPs
accounted for all of our revenue. As of June 15, 2000, 295 ISPs were
subscribing for at least one of our services. Of this number, 216 were located
in North America and 79 were located in Europe. The following is a
representative sample of our ISP customers:
<TABLE>
<S> <C>
North America Europe
Comunitel Global SA (Spain)
Bell Atlantic
ComNet DeKooi Systeemhuis (Netherlands)
LF Net (Germany)
CTS Network Services
DBS Technologies Lince TeleCommunications (Spain)
Netline SA (Luxembourg)
Erol's Internet
Internet Ventures Inc. Profinet (Germany)
MGC Communications Telecom Italia (Italy)
Videotex (Netherlands)
Micron
Vitosha Software and Communications
Oceanic Cable (Affiliate of Road (Netherlands)
Runner)
Primus Telecommunications Canada
TCA Communications (Subsidiary of
Fox)
Telocity
</TABLE>
Content Distributors
Content distributors are entities that place their servers at POPs along the
edge of the Internet. They then assemble third party-generated Internet content
and store it on their dispersed network of servers. By storing content closer
to end users, content distributors reduce delays and packet loss that end users
experience when they request the content. In addition to storing static content
on their servers, content distributors also deliver live streaming media from
these servers.
Our satellite-based network gives content distributors a means to cost-
effectively distribute content to their servers located at the edge of the
Internet. Our first service offering to content distributors, Cidera Streaming
Media Service, became commercially available on January 1, 2000 and to date we
have not recognized any revenue from content distributors. Currently, Akamai,
Road Runner and Digital Island are the only content distributors subscribing to
our services. Akamai has completed its test phase and is in the implementation
phase of its agreement. We expect to recognize revenues from Akamai beginning
in the fourth quarter of 2000. Road Runner and Digital Island are currently in
the test phases of their agreements. Other content distributors are currently
evaluating our services. We expect that content distributors will account for
an increasing proportion of our net revenue in the future.
Sales and Marketing
We focused our initial sales and marketing efforts on ISPs in the United
States. In January 1999, we expanded those efforts into Europe. Our initial
sales effort was aimed at creating an installed base of satellite dishes.
Securing that base was necessary to permit us to market our services to content
distributors because this provides them with access to POPs through our
satellite-based network. In August 1999, we started marketing efforts targeted
at content distributors.
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We sell our services in the United States through our direct sales force. We
have separate dedicated sales forces for national ISPs, regional/local ISPs,
and content distributors in the United States. We currently have two national
account managers responsible for sales to content distributors and
corporations. As of May 31, 2000, we had 48 employees in our domestic sales
department, 33 of whom were in direct sales.
Internationally, we sell our services through independent agents with
regional expertise. Each independent agent is responsible for marketing and
sales of our services in its respective country or region. The activities of
the agents are closely monitored by channel managers who are our employees. To
date, our international sales are limited to Europe and Canada. We expect to
enter Latin America, Asia and the Pacific Region in the future. As of May 31,
2000, we had eight channel managers and used eight independent agents.
We believe that a high level of customer service and support is critical to
the successful marketing and sale of our services. Accordingly, we are building
a comprehensive service and support organization to meet the needs of our
customers. As of May 31, 2000, we had 74 employees in our customer service and
support organization. We are seeking to hire additional customer service and
support personnel as our customer base grows and as we introduce new services.
We maintain a staff of consulting engineers who directly support our sales and
distribution efforts by providing technical consulting and integration
assistance to our prospective customers. As of May 31, 2000, we employed eight
consulting engineers.
We conduct a comprehensive marketing program to support our sales efforts
and actively promote the Cidera brand name. Our marketing strategies include an
active public relations campaign, print advertisements, direct mail, online
advertisements, trade shows, and customer communications programs. We have
informal arrangements with leading Internet companies, such as Cisco, Inktomi,
Network Appliance, Novell, CacheFlow and Enterra, to co-market services. As of
May 31, 2000, we had 29 employees in our marketing organization.
Deployment and Marketing Alliances
We have entered into a number of alliances with leading technology companies
to accelerate the deployment of our network or to jointly market our services
We believe deployment and marketing alliances can accelerate market acceptance
of our technology and services, increase our brand recognition and improve
access to our target customer base.
bCandid. bCandid provides Usenet News server management and discussion group
software to organizations that operate and manage their own Usenet News
servers. We entered into an agreement with bCandid under which each company
uses the other's technology in providing a comprehensive solution for Usenet
News management. To this end, we have developed a joint marketing effort with
bCandid to promote Cidera Usenet News Service and bCandid's Usenet News server
management and discussion group software. Through this marketing effort, each
company's sales force encourages its existing ISP customers to use the services
of the other. Additionally, when marketing its services to potential new
customers, each company's sales force encourages the ISP to subscribe for both
services. This agreement expires on July 21, 2000, but is renewable on an
annual basis.
Akamai Technologies. Akamai provides delivery services for Internet content,
streaming media and applications through a distributed server network that
locates content geographically closer to users. In May 2000, we entered into an
agreement with Akamai to use our satellite-based network to deliver this
content to Akamai's widely dispersed servers. Under the agreement, Akamai has
committed to initiate delivery of its services using our satellite-based
network to a minimum of 350 of its locations by the end of 2000, 750 of its
locations by June 30, 2001 and 1,500 of its locations by the end of 2001.
Akamai's obligation to reach the latter two of these commitments is contingent
upon our having achieved designated levels of deployment of our satellite
dishes at non-Akamai locations. The agreement also provides that, following the
completion of the initial test and integration phase of the project, Akamai
will encourage its ISP customers to install our satellite dishes and related
equipment at their POPs. Likewise, we have agreed to use our best efforts to
encourage our ISP customers to locate Akamai servers at their POPs.
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During the first two and one half years of the agreement, Akamai may, for a
fee, designate one or more sites as dedicated Akamai locations. If Akamai
designates a site as a dedicated location, we may only deliver Akamai content,
streaming media and applications, as well as Cidera Usenet News Service, Cidera
Cache Turbocharging and Cidera Big File Mover content, to that facility.
However, if another content distributor enters into an agreement with us to
deliver its streaming content to a dedicated Akamai location, we may do so by
installing an additional set of equipment and initiating service to that
content distributor at that site. Once we have done this, we may remove the
site's designation as a dedicated Akamai site.
The initial test phase has been completed and the implementation phase is
currently underway. To date, we have not recognized any revenue from Akamai,
although we expect to begin recognizing revenue from this agreement by the end
of the fourth quarter of 2000. This agreement expires on May 22, 2004.
Road Runner. Road Runner is a content distributor that delivers Internet
content to its servers located across the Internet. On March 15, 2000, we
entered into an agreement with Road Runner to use our satellite-based network
to distribute this content to Road Runner's widely dispersed network of
servers. The agreement also provides that, following the completion of the
initial test phase of the project, we will install our satellite dishes and
related equipment, as requested by Road Runner, at locations where its servers
are located. The initial test phase is currently underway. Assuming successful
completion of the test phase, we expect deployment of our satellite dishes
across Road Runner's network to begin in the third quarter of 2000. In
connection with this agreement, we issued Road Runner a warrant to acquire
100,000 shares of our common stock at a price of $8.75 per share.
Digital Island. Digital Island is a content distributor that delivers
Internet content to its servers located across the Internet. On March 15, 2000,
we entered into an agreement with Digital Island to use our network to
distribute this content to Digital Island's widely dispersed network of
servers. The agreement also provides that, following the completion of the
initial test phase of the project, we will install our satellite dishes and
related equipment, as requested by Digital Island, at locations where its
servers are located. Both parties have also agreed to use their best efforts to
deploy each other's equipment at future locations. The initial test phase is
currently underway. Assuming successful completion of the test phase, we expect
deployment of our satellite dishes across Digital Island's network to begin in
the third quarter of 2000. In connection with this agreement, we issued Digital
Island a warrant to acquire 200,000 shares of our common stock at a price of
$8.75 per share.
Exodus. Exodus is one of the largest Web hosting and co-location companies
in the United States. Co-location is the means by which a number of ISPs locate
their POPs at the same facility. This allows the multiple ISPs to reduce
expenses associated with operating their POPs. We have entered into a marketing
agreement with Exodus, under which each company has trained the other's sales
team on their respective services. We have placed our equipment at seven of
Exodus's eight locations and we make Cidera Usenet News Service and Cidera
Cache Turbocharging available to ISPs who locate their POPs at these Exodus
facilities.
RealNetworks. We have entered into a software distribution agreement with
RealNetworks under which we developed a software package to allow Real-encoded
streaming media to be broadcast over our satellite-based network. This
agreement allows us to deploy this software we developed using data from
RealNetworks' software development kit. We pay a license fee to RealNetworks
for each instance of RealNetworks' software installed by us as part of a
streaming media enabled uplink site. This agreement expires on February 3,
2002.
Microsoft. Microsoft granted us a license to use one of its proprietary
protocols to develop a software package that allows Microsoft-encoded streaming
content to be delivered over our network. This agreement expires on March 31,
2001. Additionally, we are one of over 100 participants in Microsoft's
broadband initiative. As a participant in this initiative, we will cooperate
with Microsoft in development of programs to support the expansion,
development, implementation and sale of broadband capabilities for streaming
media.
Research and Development
We believe that our future success will depend in large part on our ability
to enhance our services, expand our service offerings, maintain technological
leadership, maintain the compatibility of our services with industry-prevailing
caches and streaming media protocols, and satisfy an evolving range of customer
requirements for
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Internet content distribution. Our development team is responsible for product
architecture, core technology, testing, quality assurance, documentation and
expanding the ability of our hardware and software to meet our customers needs.
As of May 31, 2000, we had 21 employees on our development team.
Competition
The market for the delivery of high-bandwidth content to the edge of the
Internet is new and rapidly evolving. We expect that competition will increase
and that our primary competitors may not yet have entered the market. Many of
our potential competitors may have much greater name recognition, longer
operating histories, larger customer bases and significantly greater financial
resources. Increased competition could result in price reductions, fewer
customer orders, reduced gross margin and loss of market share, any of which
could cause our operating results to suffer. We believe that the primary
competitive factors in our market are:
. reliability of performance;
. installed base of satellite dishes;
. scalability of service;
. compatibility with prevailing major industry caching systems;
. cost effectiveness;
. technological expertise; and
. dedication to customer service.
At present, we believe that we compete favorably in each of these areas. Our
primary competition to date has come from the providers of traditional land-
based networks for the distribution of Internet content. These entities do not
provide satellite-based networks and none have publicly announced any intention
to enter this segment of the market. We also believe that, in the future, we
may experience competition from traditional satellite companies, which could
choose to provide Internet content delivery services. While these entities have
historically not directly engaged in the distribution of Internet content, they
generally have the resources to provide services similar to ours. For example,
PanAmSat and Loral CyberStar, two providers of global satellite broadcasting
services, have recently announced their intentions to provide streaming media
services similar to ours. Loral CyberStar and PanAmSat are affiliates of the
satellite providers with whom we have recently entered into agreements to
provide us with satellite capacity in Latin America and Asia, respectively.
Intellectual Property
Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret and copyright laws and contractual restrictions
to protect the proprietary aspects of our technology. These legal protections
afford only limited protection for our technology. We recently received a
patent from the United States Patent and Trademark Office, titled
"Comprehensive Global Information Broadcast System and Implementation Thereof"
which covers elements of our process for Cidera Cache Turbocharging. Otherwise,
we hold no other patents and we have not filed any patent applications with the
United States Patent and Trademark Office. We seek to limit disclosure of our
intellectual property by requiring employees and consultants with access to our
proprietary information to execute confidentiality agreements with us and by
restricting access to our source code. Due to rapid technological change, we
believe that factors such as the technological and creative skills of our
personnel, new product developments and enhancements to existing products are
more important than the various legal protections of our technology to
establishing and maintaining a technology leadership position.
On May 25, 2000, we received a letter from a potential competitor notifying
us that it intends to seek a re-examination of our patent by the U.S. Patent
and Trademark Office. While we have no reason to believe that the patent will
be invalidated, it is possible that the Patent and Trademark Office could
invalidate the patent or force us to narrow the scope of the claims of the
patent. To date, we have not received notice of the filing of any such request
for re-examination.
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Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our technology or to obtain and use information
that we regard as proprietary. The laws of many countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets, to determine the validity and scope of
the proprietary rights of others or to defend against claims of infringement or
invalidity. Any litigation could result in substantial costs and diversion of
resources and could cause our business and financial results to suffer. There
can be no assurance that our means of protecting our proprietary rights will be
adequate or that our competitors will not independently develop similar
technology. Any failure to meaningfully protect our property could cause our
business and financial results to suffer. On April 7, 2000, we received a
letter from a competitor which suggested that our technology might infringe an
unidentified patent of the competitor. To date, we have been unsuccessful in
determining the nature of the alleged patent and we have no reason to believe
that our technology infringes on the intellectual property rights of others.
Employees
As of May 31, 2000, we had a total of 223 employees. Of these employees, 21
were in software development, 97 were in sales, marketing and business
development, 74 were in customer support and 31 were in finance and
administration. Our future success will depend in part on our ability to
attract, retain and motivate highly qualified technical and management
personnel, for whom competition is intense. We believe our relations with our
employees is good. None of our employees are represented by a collective
bargaining unit.
Facilities
Our headquarters are currently located in approximately 26,000 square feet
of leased office space located in Laurel, Maryland. The lease for this space
terminates on December 31, 2006.
We also own or lease, under long-term capital leases, over 300 satellite
dishes and the associated hardware that we have installed at the POPs of our
ISP customers throughout North America and Europe.
Legal Proceedings
We are not a party to any material legal proceedings.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors, and their ages as of June 15, 2000,
are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Douglas E. Humphrey............ 40 chairman of the board
Richard J. Hanna............... 44 president and chief executive officer and
director
Robert Marggraf................ 57 executive vice president and chief operating
officer
Edward D. Postal............... 44 executive vice president and chief financial
officer
Robert M. Dunham............... 40 executive vice president, operations and
development, and secretary
Thom F. Degnan................. 47 senior vice president, business development
Thomas R. Kloster.............. 40 senior vice president and controller
Brian W. Hayhurst.............. 35 director
John B. Landry................. 51 director
Peter Barris................... 48 director
Suzanne H. King................ 35 director
J. Mitchell Reese.............. 40 director
Robert M. Stewart.............. 45 director
</TABLE>
Douglas E. Humphrey. Mr. Humphrey founded Cidera and has served as our
chairman since our inception in July 1997. From inception to March 2000,
Mr. Humphrey also served as our president and chief executive officer. Prior to
founding Cidera, Mr. Humphrey founded DIGEX, a national ISP that was acquired
by Intermedia Communications in July 1997. During his tenure at DIGEX, Mr.
Humphrey served as chief executive officer and chief technology officer from
1991 to 1997.
Richard J. Hanna. Mr. Hanna has served as our president and chief executive
officer since March 2000. In April 2000, Mr. Hanna was also appointed as a
director. From May 1999 to March 2000, he served as president of Teligent
International, a division of Teligent, Inc., a broadband communications
company. From April 1997 to May 1999, he was president of field operations for
Teligent, where he was responsible for broadband infrastructure deployment in
the United States. From January 1994 to April 1997, Mr. Hanna served as
president and chief executive officer of MFS Intelenet, a competitive local
exchange carrier division of MFS Communications.
Robert Marggraf. Mr. Marggraf has served as our executive vice president and
chief operating officer since July 1998. From June 1994 to February 1998, he
served as executive vice president and chief operating officer for Novadyne
Computer Systems, a network integration and support organization focused on the
Internet and enterprise markets.
Edward D. Postal. Mr. Postal has served as our executive vice president,
chief financial officer and assistant secretary since March 2000. From October
1996 to March 2000, Mr. Postal served as chief financial officer of PSINet,
Inc., a global ISP. Prior to joining PSINet, Mr. Postal served as senior vice
president, chief financial officer and a director of The Hunter Group, Inc., a
systems integration consulting firm, from March 1995 to October 1996. Mr.
Postal is a certified public accountant.
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<PAGE>
Robert M. Dunham. Mr. Dunham has served as our executive vice president of
operations and development since March 2000 and our secretary since our
inception in July 1997. Also, from our inception to March 2000, he served as
our chief financial officer, with additional responsibilities for operations,
including infrastructure deployment and our network operating center. From
January 1996 to June 1997, he served as director of operations for the eastern
region of HHL Financial Services, a healthcare receivables management company.
From April 1992 to December 1995, Mr. Dunham served as HHL Financial Services'
controller.
Thom F. Degnan. Mr. Degnan has served as our senior vice president of
business development since November 1999. Prior to joining us, Mr. Degnan
served from August 1994 until November 1999 in a variety of positions with
QUALCOMM, a provider of wireless technology, most recently as vice president,
wireless carrier investments.
Thomas R. Kloster. Mr. Kloster has served as our senior vice president and
controller since May 2000. From May 1996 to May 2000, Mr. Kloster served in
various capacities with Primus Telecommunications Group, Incorporated, a global
data, Internet and voice telecommunications provider, most recently as chief
financial officer of North American operations and prior to that as vice
president and corporate controller. Prior to joining Primus, Mr. Kloster served
as senior manager of corporate accounting for MCI Communications, Inc. from
July 1994 to May 1996. Mr. Kloster is a certified public accountant.
Brian W. Hayhurst. Mr. Hayhurst has served as a director since June 1998.
Since September 1997, Mr. Hayhurst has served as a vice president at Carlyle
Venture Partners, L. P., a private investment firm. From June 1995 to September
1997, Mr. Hayhurst was vice president of Morgan Keegan, Inc.'s venture capital
division. From June 1987 to June 1995, Mr. Hayhurst served in various
capacities with Deloitte & Touche, LLP. Mr. Hayhurst is a certified public
accountant.
John B. Landry. Mr. Landry has served as a director since July 1998. Since
1995, Mr. Landry has served as vice president of technology strategy for IBM.
From December 1990 to June 1995, he was senior vice president of development
and chief technology officer at Lotus Development Corporation until Lotus'
acquisition by IBM. Mr. Landry also serves as a director of Lante Corporation,
GIGA Information Group, MCK Communications, Inc. and Interliant, Inc.
Peter Barris. Mr. Barris has served as a director since June 1999. Mr.
Barris is the managing general partner of New Enterprise Associates L.P., a
private investment firm, which he joined in 1992. Mr. Barris serves as a
director of CareerBuilder, Inc., Mobius Management Systems, Inc. and
pcOrder.com, Inc.
Suzanne H. King. Ms. King has served as a director since June 1999. Ms. King
has been with New Enterprise Associates L.P., a private investment firm, since
July 1995, serving as a partner since April 1999. Prior to joining NEA, Ms.
King was a student at Northwestern University's Kellogg School of Business.
Prior to that, she worked as controller of XcelleNet, Inc. (now Sterling
Commerce), a developer of system management software for remote access from
October 1988 to June 1994. Prior to joining XcelleNet, she worked as a senior
auditor for Arthur Andersen & Co. from September 1986 to September 1988.
Ms. King is a certified public accountant.
J. Mitchell Reese. Mr. Reese has served as a director since June 1998. Mr.
Reese is a managing director for The Carlyle Group, where he has been since
September 1997. Prior to joining Carlyle, Mr. Reese was employed by Morgan
Keegan, Inc., an investment banking firm, from October 1990 until August 1997,
where he was president of its venture capital division and co-head of its
investment banking group.
Robert M. Stewart. Mr. Stewart has served as a director since February 1998.
Since January 1999, Mr. Stewart has served as a co-founder and general partner
of Spring Capital Partners L.P., a mezzanine capital fund. Prior to forming
Spring Capital, he was a managing director of CrossHill Financial Group LLC, a
private
40
<PAGE>
investment banking firm, from November 1995 to December 1998. Prior to joining
CrossHill Financial Group, Mr. Stewart was a principal with Armata Partners
L.P., a private investment banking firm, from April 1993 to October 1995.
Each executive officer serves at the discretion of the board of directors
and holds office until his successor is elected and qualified or until his
earlier resignation or removal. There are no family relationships among any of
the directors or executive officers. Mr. Hayhurst, Mr. Barris, Mr. Reese and
Ms. King serve on the board of directors pursuant to arrangements we made with
New Enterprise Associates and Carlyle Ventures in connection with our Series A
and Series B preferred stock financings. These arrangements will terminate upon
the closing of this offering.
Our Advisory Board
In February 2000, we established an advisory board to assist our management
team in addressing strategic issues as we position ourselves as an
international leader in satellite-based delivery of Internet content. While the
advisory board has no formal authority, we expect to benefit from the
experience and contacts that the advisors have within the technology community.
To date, the advisory board has not convened a meeting. Our advisory board
currently consists of the following members:
. Wayne Correia, chief executive officer of Capulus, a digital media
distribution company focused on the business-to-business market, and
founder and former chief technology officer of Critical Path;
. Peter Lothberg, network architecture consultant for Sprint and founder
of Stupi, Inc.;
. Mike McCurry, former White House press secretary and president of Public
Strategies Group, LLC ;
. Arno Penzias, vice president and chief scientist of Bell Laboratories
and 1978 Nobel Prize winner in physics; and
. John Sidgmore, vice chairman of MCI WorldCom and chairman of UUNET.
Each advisor is expected to attend three annual strategy sessions and to be
available to meet regularly, but no more than quarterly, with other advisory
board members to provide strategic, marketing and technical support and advice
for our management team. Each advisor serves for an initial one year term. We
have granted each advisor an option to purchase 30,000 shares of our common
stock at an exercise price of $8.75 under our 2000 Equity Incentive Plan on the
date they joined the advisory board.
Election of Directors
Following this offering, the board of directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. Mr.
Reese and Mr. Landry will serve in the class whose term expires in 2000;
Mr. Hanna, Ms. King and Mr. Stewart will serve in the class whose term expires
in 2001; and Mr. Humphrey, Mr. Hayhurst and Mr. Barris will serve in the class
whose term expires in 2002. Upon the expiration of the term of a class of
directors, directors in such class will be elected for three-year terms at the
annual meeting of stockholders in the year in which such term expires.
Board Committees
Audit Committee. Our audit committee consists of Mr. Hayhurst, Mr. Landry
and Mr. Stewart. The audit committee makes recommendations to the board of
directors regarding the selection of independent auditors, reviews the results
and scope of the audit and other services provided by our independent auditors
and evaluates our internal accounting procedures.
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<PAGE>
Compensation Committee. Our compensation committee consists of Mr. Humphrey,
Mr. Reese and Mr. Barris. The compensation committee reviews and approves
compensation and benefits for our executive officers. The compensation
committee also administers our compensation and stock plans and makes
recommendations to the board of directors regarding such matters.
Compensation of Directors
We reimburse directors for reasonable out-of-pocket expenses incurred in
attending meetings of the board of directors. We will make non-discretionary
grants of stock options to our non-employee directors from time to time
pursuant to our 2000 non-employee directors plan. The number of options, and
the timing of these grants are more fully described under "2000 Non-Employee
Directors' Stock Option Plan."
Compensation Committee Interlocks and Insider Participation
During 1999, Mr. Humphrey, our chairman and former chief executive officer,
served as a member of our compensation committee. The other members of the
compensation committee were: Mr. Hayhurst, Mr. Landry, who resigned from the
committee in July 1999, and Mr. Barris who replaced Mr. Landry on the committee
for the remainder of 1999. None of our executive officers currently serves, or
in the past has served, as a member of the board of directors or compensation
committee of any entity that has one or more executive officers who serve as a
member of our board or compensation committee. For a discussion of transactions
between us and Mr. Humphrey and his affiliates, see "Related Party
Transactions."
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<PAGE>
Executive Compensation
The following table sets forth the compensation we paid to our chief
executive officer and our three other most highly compensated executive
officers whose salary and bonus exceeded $100,000 during 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Securities
-------------------- Underlying
Name and Principal Position Salary Bonus Options
--------------------------- ---------- --------- ----------
<S> <C> <C> <C>
Douglas E. Humphrey,
Chairman of the board of directors and former
president, chief executive officer ........... $114,615 $20,000 --
Robert Marggraf,
Executive vice president and chief operating
officer....................................... 165,000 33,000 --
Robert M. Dunham,
Executive vice president, secretary and former
chief financial officer and treasurer......... 108,462 18,000 30,000
Steven W. Sweeney,
Former vice president--international
operations.................................... 150,000 -- --
</TABLE>
Option Grants in 1999
The following table sets forth information regarding options granted to the
named executive officers during 1999.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Percent of Annual Rates of Stock
Total Options Price Appreciation
Number of Granted to Exercise for Option Term (1)
Options Employees in Price ---------------------
Name Granted 1999 ($/Share) Expiration Date 5% 10%
---- --------- ------------- --------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Douglas E. Humphrey..... -- -- % $ -- -- $ -- $ --
Robert Marggraf......... -- -- -- -- -- --
Robert M. Dunham........ 30,000 2.60 1.25 08/05/09 451,168 740,623
Steven W. Sweeney....... -- -- -- -- -- --
</TABLE>
---------------------
(1) Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by the assumed initial
public offering price of $10.00 per share, (b) assuming that the aggregate
stock value derived from that calculation compounds at the annual 5% or
10% rate shown in the table for the term of the option and (c) subtracting
from that result the aggregate option exercise price. The 5% and 10%
assumed annual rates of stock price appreciation are mandated by the rules
of the SEC and do not represent our prediction of our stock price.
The percent of total options granted to employees in the above table is
based on 1,155,750 total options granted in 1999. Our board of directors may
reprice options under the terms of our stock option plans.
Options were granted at an exercise price equal to the fair market value of
our common stock, as determined by our board of directors on the date of grant.
In making this determination, the board of directors considered a number of
factors, including:
. our historical and prospective future revenue and profitability;
. our cash balance and rate of cash consumption;
. the development and size of the market for our services;
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<PAGE>
. the status of our financing activities;
. the stability of our management team; and
. the breadth of our service offerings.
1999 Option Exercises and Year-End Option Values
The following table sets forth information concerning the value realized
upon exercise of options during 1999 and the number and value of unexercised
options held by each of the named executive officers at December 31, 1999.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 1999 December 31, 1999 (1)
Acquired on Value ------------------------- -------------------------
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas E. Humphrey..... -- $ -- -- -- $ -- $ --
Robert Marggraf......... -- -- 242,500 242,500 2,376,500 2,376,500
Robert M. Dunham........ -- -- 216,324 66,054 2,150,261 620,877
Steven W. Sweeney....... 33,333 326,663 -- 66,667 -- 653,337
</TABLE>
---------------------
(1) Based on the assumed initial public offering price of $10.00 per share,
minus the per share exercise price, multiplied by the number of shares
issued or issuable upon exercise of the option.
Benefit Plans
1998 Founders Stock Incentive Plan. We adopted the 1998 Founders Stock
Incentive Plan on January 1, 1998, which we amended and restated on August 14,
1998. Our board of directors terminated this plan on February 24, 2000;
however, the plan remains effective with respect to options granted prior to
the termination date.
The plan provided for the grant of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code to our employees, including
officers and employee directors, and nonstatutory stock options to employees,
including officers and employee directors, directors and consultants. In
addition, the plan permitted the granting of stock bonuses and rights to
purchase restricted stock.
An aggregate of 1,370,052 shares of common stock were authorized for
issuance under the plan. We have granted options to purchase an aggregate of
1,370,052 shares under the plan. No further awards have been granted under the
plan since the date of termination. We have issued 307,590 shares of common
stock upon exercise of options granted under the plan. As of May 31, 2000,
options to purchase an aggregate of 1,062,462 shares of common stock were
outstanding under the plan at an exercise price of $0.06 per share. We are not
authorized to issue any more options under the plan. The plan is administered
by an administrator designated by our board of directors.
1998 Employee Stock Incentive Plan. We adopted the 1998 Employee Stock
Incentive Plan on May 29, 1998. Our board of directors terminated the plan on
February 24, 2000; however, the plan remains effective with respect to options
or other stock awards granted prior to the termination date.
The plan provided for the grant of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code to our employees, including
officers and employee directors, and nonstatutory stock options to employees,
including officers and employee directors, directors and consultants. In
addition, the plan permitted the granting of stock bonuses and rights to
purchase restricted stock.
An aggregate of 3,804,332 shares of common stock were authorized for
issuance under the plan. We have granted an aggregate of 2,223,345 options or
other awards, net of cancellations, under the plan as of May 31, 2000. At the
time we terminated the plan, the remaining shares that were not subject to
outstanding option grants or other awards were removed from the plan's share
reserve and were committed to our 2000 Equity Incentive Plan.
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<PAGE>
No further awards have been granted under the plan since the date of
termination. As of May 31, 2000, we had issued 420,552 shares of common stock
upon exercise of options granted under the plan. As of May 31, 2000, options to
purchase an aggregate of 1,802,793 shares of common stock were outstanding
under the plan at exercise prices ranging from $0.20 to $13.00 per share. The
plan is administered by an administrator designated by our board of directors.
We are not authorized to issue any more options under the plan.
2000 Equity Incentive Plan. Our board of directors adopted the 2000 Equity
Incentive Plan on February 24, 2000 and it became effective on that date. The
plan was approved by our stockholders on February 24, 2000. Under the plan, the
board may award incentive stock options within the meaning of Section 422 of
the Internal Revenue Code to employees, including officers and employee
directors and nonstatutory stock options to employees, including officers and
employee directors, directors and consultants, including non-employee
directors. In addition, the plan permits the granting of stock bonuses and
rights to purchase restricted stock. There are 5,580,987 shares of common stock
reserved for issuance under the plan. No person is eligible to be granted
options covering more than 2,000,000 shares of common stock in any calendar
year. The maximum term of options granted under the plan is ten years. As of
May 31, 2000, options to purchase 4,643,130 shares have been granted and are
outstanding under the plan at exercise prices ranging from $8.75 to $10.00 per
share. In addition, on March 6, 2000, we sold 620,000 shares to Edward Postal
at a purchase price of $13.00 per share pursuant to an award of restricted
stock under this plan.
The plan is administered by the board or a committee appointed by the board.
Subject to the limitations set forth in the plan, the board has the authority
to select the persons to whom grants are to be made, to designate the number of
shares to be covered by each stock award, to determine whether an option is to
be an incentive stock option or a nonstatutory stock option, to establish
vesting schedules, to specify the option exercise price and the type of
consideration to be paid upon exercise and, subject to certain restrictions, to
specify other terms of stock awards.
The exercise price of options granted under the plan is determined by the
board of directors in accordance with the guidelines set forth in the plan. The
exercise price of an incentive stock option cannot be less than 100% of the
fair market value of the common stock on the date of grant. The exercise price
of a nonstatutory stock option cannot be less than 85% of the fair market value
of the common stock on the date of grant. Options granted under the plan vest
at the rate specified in the option agreement and the grant notice. The
exercise price of incentive stock options granted to any person who at the time
of grant owns stock representing more than 10% of the total combined voting
power of all classes of our capital stock must be at least 110% of the fair
market value of such stock on the grant date and the term of such incentive
stock option cannot exceed five years.
Stock options granted under the plan generally are non-transferable. Options
expire three months after the termination of an optionee's service. However, if
the optionee's service ends as a result of his or her disability, or because of
death, then the period for exercising his or her options is extended to twelve
and eighteen months, respectively. The board may deviate from those time
periods and may provide for shorter or longer periods to exercise options.
These periods may also be extended if the optionee is unable to exercise his or
her stock options because of securities law restrictions.
Any stock bonuses or restricted stock purchase awards granted under the plan
will be in the form and will contain the terms and conditions that the board
deems appropriate. The purchase price under any restricted stock purchase
agreement will not be less than 85% of the fair market value of our common
stock on the date of grant. Stock bonuses and restricted stock purchase
agreements awarded under the plan are transferable if the grant allows the
transfer, which will be determined by our board of directors on a case-by-case
basis.
Upon specified changes in control, all outstanding stock awards under the
plan must either be assumed or substituted for by the surviving entity. If the
surviving entity does not assume or substitute for the stock
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<PAGE>
awards, the stock awards will be accelerated in full and then terminated to the
extent not exercised prior to the change in control.
2000 Non-Employee Directors' Stock Option Plan. Our board of directors
adopted the 2000 non-employee directors' stock option plan on February 24,
2000. Our stockholders approved the directors' plan on February 24, 2000. The
plan will become effective immediately following this offering. We have
reserved a total of 400,000 shares of common stock for issuance under the
directors' plan.
The eligible participants in the directors' plan are the members of our
board of directors who are not employed by us or affiliates of us. The
directors' plan provides for the issuance of non-statutory stock options.
The directors' plan provides for the non-discretionary award of stock
options at various times. Each member of the board at the time of this offering
will be issued an option for 40,000 shares of our common stock. Individuals who
become directors after this offering, will also receive an option for 40,000
shares. At the time of each annual meeting of our stockholders, each director
will receive an option to purchase 10,000 shares of our common stock. In the
case of a director who has not served on the board for the full year preceding
this annual grant, the amount of shares subject to his or her option will be
reduced on a pro rata basis for each full quarter during that year in which the
director did not serve on the board.
Options granted under the directors' plan will have a term that is no longer
than ten years from the date of grant. The exercise price for an option will be
at least 100% of the fair market value of our common stock on the date of
grant. Options granted under the directors' plan are not transferable, and may
only be exercised by a director during his or her lifetime. The option may be
transferred, at the time of a director's death, by will or by the laws of
descent and distribution. Under the directors' plan, a director may designate
the recipient of the option on the director's death.
Options vest and become exercisable in accordance with an established
schedule. For the initial grant, 50% of the options vest one year after the
date of grant, and the remaining 50% of the shares vest two years after the
date of grant. In the case of the annual grants, 100% of the options vest and
become exercisable on the first anniversary of the date of grant.
Upon specified changes in control, all outstanding stock options under the
directors' plan must either be assumed or substituted for by the surviving
entity. If the surviving entity does not assume or substitute for the stock
awards, the stock awards will be accelerated in full and then terminated to the
extent not exercised prior to the change in control.
The directors' plan expires on the day before the tenth anniversary of its
adoption by the board or approval by stockholders, whichever is earlier. The
board may amend or terminate the directors' plan at any time in its sole
discretion. No amendment or termination may adversely affect the rights of any
director.
2000 Employee Stock Purchase Plan. On February 24, 2000, we adopted the 2000
Employee Stock Purchase Plan. A total of 800,000 shares of common stock have
been reserved for issuance under the purchase plan. The purchase plan is
intended to qualify as an employee stock purchase plan within the meaning of
Section 423 of the Internal Revenue Code. Under the purchase plan, the board
may authorize participation by eligible employees, including officers, in
periodic offerings following the commencement of the purchase plan.
Unless otherwise determined by the board, employees are eligible to
participate in the purchase plan only if they are customarily employed by us,
or an affiliate designated by our board, for over 20 hours per week and more
than five months per calendar year. Employees who participate in an offering
may have up to 15% of their earnings withheld pursuant to the purchase plan.
The amount withheld is then used to purchase shares of the common stock on
specified dates determined by the board. The price of common stock purchased
under the purchase plan will be equal to 85% of the lower of the fair market
value of the common stock at the
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<PAGE>
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment.
In the event of a merger, reorganization, consolidation or liquidation, the
board has discretion to provide that each right to purchase common stock will
be assumed or an equivalent right substituted by the successor corporation or
the board may provide for all sums collected by payroll deductions to be
applied to purchase stock immediately prior to such merger or other
transaction. The board has the authority to amend or terminate the purchase
plan, but may not adversely affect any outstanding rights to purchase common
stock.
401(k) Plan. On January 1, 1998, we established a tax-qualified employee
savings and retirement plan. Our 401(k) plan provides that each participant may
contribute up to the statutorily prescribed annual limit, which is $10,500 in
2000. All amounts contributed by employee participants and earnings on these
contributions are fully vested at all times. Employee participants may elect to
invest their contributions in various established funds.
Agreements with Executive Officers
In June 1998, we entered into two year employment agreements with Douglas
Humphrey and Robert Dunham. Under the terms of the agreements, we agreed to pay
Mr. Humphrey an annual salary of $100,000 and Mr. Dunham an annual salary of
$90,000. The board of directors subsequently approved annual salaries for Mr.
Humphrey of $250,000 and Mr. Dunham of $200,000 effective February 27, 2000.
Also, in June 1998, we entered into a three year employment agreement with
Robert Marggraf. Under the terms of the agreement, we agreed to pay Mr.
Marggraf an annual salary of $165,000. The board of directors subsequently
approved an annual salary for Mr. Marggraf of $230,000 on February 27, 2000.
These agreements allow for annual bonuses targeted at 20% of base compensation.
The employment agreements prohibit Mr. Humphrey, Mr. Dunham and Mr. Marggraf,
respectively, from competing with us and soliciting our customers or employment
during the term of their respective employment agreements and the 12-month
period after the date of termination.
The employment agreements provide that Mr. Humphrey, Mr. Dunham and Mr.
Marggraf are employed at will, and their employment relationship may be
terminated for any reason at any time. However, if we terminate employment
under any of these agreements without cause, as defined in the agreement, then
the terminated employee will receive a severance payment equal to six months of
his base salary as of the date of termination. In addition, 50% of any unvested
options granted under the 1998 Founders Equity Incentive Plan then held by
Mr. Dunham will accelerate and vest. Notwithstanding the foregoing, if Mr.
Dunham's employment is terminated 90 days prior to or within 180 days following
a change of control, 100% of any unvested options held by him under the 1998
Founders Equity Incentive Plan will accelerate and vest. If any of
Mr. Humphrey, Mr. Dunham or Mr. Marggraf voluntarily terminates his employment
with cause, then we must pay him a severance payment equal to six months of his
base salary as of the date of termination.
In February 2000, we entered into a two year employment agreement with
Edward D. Postal. Under the terms of the agreement, we agreed to pay Mr. Postal
an annual salary of $250,000. The agreement provides for an annual bonus of
$100,000. In addition, the board of directors agreed to sell and Mr. Postal
agreed to purchase 620,000 shares of our common stock on March 6, 2000 at
$13.00 per share, which is subject to time-based vesting over a four-year
period. Mr. Postal paid for these shares with a combination of cash and a
promissory note. The employment agreement prohibits Mr. Postal from competing
with us and soliciting our customers or employees during the term of the
employment agreement and the 12-month period after the date of termination. In
the event Mr. Postal is terminated without cause or upon a change of control,
100% of any unvested shares or unvested options then held by Mr. Postal will
accelerate and vest. If we terminate Mr. Postal's employment without cause or
if Mr. Postal voluntarily terminates his employment with cause, we must pay Mr.
Postal a severance payment equal to up to 100% of his annual salary.
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<PAGE>
In March 2000, we entered into a four year employment agreement with Richard
J. Hanna. Under the terms of the agreement, we agreed to pay Mr. Hanna an
annual salary of $350,000. The agreement provides for an annual bonus of 50% of
Mr. Hanna's base salary. In addition, the board of directors approved the grant
to Mr. Hanna of options to acquire 2,000,000 shares of our common stock at a
price of $10.00 per share. The employment agreement prohibits Mr. Hanna from
competing with us and soliciting our customers or employees during the term of
the agreement and the 12-month period after the date of termination. In the
event that Mr. Hanna is terminated without cause, all options held by Mr. Hanna
which are scheduled to vest during the immediately following twelve month
period will accelerate and vest. If Mr. Hanna is terminated upon a change of
control, 100% of any unvested options then held by Mr. Hanna will accelerate
and vest. If we terminate Mr. Hanna's employment without cause or if Mr. Hanna
terminates his employment with cause, we must pay him a severance payment equal
to 100% of his annual salary and bonus.
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<PAGE>
RELATED PARTY TRANSACTIONS
Series C Financing
On February 28, 2000, we issued 3,445,916 shares of series C mandatorily
redeemable convertible preferred stock for aggregate proceeds of $30.2 million.
On March 15, 2000, we issued an additional 668,605 shares of series C stock for
$5.8 million. We sold these shares to the following entities, which include two
officers, director and three members of our advisory board:
<TABLE>
<CAPTION>
Number of Aggregate
Purchaser Shares Purchase Price
--------- --------- --------------
<S> <C> <C>
Investor (Guernsey) Ltd................................ 1,371,507 $12,000,000
GE Capital Equity Investments, Inc..................... 1,142,923 10,000,005
Dell USA, L.P.......................................... 571,462 5,000,007
MCI Worldcom Venture Fund, Inc......................... 571,462 5,000,007
PSINet Strategic Investments, Inc...................... 228,585 2,000,004
Edward D. Postal....................................... 57,147 500,008
John B. Landry......................................... 40,003 350,006
Adam J. Landry......................................... 17,144 150,001
Wayne Correia.......................................... 51,425 449,943
Arno Penzias........................................... 34,288 300,003
Thom Degnan............................................ 12,573 110,007
Diane Degnan........................................... 4,572 40,003
John Sidgmore.......................................... 11,430 100,007
</TABLE>
John B. Landry is a director. Adam J. Landry is the son of John B. Landry.
Messrs. Postal and Degnan are officers of Cidera. Mrs. Degnan is Mr. Degnan's
wife. Messrs. Correia, Penzias and Sidgmore are members of our advisory board.
Each share of series C stock will convert automatically into one share of
common stock upon the closing of this offering.
Series B Financing
On June 9, 1999, we issued 9,887,403 shares of series B mandatorily
redeemable convertible preferred stock for aggregate proceeds of $20.0 million.
We sold 9,754,783 of these shares to the following entities, who are 5%
stockholders and a director, for an aggregate purchase price of approximately
$19.7 million:
<TABLE>
<CAPTION>
Number of Aggregate
Purchaser Shares Purchase Price
--------- --------- --------------
<S> <C> <C>
New Enterprise Associates VIII, L.P.................... 4,847,299 $9,805,000
NEA Presidents' Fund, L.P. ............................ 44,493 90,000
NEA Ventures 1999, L.P. ............................... 2,472 5,000
Carlyle Venture Partners, L.P.......................... 1,391,268 2,814,223
C/S Venture Investors, L.P............................. 184,518 373,239
Carlyle U.S. Venture Partners, L.P. ................... 112,165 226,884
Carlyle Venture Coinvestment, L.L.C.................... 289,530 585,654
Institutional Venture Partners VIII, L.P............... 1,244,600 2,517,547
IVP Broadband Fund, L.P. .............................. 140,896 285,001
IVM Investment Fund VIII, L.L.C........................ 23,459 47,452
Intel Corporation...................................... 1,408,955 2,850,000
John Landry............................................ 65,128 131,739
</TABLE>
New Enterprise Associates VIII, L.P., Carlyle Venture Partners, L.P.,
Institutional Venture Partners VIII, L.L.C. and Intel Corporation are each 5%
stockholders. Mr. Landry is a director. The remaining entities are affiliates
of New Enterprise Associates, Carlyle Ventures and Institutional Venture
Partners.
Each share of series B preferred stock will automatically convert into one
share of common stock upon the closing of this offering.
49
<PAGE>
Series A Financing
On June 4, 1998, we issued 7,066,147 shares of series A mandatorily
redeemable convertible preferred stock for aggregate proceeds of $6.4 million.
We sold 6,760,133 of these shares to the following entities, who are 5%
stockholders, an officer and a director, for an aggregate purchase price of
approximately $6.1 million:
<TABLE>
<CAPTION>
Number of Aggregate
Purchaser Shares Purchase Price
--------- --------- --------------
<S> <C> <C>
Carlyle Venture Partners, L.P.......................... 4,710,822 $4,233,385
C/S Venture Investors, L.P............................. 962,056 864,553
Carlyle U.S. Ventures Partners, L.P.................... 624,778 561,457
Carlyle Venture Coinvestment, L.L.C.................... 379,018 340,605
Robert M. Stewart...................................... 55,640 50,000
Robert M. Dunham....................................... 27,819 25,000
</TABLE>
Carlyle Venture Partners, L.P. is a 5% stockholder. Mr. Dunham is our
executive vice president and secretary. Mr. Stewart is a director. The
remaining entities are affiliates of Carlyle Ventures.
Each share of series A preferred stock will automatically convert into one
share of common stock upon the closing of this offering.
In addition, we issued warrants to purchase 333,834 shares of series A
preferred stock for $0.90 per share to affiliates of Anchor Financial Group,
Inc., then an affiliate of Mr. Stewart, in consideration for their services in
connection with the closing of the series A preferred stock financing. These
warrants expire upon the closing of this offering. Mr. Stewart received 100,150
of these warrants.
Bridge Financing
In February 1998, we issued promissory notes in the aggregate principal
amount of $400,000 bearing simple interest at a rate of 8% per annum to Mr.
Dunham, Mr. Stewart and other non-affiliated investors. We also issued, to the
purchasers of the notes, warrants to purchase an aggregate of 801,200 shares of
common stock at an exercise price of $.50 per share exercisable on or prior to
February 16, 2005. Messrs. Dunham and Stewart received 50,075 and 100,150
warrants, respectively. Immediately upon the closing of the series A preferred
stock financing, purchasers of the notes, including Messrs. Dunham and Stewart,
converted them into shares of series A preferred stock at $0.90 per share.
Arrangements with Phase1 Incubator, Inc.
On June 1, 1998, we entered into a sublease for office space with Phase1
Incubator, Inc., an affiliate of Mr. Humphrey. This agreement was amended on
March 7, 2000. The sublease expires on August 31, 2004, although we may
terminate it on 30 days notice. Monthly rent due under the sublease is $2,244.
We have the option to extend the sublease for an additional two years upon
expiration of the initial term, with monthly rent equal to the fair market
rental rate at that time.
Concurrently with the sublease, we also entered into a license agreement
with Phase1 to install, operate, maintain, repair, replace and remove up to
three satellite dishes on the rooftop of the building. The license is for a
five year term, although we may terminate it on 30 days notice. The monthly fee
due under the license is $2,000. In 1999 and the three months ended March 31,
2000, Cidera paid $111,720 and $30,054, respectively, to Phasel for rent and
associated services.
Agreement with The Colocation Corporation
On March 7, 2000, we entered into a colocation agreement to lease machine
space in the facilities of The Colocation Corporation, an affiliate of Mr.
Humphrey. The agreement expires on August 31, 2004. In 1999 and the three
months ended March 31, 2000, Cidera paid $78,279 and $42,397, respectively, to
the Colocation Corporation for rent and associated services.
50
<PAGE>
Loan from officer
In February 1998, Mr. Humphrey loaned Cidera $300,000 pursuant to an
unsecured promissory note. This amount was repaid with 8% interest in June 1998
from the proceeds of the Series A financing.
Loan to officer
On March 6, 2000, in connection with his employment agreement to serve as
our chief financial officer, Mr. Postal acquired 620,000 shares of our common
stock at $13.00 per share. He purchased this stock by paying $80,000 in cash
and executing a promissory note for the balance of $7,980,000. The note has a
nine- year term and accrues interest at 6.2% per year. The note is a full
recourse obligation of Mr. Postal and is secured by the shares.
We agreed to the material terms of each of the preferred stock issuances,
the bridge financing and the loan to Mr. Postal described above after arm's-
length negotiations with previously unaffiliated persons. We believe that the
loan from Mr. Humphrey was, and that the agreements with Phase1 Incubator and
The Colocation Corporation are, on terms no less favorable than we could obtain
from unaffiliated third parties. All future transactions, including loans
between us and our officers, directors, principal stockholders and their
affiliates, will be approved by a majority of our board of directors, including
a majority of our independent and disinterested directors, and will continue to
be on terms no less favorable to us than we could obtain from unaffiliated
third parties.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
our common stock as of May 31, 2000, and as adjusted to reflect the sale of the
shares of common stock in this offering, by:
. each person or group who beneficially owns more than 5% of our common
stock;
. each of our directors and executive officers; and
. all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting and investment power
with respect to shares. Unless otherwise indicated below, to our knowledge, all
persons named in the table have sole voting and investment power with respect
to their shares of common stock. Unless otherwise indicated, the address of
each person listed below is c/o Cidera, Inc., 8037 Laurel Lakes Court, Laurel,
Maryland 20707.
<TABLE>
<CAPTION>
Percentage
Ownership
Shares -----------------
Beneficially Before After
Name and Address Owned Offering Offering
---------------- ------------ -------- --------
<S> <C> <C> <C>
Entities affiliated with The Carlyle Group(1).. 8,654,155 30.2% 25.2%
Brian W. Hayhurst(2)........................... 8,654,155 30.2 25.2
J. Mitchell Reese(3)........................... 8,654,155 30.2 25.2
Douglas E. Humphrey and Lisa M. Losito(4)...... 5,768,649 20.1 16.8
Entities affiliated with New Enterprise
Associates(5)................................. 4,894,264 17.1 14.2
Peter Barris(6)................................ 4,894,264 17.1 14.2
Suzanne H. King(7)............................. 4,894,264 17.1 14.2
Edward D. Postal(8)............................ 683,397 2.4 2.0
Robert Marggraf(9)............................. 323,333 1.1 *
Richard J. Hanna(10)........................... 312,500 1.1 *
Robert M. Dunham(11)........................... 294,218 1.0 *
Robert M. Stewart(12).......................... 255,940 * *
John B. Landry(13)............................. 159,472 * *
Steven W. Sweeney.............................. 50,000 * *
Thom F. Degnan(14)............................. 17,145 * *
Thomas R. Kloster.............................. - - -
All executive officers and directors as a group
(13 persons)(15).............................. 21,413,073 73.9 61.7
</TABLE>
---------------------
* Less than 1%
(1) Consists of 6,102,090 shares held by Carlyle Venture Partners, L.P.,
1,146,574 shares held by C/S Venture Investors, L.P., 736,943 shares held
by Carlyle U.S. Ventures Partners, L.P. and 668,548 shares held by Carlyle
Venture Coinvestment, L.L.C. The Carlyle Group is located at 1001
Pennsylvania Avenue, N.W., Suite 220 South, Washington, DC 20004.
(2) Consists of the shares described in footnote 1 above. Mr. Hayhurst is a
Vice President of Carlyle Venture Partners, L.P. Mr. Hayhurst disclaims
beneficial ownership of shares held by these entities.
(3) Consists of the shares described in footnote 1 above. Mr. Reese is a
managing director of The Carlyle Group. Mr. Reese disclaims beneficial
ownership of shares held by these entities.
(4) Douglas E. Humphrey and Lisa M. Losito are husband and wife. Consists of
2,884,325 shares held by Mr. Humphrey and 2,884,324 held by Ms. Losito.
Mr. Humphrey holds a proxy to vote Ms. Losito's shares. This proxy
terminates by its terms on the closing of this offering.
(5) Consists of 4,847,299 shares held by New Enterprise Associates VIII, L.P.,
44,493 shares held by NEA Presidents' Fund, L.P. and 2,472 shares held by
NEA Ventures 1999, L.P. New Enterprise Associates is located at One
Freedom Square, 11951 Freedom Drive, Suite 1240, Reston, VA 20190.
52
<PAGE>
(6) Consists of the shares described in footnote 5 above. Mr. Barris is a
partner of New Enterprise Associates. Mr. Barris disclaims beneficial
ownership of shares held by these entities.
(7) Consists of the shares described in footnote 5 above. Ms. King is a
partner of New Enterprise Associates. Ms. King disclaims beneficial
ownership of shares held by these entities.
(8) Includes 620,000 shares of restricted stock subject to a repurchase right
in favor of Cidera and 6,250 shares which are subject to options
exercisable within 60 days.
(9) Includes 80,833 shares that are subject to options exercisable within 60
days.
(10) Includes 112,500 shares that are subject to options exercisable within 60
days.
(11) Includes 116,324 shares subject to options that are exercisable within 60
days and 50,075 shares underlying currently exercisable warrants.
(12) Includes 200,300 shares underlying currently exercisable warrants. Also
includes 19,775 shares held in an irrevocable trust for the benefit of Mr.
Stewart's children, of which Mr. Stewart disclaims beneficial ownership.
(13) Includes 17,144 shares registered in Mr. Landry's name that he holds as
custodian for his minor child. Mr. Landry disclaims beneficial ownership
of these shares. Also includes 6,790 shares subject to options held by Mr.
Landry that are exercisable within 60 days.
(14) Includes 4,572 shares registered in the name of Mr. Degnan's wife as
custodian for his minor children. Mr. Degnan disclaims beneficial
ownership of these shares.
(15) Includes 322,697 shares that are subject to options exercisable within 60
days.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
After this offering, our authorized capital stock will consist of
100,000,000 shares of common stock, and 30,000,000 shares of preferred stock.
As of May 31, 2000, there were outstanding:
. 7,253,116 shares of common stock held by 27 stockholders of record;
. 21,401,905 shares of mandatorily redeemable convertible preferred stock
held by 53 stockholders of record, all of which will automatically
convert into 21,401,905 shares of common stock upon the closing of this
offering. This number includes 100,150 shares of series A mandatorily
redeemable convertible preferred stock issuable upon exercise of warrants
that will expire if not exercised prior to the closing of this offering;
and
. options and other warrants to purchase an aggregate of 7,909,510 shares
of our common stock.
Upon completion of this offering and the conversion of all outstanding
shares of mandatorily redeemable convertible preferred stock into common stock,
there will be 34,405,021 shares of common stock outstanding and no shares of
preferred stock outstanding.
Common Stock
Holders of our common stock are entitled to one vote for each share held on
matters submitted to a vote of stockholders. Holders of our common stock do not
have cumulative voting rights. Accordingly, holders of a majority of the shares
of common stock entitled to vote in any election of directors may elect all of
the directors standing for election. Holders of common stock are entitled to
receive their proportionate share of any dividends declared by the board of
directors, subject to any preferential dividend rights of outstanding preferred
stock. Upon our liquidation, dissolution or winding up, the holders of common
stock are entitled to receive their proportionate share of our net assets
available after the payment of all debts and other liabilities and subject to
the preferential rights of any outstanding preferred stock. The common stock
has no preemptive, subscription, redemption or conversion rights. All
outstanding shares of common stock are, and the shares of common stock to be
issued by us in this offering will be, fully paid and nonassessable. The
rights, preferences and privileges of the common stock are subject to the
rights of the holders of shares of any series of preferred stock that we may
designate and issue in the future.
Preferred Stock
Following the offering, our board of directors will be authorized, without
further stockholder approval, to issue up to an aggregate of 30,000,000 shares
of preferred stock in one or more series. The board of directors may fix or
alter the designations, preferences, rights and any qualifications, limitations
or restrictions of the shares of each such series, including the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption price or prices, pre-emptive rights and liquidation preferences. The
issuance of preferred stock could:
. adversely affect the voting power of holders of common stock;
. adversely affect the likelihood that the holders of common stock will
receive dividend payments and payments upon liquidation; and
. delay, defer or prevent a change in control.
We have no present plans to issue any shares of preferred stock.
Warrants
In connection with our bridge financing in February 1998, we issued 801,200
warrants to acquire our common stock at an exercise price of $0.50 per share,
of which 751,125 were outstanding as of May 31, 2000. The warrants expire on
February 16, 2005. The warrants contain customary provisions for the adjustment
of the exercise price and the number of shares issuable upon the exercise of
the warrants in the event of stock dividends, stock splits, reorganizations and
other similar corporate actions.
54
<PAGE>
In connection with service implementation agreements with Road Runner and
Digital Island, we have issued to these entities warrants to acquire 100,000
and 200,000 shares of our common stock, respectively. These warrants have an
exercise price of $8.75 per share and become exercisable in March 2005.
However, the exercisability will be accelerated on the achievement of specified
milestones, which generally relate to increases in the level of service that
these content distributors use. The warrants expire in March 2005. As of the
date of this prospectus, none of these warrants have been exercised.
Anti-takeover Effects Delaware Law and Our Certificate of Incorporation and
Bylaws
Following the closing of this offering, we will be subject to the provisions
of Section 203 of the Delaware corporate statute. Section 203 generally
prohibits a publicly held Delaware corporation from engaging in a business
combination with an interested stockholder for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained that status with the
approval of the corporation's board of directors or unless the business
combination is approved in a prescribed manner. Business combinations include
mergers, asset sales and other transactions resulting in a financial benefit to
the interested stockholder. With certain exceptions, an interested stockholder
is a person who, together with affiliates and associates, owns, or within three
years did own, 15% or more of the corporation's voting stock. This statue could
prohibit or delay the accomplishment of mergers or other takeover or change-in-
control attempts and, accordingly, may discourage attempts to acquire us.
The following provisions of our amended and restated certificate of
incorporation and amended and restated bylaws that will become effective upon
the closing of this offering may have an anti-takeover effect. They may delay
or prevent a tender offer or takeover attempt that a stockholder might consider
to be in its best interest, including attempts that might result in a premium
over the market price for our common stock:
. our board of directors will be divided into three classes with staggered
three-year terms and may be removed only for cause;
. a majority of our directors will be entitled to fill any vacancy on the
board of directors, however occurring, including a vacancy resulting from
an enlargement of the board;
. special meetings of the stockholders may only be called by the chief
executive officer, the chairman, or the board of directors pursuant to a
resolution adopted by a majority of the total number of authorized
directors;
. any action required or permitted to be taken by the stockholders at an
annual meeting or a special meeting of stockholders may only be taken if
it is properly brought before such meeting and may not be taken by
written action in lieu of a meeting; and
. in order for any matter to be considered properly brought before a
meeting, a stockholder must provide us with advance notice of the matter
as required in our bylaws.
Delaware law provides that the vote of a majority of the shares entitled to
vote on any matter is required to amend a corporation's certificate of
incorporation or bylaws, unless a corporation's certificate of incorporation or
bylaws requires a greater percentage. Our amended and restated certificate of
incorporation requires the vote of the holders of at least 66 2/3% of the
shares of our capital stock entitled to vote to amend or repeal any of the
foregoing provisions of our certificate of incorporation. Generally, our bylaws
may be amended or repealed by a majority vote of the board of directors or the
holders of 66 2/3% of the shares of our capital stock issued and outstanding
and entitled to vote. This stockholder vote would be in addition to any
separate class vote that might in the future be required pursuant to the terms
of any series of preferred stock that might be then outstanding.
55
<PAGE>
Limitation of Liability and Indemnification
Our certificate of incorporation provides that our directors and officers
shall be indemnified by us except to the extent prohibited by Delaware law.
This indemnification covers all expenses and liabilities reasonably incurred in
connection with their services for or on behalf of us. In addition, our
certificate of incorporation provides that our directors will not be personally
liable for monetary damages to us or to our stockholders for breaches of their
fiduciary duty as directors, unless they violated their duty of loyalty to us
or our stockholders, acted in bad faith, knowingly or intentionally violated
the law, authorized illegal dividends or redemptions or derived an improper
personal benefit from their action as directors.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Securities
Transfer and Trust, Inc.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 34,405,021 shares of common
stock outstanding, assuming no exercise of outstanding options. Of these
shares, the 5,750,000 shares to be sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
except that any shares purchased by our affiliates, as that term is defined in
Rule 144 under the Securities Act, may generally only be sold in compliance
with the limitations of Rule 144 described below. The remaining 28,655,021
shares of common stock are restricted securities under Rule 144. Generally,
restricted securities that have been owned for at least two years may be sold
immediately after the completion of this offering and restricted securities
that have been owned for at least one year may be sold 90 days after the
completion of this offering.
Lock-Up Agreements
Our executive officers, directors and other stockholders, who will hold
approximately shares of common stock following this offering, have entered
into lock-up agreements with the underwriters under which they have agreed not
to sell, dispose of, loan, pledge or grant any rights to any shares of common
stock or any securities convertible into or exercisable or exchangeable for
shares of common stock without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of this prospectus.
Transfers or dispositions can be made sooner with the prior written consent of
Credit Suisse First Boston Corporation, which could occur at any time and
without notice, although there is no current plan or understanding as to early
release of the lock-up agreements.
Rule 144
In general, under Rule 144, stockholders, including our affiliates, who have
beneficially owned shares for at least one year are entitled to sell, within
any three-month period, a number of these shares that does not exceed the
greater of one percent of the then outstanding shares of common stock and the
average weekly trading volume in the common stock in the over-the-counter
market during the four calendar weeks preceding the date on which notice of
such sale is filed. These sales must also comply with requirements concerning
availability of public information, manner of sale and notice of sale. In
addition, our affiliates must comply with the restrictions and requirements of
Rule 144, except for the one-year holding period requirement, in order to sell
nonrestricted shares.
Rule 144(k)
Under Rule 144(k), a stockholder who is not an affiliate and has not been an
affiliate for at least three months prior to the sale and who has beneficially
owned shares for at least two years may sell these shares without compliance
with the requirements of Rule 144. In meeting these holding periods, a
stockholder can include the holding periods of a prior owner who was not an
affiliate. The holding periods do not begin until the stockholder pays the full
purchase price or other consideration for the shares.
Rule 701
Rule 701 provides that currently outstanding shares of common stock acquired
under our employee compensation plans, or shares issuable upon the exercise of
currently outstanding stock options, may be sold beginning 90 days after the
date of this prospectus by non-affiliates, subject only to the manner-of-sale
provisions of Rule 144 and by affiliates under Rule 144 without compliance with
its one-year holding period requirement.
Stock Options
At May 31, 2000, 886,943 shares of common stock were issuable pursuant to
vested options granted under our stock plans. The holders of substantially all
of these options are subject to 180-day lock-up agreements with the
underwriters as described above.
57
<PAGE>
We intend to file a registration statement on Form S-8 under the Securities
Act within 180 days after the dates of this prospectus, to register
approximately 10,000,000 shares of common stock issuable under our stock plans,
including the 6,858,385 shares of common stock subject to outstanding options
as of May 31, 2000. We expect this registration statement to become effective
upon filing.
Registration Rights
After this offering, the holders of 27,170,554 shares of common stock and
the holders of warrants to acquire 751,125 shares of common stock will be
entitled to rights with respect to the registration of those shares under the
Securities Act.
Piggyback Rights. Under the terms of the agreement between us and the
holders of these registrable securities, if we propose to register any of our
securities under the Securities Act, either for our own account or for the
account of other security holders exercising registration rights, these holders
are entitled to notice of registration and are entitled to include shares of
their common stock in the registration.
Demand Rights and Form S-3 Rights. After this offering, holders of
approximately 21,401,905 shares of common stock will also be entitled to demand
registration rights under which they may require us, on up to four occasions,
to file a registration statement under the Securities Act at our expense with
respect to their shares of common stock. We are required to use our best
efforts to effect these registrations.
These holders may also require us to file additional registration statements
on Form S-3 at our expense. All of these registration rights are subject to
conditions and limitations, including the right of the underwriters of an
offering to limit the number of shares included in a registration and our right
not to effect a requested registration within six months following a firm
commitment underwritten public offering of our securities.
58
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Deutsche Bank
Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation and
FleetBoston Robertson Stephens Inc. are acting as representatives, the
following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
of Shares
Underwriter ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Deutsche Bank Securities Inc. .....................................
Donaldson, Lufkin & Jenrette Securities Corporation................
FleetBoston Robertson Stephens Inc. ...............................
---------
Total............................................................ 5,750,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 862,500 additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share on
sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay. The underwriting discount will be determined based on our negotiation
with the underwriters at the time the initial public offering price of our
common stock is determined. We do not expect the underwriting discount per
share of common stock to exceed 7% of the initial public offering price per
share of common stock.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions paid by
us..................... $ $ $ $
Expenses payable by us.. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have an agreement with Credit Suisse First Boston under which they
provide financial advisory and investment banking services to us. In connection
with the closing of our offering of series C preferred stock, Credit Suisse
First Boston received a cash fee equal to 6% of the proceeds of the offering,
or $2.2 million. Credit Suisse First Boston does not have any other material
relationship with us or any of our officers, directors or controlling persons,
except with respect to its contractual relationship with us under the
underwriting agreement entered into in connection with this offering.
59
<PAGE>
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission its registration statement under the Securities Act
relating to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition of
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof or grants of options or issuances of shares pursuant to our 2000
Equity Incentive Plan, and issuances pursuant to our 2000 Employee Stock
Purchase Plan.
Our officers, directors and other stockholders, who will hold an an
aggregate of shares of common stock after the offering, have agreed that
they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, enter into a transaction which would have the same effect, or enter into
any swap, hedge or other arrangement that transfers, in whole or in part, any
of the economic consequences of ownership of our common stock, whether any such
aforementioned transaction is to be settled by delivery of our common stock or
such other securities, in cash or otherwise, or publicly disclose the intention
to make any such offer, sale, pledge or disposition, or to enter into any such
transaction, swap, hedge or other arrangement, without, in each case, the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of common stock for employees, directors and other
persons who have a business relationship with us or are otherwise associated
with us. The number of shares available for sale to the general public in the
offering will be reduced to the extent these persons purchase the reserved
shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market, subject to official notice of issuance, under the
symbol "CIDR."
Before this offering, there has been no public market for our common stock.
Consequently, the public offering price for the common stock offered by this
prospectus will be determined through negotiations among the representatives
and us. Among the factors to be considered in these negotiations will be
prevailing market conditions, our financial status, market valuations of
companies that we and the representatives believe to be comparable to us,
estimates of our business potential and our present state of development.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
60
<PAGE>
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters
for sale to their online brokerage account holders. Internet distribution will
be allocated by the underwriters on the same basis as other allocations.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that: (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws; (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent; and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under
the same prospectus exemption.
61
<PAGE>
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
62
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Cooley Godward LLP, Reston, Virginia. Hale and Dorr LLP, Washington, D.C.,
is serving as counsel to the underwriters.
EXPERTS
The consolidated financial statements as of December 31, 1998 and 1999 and
for the periods from July 7, 1997 (Inception) and for each of the two years in
the period ended December 31, 1999 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits, schedules and amendments, under the
Securities Act relating to the common stock we are proposing to sell in this
offering. This prospectus constitutes a part of the registration statement but
does not contain all of the information included in the registration statement.
For further information about us and the common stock we propose to sell in
this offering, please refer to the registration statement.
You may read and copy all or any portion of the registration statement or
any other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Our SEC filing, including the registration statement,
are also available to you on the SEC's Web site (http://www.sec.gov).
As of this offering, we will become subject to the information and reporting
requirements of the Securities and Exchange Act. In accordance with those
requirements, we will file periodic reports, proxy statements and other
information with the SEC.
63
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants................................... F-2
Consolidated Statements of Operations............................... F-3
Consolidated Balance Sheets......................................... F-4
Consolidated Statement of Stockholders' Equity (Deficit) and
Mandatorily Redeemable Convertible Preferred Stock................. F-5
Consolidated Statements of Cash Flows............................... F-8
Notes to Consolidated Financial Statements.......................... F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Cidera, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and
mandatorily redeemable convertible preferred stock and of cash flows present
fairly, in all material respects, the consolidated financial position of
Cidera, Inc. (formerly SkyCache Incorporated) and its subsidiary at December
31, 1998 and 1999, and the results of their operations and their cash flows for
the period from July 7, 1997 (Inception) to December 31, 1997 and for the years
ended December 31, 1998 and 1999, in conformity with accounting principles
generally accepted in the United States of America. 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 financial statements in accordance with auditing
standards generally accepted in the United States of America which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
March 7, 2000
F-2
<PAGE>
CIDERA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
July 7, 1997 Year Ended Three Months Ended
(Inception) to December 31, March 31,
December 31, ------------------------- -------------------------
1997 1998 1999 1999 2000
-------------- ----------- ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenue............. $ 5,407 $ 5,471 $ 358,210 $ 33,217 $ 187,097
Cost of services........ 5,114 804,680 4,499,232 708,514 2,923,843
---------- ----------- ------------ ----------- ------------
Gross profit (loss)..... 293 (799,209) (4,141,022) (675,297) (2,736,746)
---------- ----------- ------------ ----------- ------------
Research and
development............ 82,965 730,837 1,277,781 195,897 970,334
Sales and marketing..... 106,204 1,259,365 3,793,881 576,601 3,390,475
General and
administrative......... 81,434 795,219 2,586,526 405,100 1,868,756
---------- ----------- ------------ ----------- ------------
Operating loss.......... (270,310) (3,584,630) (11,799,210) (1,852,895) (8,966,311)
Interest expense........ -- (108,548) (163,488) (26,732) (151,043)
Interest income......... 253 93,889 356,041 18,740 154,897
---------- ----------- ------------ ----------- ------------
Net loss................ (270,057) (3,599,289) (11,606,657) (1,860,887) (8,962,457)
Dividends and accretion
on mandatorily
redeemable convertible
preferred stock........ -- (64,129) (1,299,143) (27,103) (5,772,672)
---------- ----------- ------------ ----------- ------------
Net loss applicable to
common stockholders.... $ (270,057) $(3,663,418) $(12,905,800) $(1,887,990) $(14,735,129)
========== =========== ============ =========== ============
Basic and diluted net
loss applicable to
comon stockholders
per share.............. $ (0.05) $ (0.64) $ (2.23) $ (0.33) $ (2.26)
========== =========== ============ =========== ============
Weighted average number
of shares used in basic
and diluted net loss
applicable to common
stockholders per
share.................. 5,768,649 5,768,649 5,793,324 5,770,243 6,510,510
========== =========== ============ =========== ============
Pro forma basic and
diluted net loss
applicable to common
stockholders per share
(unaudited) (See
Note 2)................ $ (0.62) $ (0.36)
============ ============
Weighted average number
of shares used in pro
forma basic and diluted
net loss applicable to
common stockholders per
share (unaudited)...... 18,746,504 25,127,202
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CIDERA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
------------------------- March 31, March 31,
1998 1999 2000 2000
----------- ------------ ------------ -------------
(unaudited) (unaudited)
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents.......... $ 2,368,651 $ 4,622,284 $ 24,159,270
Marketable
securities........... -- 3,958,779 9,937,230
Accounts receivable... 15,589 28,199 25,981
Other current assets.. 110,718 536,015 2,435,928
----------- ------------ ------------
Total current
assets............. 2,494,958 9,145,277 36,558,409
Property and equipment,
net.................... 1,037,603 6,647,503 9,817,138
Other assets............ 253,451 513,623 2,224,575
----------- ------------ ------------
Total assets........ $ 3,786,012 $ 16,306,403 $ 48,600,122
=========== ============ ============
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable...... $ 206,026 $ 540,539 $ 1,325,821
Accrued expenses...... 133,606 417,546 1,656,544
Current portion of
capital lease
obligations.......... 341,031 1,397,015 2,597,608
----------- ------------ ------------
Total current
liabilities........ 680,663 2,355,100 5,579,973
Long-term portion of
capital lease
obligations............ 589,357 2,368,208 3,979,286
Other long-term
liabilities............ -- 404,643 810,579
----------- ------------ ------------
Total liabilities... 1,270,020 5,127,951 10,369,838
----------- ------------ ------------
Commitments and
contingencies (Note 4)
Mandatorily redeemable
convertible preferred
stock:
Series A, $.01 par
value, 7,500,000
shares authorized,
7,066,147 shares
issued and
outstanding at
December 31, 1998 and
1999 and 7,267,282
(unaudited) issued
and outstanding at
March 31, 2000,
respectively
(liquidation
preference
$6,768,020)
(unaudited), none
outstanding pro
forma................ 5,864,548 6,259,778 6,594,145 $ --
Series B, $.01 par
value, 9,887,403
shares authorized,
issued, and
outstanding at
December 31, 1999 and
March 31, 2000
(liquidation
preference
$21,316,604)
(unaudited), none
outstanding pro
forma................ -- 20,866,931 21,287,215 --
Series C, $.01 par
value, 4,114,521
(unaudited) shares
authorized, issued,
and outstanding at
March 31, 2000
(liquidation
preference
$36,032,686)
(unaudited), none
outstanding pro
forma................ -- -- 33,880,873 --
----------- ------------ ------------
Total mandatorily
redeemable
convertible
preferred stock.... 5,864,548 27,126,709 61,762,233 --
----------- ------------ ------------
Stockholder's (deficit)
equity:
Preferred stock, $0.01
par value, 30,000,000
shares authorized;
7,500,000, 17,387,403
and 21,501,924
(unaudited) shares
designated at
December 31, 1998,
and 1999 and March
31, 2000,
respectively. No
shares designated
issued or outstanding
pro forma............ -- -- -- --
Common stock, $.01 par
value, 100,000,000
shares authorized,
5,768,649, 5,916,296
and 7,166,087 shares
issued and
outstanding in
December 31, 1998,
and 1999 and March
31, 2000,
respectively;
28,435,293 unaudited
shares issued and
outstanding pro
forma................ 57,686 59,162 71,660 284,353
Additional paid-in
capital.............. 193,047 1,571,371 16,802,579 78,352,119
Deferred
compensation......... -- (2,408,987) (3,154,498) (3,154,498)
Note receivable-
stockholder.......... -- -- (7,980,000) (7,980,000)
Accumulated other
comprehensive
income............... -- 36,143 39,864 39,864
Accumulated deficit... (3,599,289) (15,205,946) (29,311,554) (29,311,554)
----------- ------------ ------------ ------------
Total stockholders'
(deficit) equity... (3,348,556) (15,948,257) (23,531,949) $ 38,230,284
----------- ------------ ============ ============
Total liabilities,
mandatorily
redeemable
convertible
preferred stock and
stockholders'
(deficit) equity... $ 3,786,012 $ 16,306,403 $ 48,600,122
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CIDERA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
AND MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
<TABLE>
<CAPTION>
Mandatorily Redeemable Convertible Preferred Stock
----------------------------------------------------------
Series A Series B Series C
-------------------- --------------------- --------------
Shares Amount Shares Amount Shares Amount
--------- ---------- --------- ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Initial issuance
of common stock
to Company
founders for
cash............ -- $ -- -- $ -- -- $ --
Net loss........ -- -- -- -- -- --
--------- ---------- --------- ----------- --- -------
Balance,
December 31,
1997............ -- -- -- -- -- --
Conversion to C
Corporation from
S Corporation... -- -- -- -- -- --
Issuance of
Series A
mandatorily
redeemable
convertible
preferred
stock........... 6,676,674 6,000,000 -- -- -- --
Conversion of
notes payable to
Series A
mandatorily
redeemable
convertible
preferred
stock........... 389,473 350,000 -- -- -- --
Offering costs
related to the
issuance of
Series A
mandatorily
redeemable
convertible
preferred
stock........... -- (362,734) -- -- -- --
Issuance of
warrants in
connection with
the issuance of
notes payable... -- -- -- -- -- --
Issuance of
warrants in
connection with
Series A
mandatorily
redeemable
convertible
preferred
stock........... -- (186,847) -- -- -- --
Accretion
related to
Series A
mandatorily
redeemable
convertible
preferred stock
liquidation
preference...... -- 64,129 -- -- -- --
Net loss........ -- -- -- -- -- --
--------- ---------- --------- ----------- --- -------
Balance,
December 31,
1998............ 7,066,147 $5,864,548 -- $ -- -- $ --
--------- ---------- --------- ----------- --- -------
<CAPTION>
Stockholders' Deficit
-------------------------------------------------------------------------------------------------
Accumulated
Common Stock Additional Note Other
------------------ Paid-in Deferred Receivable- Accumulated Comprehensive
Shares Amount Capital Compensation Stockholder Deficit Income Total
--------- -------- ----------- ------------ ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial issuance
of common stock
to Company
founders for
cash............ 5,768,649 $ 57,686 $ 292,314 $ -- $-- $ -- $ -- $ 350,000
Net loss........ -- -- -- -- -- (270,057) -- (270,057)
--------- -------- ----------- ------------ ----------- ------------- ------------- -------------
Balance,
December 31,
1997............ 5,768,649 57,686 292,314 -- -- (270,057) -- 79,943
Conversion to C
Corporation from
S Corporation... -- -- (270,057) -- -- 270,057 -- --
Issuance of
Series A
mandatorily
redeemable
convertible
preferred
stock........... -- -- -- -- -- -- -- --
Conversion of
notes payable to
Series A
mandatorily
redeemable
convertible
preferred
stock........... -- -- -- -- -- -- -- --
Offering costs
related to the
issuance of
Series A
mandatorily
redeemable
convertible
preferred
stock........... -- -- -- -- -- -- -- --
Issuance of
warrants in
connection with
the issuance of
notes payable... -- -- 48,072 -- -- -- -- 48,072
Issuance of
warrants in
connection with
Series A
mandatorily
redeemable
convertible
preferred
stock........... -- -- 186,847 -- -- -- -- 186,847
Accretion
related to
Series A
mandatorily
redeemable
convertible
preferred stock
liquidation
preference...... -- -- (64,129) -- -- -- -- (64,129)
Net loss........ -- -- -- -- -- (3,599,289) -- (3,599,289)
--------- -------- ----------- ------------ ----------- ------------- ------------- -------------
Balance,
December 31,
1998............ 5,768,649 $ 57,686 $ 193,047 $ -- $-- $ (3,599,289) $ -- $ (3,348,556)
--------- -------- ----------- ------------ ----------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CIDERA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
AND MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK--(Continued)
<TABLE>
<CAPTION>
Mandatorily Redeemable Convertible Preferred Stock
----------------------------------------------------------
Series A Series B Series C
-------------------- --------------------- -------------
Shares Amount Shares Amount Shares Amount
--------- ---------- --------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1998........... 7,066,147 $5,864,548 -- $ -- -- $ --
Issuance of Series
B mandatorily
redeemable
convertible
preferred stock.... -- -- 9,887,403 20,000,000 -- --
Offering costs
related to the
issuanceof Series B
mandatorily
redeemable
convertible
preferred stock.... -- -- -- (36,981) -- --
Accretion related
to Series A and B
mandatorily
redeemable
convertible
preferred stock
liquidation
preference......... -- 109,916 -- 5,281 -- --
Dividends related
to the issuance of
Series A and B
mandatorily
redeemable
convertible
preferred stock.... -- 285,314 -- 898,631 -- --
Option exercises... -- -- -- -- -- --
Common stock and
common stock
options issued for
consulting
services........... -- -- -- -- -- --
Deferred
compensation
related to option
grants............. -- -- -- -- -- --
Amortization of
deferred
compensation....... -- -- -- -- -- --
Comprehensive loss:
Net loss.......... -- -- -- -- -- --
Other
comprehensive
income:
Unrealized gain
on marketable
securities........ -- -- -- -- -- --
Total
comprehensive
loss............ -- -- -- -- -- --
--------- ---------- --------- ----------- --- ------
Balance, December
31, 1999........... 7,066,147 $6,259,778 9,887,403 $20,866,931 -- $ --
--------- ---------- --------- ----------- --- ------
<CAPTION>
Stockholders' Deficit
--------------------------------------------------------------------------------------------------
Accumulated
Common Stock Additional Note Other
----------------- Paid-in Deferred Receivable- Accumulated Comprehensive
Shares Amount Capital Compensation Stockholder Deficit Income Total
--------- ------- ----------- ------------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1998........... 5,768,649 $57,686 $ 193,047 $ -- $ -- $ (3,599,289) $ -- $ (3,348,556)
Issuance of Series
B mandatorily
redeemable
convertible
preferred stock.... -- -- -- -- -- -- -- --
Offering costs
related to the
issuanceof Series B
mandatorily
redeemable
convertible
preferred stock.... -- -- -- -- -- -- -- --
Accretion related
to Series A and B
mandatorily
redeemable
convertible
preferred stock
liquidation
preference......... -- -- (115,197) -- -- -- -- (115,197)
Dividends related
to the issuance of
Series A and B
mandatorily
redeemable
convertible
preferred stock.... -- -- (1,183,946) -- -- -- -- (1,183,946)
Option exercises... 91,398 914 17,504 -- -- -- -- 18,418
Common stock and
common stock
options issued for
consulting
services........... 56,249 562 196,838 -- -- -- -- 197,400
Deferred
compensation
related to option
grants............. -- -- 2,463,125 (2,463,125) -- -- -- --
Amortization of
deferred
compensation....... -- -- -- 54,138 -- -- -- 54,138
Comprehensive loss:
Net loss.......... -- -- -- -- -- (11,606,657) --
Other
comprehensive
income:
Unrealized gain
on marketable
securities........ -- -- -- -- -- -- 36,143
Total
comprehensive
loss............ -- -- -- -- -- -- -- (11,570,514)
--------- ------- ----------- ------------- ----------- ------------- ------------- --------------
Balance, December
31, 1999........... 5,916,296 $59,162 $1,571,371 $(2,408,987) $ -- $(15,205,946) $36,143 $(15,948,257)
--------- ------- ----------- ------------- ----------- ------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CIDERA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
AND MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK--(Continued)
<TABLE>
<CAPTION>
Mandatorily Redeemable Convertible Preferred Stock
----------------------------------------------------------------
Series A Series B Series C
-------------------- --------------------- ---------------------
Shares Amount Shares Amount Shares Amount
--------- ---------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1999.......... 7,066,147 $6,259,778 9,887,403 $20,866,931 -- $ --
Issuance of Series
C mandatorily
redeemable
convertible
preferred stock*.. -- -- -- -- 4,114,521 $36,006,570
Offering costs
related to the
issuance of Series
C mandatorily
redeemable
convertible
preferred stock*.. -- -- -- -- -- (2,204,996)
Accretion related
to Series A, B and
C mandatorily
redeeemable
convertible
preferred stock
liquidation
preference*....... -- 20,911 -- 2,311 -- 53,183
Dividends related
to the issuance of
Series A, B and C
mandatorily
redeemable
convertible
preferred Stock*.. -- 132,706 -- 417,973 -- 26,116
Deemed dividend
related to
issuance of Series
C mandatorily
redeemable
convertible
preferred stock*.. -- -- -- -- -- --
Option
exercises*........ -- -- -- -- -- --
Warrant
exercises*........ 201,135 180,750 -- -- -- --
Common stock
purchased by a
related party for
cash and note*.... -- -- -- -- -- --
Deferred
compensation
related to option
grants*........... -- -- -- -- -- --
Amortization of
deferred
compensation*..... -- -- -- -- -- --
Issurance of
warrants*......... -- -- -- -- -- --
Comprehensive
loss:
Net loss*......... -- -- -- -- -- --
Other
comprehensive
income:
Unrealized gain
on marketable
securities*...... -- -- -- -- -- --
Total
comprehensive
loss*........... -- -- -- -- -- --
--------- ---------- --------- ----------- --------- -----------
Balance, March 31,
2000*............. 7,267,282 $6,594,145 9,887,403 $21,287,215 4,114,521 $33,880,873
========= ========== ========= =========== ========= ===========
<CAPTION>
Stockholders' Deficit
----------------------------------------------------------------------------------------------------
Accumulated
Common Stock Additional Note Other
----------------- Paid-in Deferred Receivable- Accumulated Comprehensive
Shares Amount Capital Compensation Stockholder Deficit Income Total
--------- ------- ------------ ------------- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1999.......... 5,916,296 $59,162 $ 1,571,371 $(2,408,987) $ -- $(15,205,946) $36,143 $(15,948,257)
Issuance of Series
C mandatorily
redeemable
convertible
preferred stock*.. -- -- -- -- -- -- -- --
Offering costs
related to the
issuance of Series
C mandatorily
redeemable
convertible
preferred stock*.. -- -- -- -- -- -- -- --
Accretion related
to Series A, B and
C mandatorily
redeeemable
convertible
preferred stock
liquidation
preference*....... -- -- (76,405) -- -- -- -- (76,405)
Dividends related
to the issuance of
Series A, B and C
mandatorily
redeemable
convertible
preferred Stock*.. -- -- (576,795) -- -- -- -- (576,795)
Deemed dividend
related to
issuance of Series
C mandatorily
redeemable
convertible
preferred stock*.. -- -- 5,143,151 -- -- (5,143,151) -- --
Option
exercises*........ 579,716 5,797 74,183 -- -- -- -- 79,980
Warrant
exercises*........ 50,075 501 24,499 -- -- -- -- 25,000
Common stock
purchased by a
related party for
cash and note*.... 620,000 6,200 8,053,800 -- (7,980,000) -- -- 80,000
Deferred
compensation
related to option
grants*........... -- -- 951,675 (951,675) -- -- -- --
Amortization of
deferred
compensation*..... -- -- -- 206,164 -- -- -- 206,164
Issurance of
warrants*......... -- -- 1,637,100 -- -- -- -- 1,637,100
Comprehensive
loss:
Net loss*......... -- -- -- -- (8,962,457) --
Other
comprehensive
income:
Unrealized gain
on marketable
securities*...... -- -- -- -- -- 3,721
Total
comprehensive
loss*........... -- -- -- -- -- -- (8,958,736)
--------- ------- ------------ ------------- ------------ ------------- ------------- --------------
Balance, March 31,
2000*............. 7,166,087 $71,660 $16,802,579 $(3,154,498) $(7,980,000) $(29,311,554) $39,864 $(23,531,949)
========= ======= ============ ============= ============ ============= ============= ==============
</TABLE>
-------------
* Amounts as of and for the three months ended March 31, 2000 are unaudited
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
CIDERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from July Three Months
7, 1997 (date of Year Ended December 31, Ended March 31,
inception) to ------------------------- -------------------------
December 31, 1997 1998 1999 1999 2000
----------------- ----------- ------------ ------------ -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............. $(270,057) $(3,599,289) $(11,606,657) $(1,860,887) $(8,962,457)
Adjustments to
reconcile net loss
to net cash used in
operating
activities:
Depreciation........ 2,441 170,015 994,279 123,676 624,969
Non-cash interest
expense related to
notes payable...... -- 48,072 -- -- --
Writedown of
property and
equipment.......... -- -- 192,163 -- --
Gain on the sale of
short-term
investments........ -- -- (48,585) -- (50,079)
(Gain) loss on sale
of property and
equipment.......... (4,400) 9,978 (1,110) -- --
Stock based
compensation
expense............ -- -- 251,538 -- 206,166
Change in operating
assets and
liabilities:
Accounts
receivable........ (5,357) (10,232) (12,610) 14,454 2,218
Other current
assets............ (9,148) (101,570) (425,297) 63,828 (1,345,077)
Accounts payable... 7,803 198,223 334,513 200,507 785,282
Accrued expenses... 23,772 109,834 283,940 29,351 1,238,998
Other assets ...... (12,113) (241,338) (260,172) (38,953) (401,272)
Other long-term
liabilities....... -- -- 404,643 565,500 405,936
--------- ----------- ------------ ------------ -----------
Net cash used in
operating
activities....... (267,059) (3,416,307) (9,893,355) (902,524) (7,495,316)
--------- ----------- ------------ ------------ -----------
Cash flows from
investing activities:
Purchase of
marketable
securities.......... -- -- (7,068,052) -- (10,894,651)
Proceeds from the
sale of marketable
securities.......... -- -- 3,194,000 -- 4,970,000
Expenditures for
property and
equipment........... (45,254) (126,259) (4,461,656) (17,244) (3,240,934)
Proceeds from sale of
property and
equipment........... 9,400 -- 14,145 -- --
--------- ----------- ------------ ------------ -----------
Net cash used in
investing
activities....... (35,854) (126,259) (8,321,563) (17,244) (9,165,585)
--------- ----------- ------------ ------------ -----------
Cash flows from
financing activities:
Proceeds from sale of
common stock........ 350,000 -- -- -- --
Proceeds from sale of
common stock to a
related party....... -- -- -- -- 80,000
Proceeds from sale of
mandatorily
redeemable
convertible
preferred stock, net
of offering costs... -- 5,637,266 19,968,300 -- 33,801,574
Principal payments on
capital lease
obligations......... (123,136) (849,078) (90,723) (119,660)
Proceeds from notes
payable............. -- 738,900 -- -- --
Repayment of notes
payable............. -- (388,900) -- -- --
Proceeds from sale-
leaseback........... -- -- 1,336,192 43,920 2,150,243
Proceeds from
exercise of options
and warrants........ -- -- 13,137 667 285,730
--------- ----------- ------------ ------------ -----------
Net cash provided
by (used in)
financing
activities....... 350,000 5,864,130 20,468,551 (46,136) 36,197,887
--------- ----------- ------------ ------------ -----------
Net increase in cash... 47,087 2,321,564 2,253,633 (965,904) 19,536,986
Cash at the beginning
of period............. -- 47,087 2,368,651 2,368,651 4,622,284
--------- ----------- ------------ ------------ -----------
Cash at the end of
period................ $ 47,087 $ 2,368,651 $ 4,622,284 $ 1,402,747 $24,159,270
========= =========== ============ ============ ===========
Supplemental
disclosures:
Cash paid for
interest............ $ -- $ 60,476 $ 163,488 $ 26,732 $ 151,043
========= =========== ============ ============ ===========
Non-cash investing and
financing activities:
Capital lease
obligations to
acquire property and
equipment........... $ -- $ 1,053,524 $ 3,683,913 $ 376,108 $ 2,377,659
========= =========== ============ ============ ===========
Conversion of notes
payable to
mandatorily
redeemable
convertible
preferred stock..... $ -- $ 350,000 $ -- $ -- $ --
========= =========== ============ ============ ===========
Issuance of common
stock for services
rendered............ $ -- $ -- $ 168,750 $ -- $ --
========= =========== ============ ============ ===========
Issuance of warrants
in exchange for
contract rights..... $ -- $ -- $ -- $ -- $ 1,637,100
========= =========== ============ ============ ===========
Accretion and
dividends on Series
A, Series B and
Series C mandatorily
redeemable
convertible
preferred stock..... $ -- $ 64,129 $ 1,299,143 $ 27,478 $ 5,772,672
========= =========== ============ ============ ===========
Issuance of note-
receivable to
stockholder......... $ -- $ -- $ -- $ -- $ 7,980,000
========= =========== ============ ============ =========== ===
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
CIDERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of business and financing of operations
Cidera Inc., formerly SkyCache Incorporated, (the "Company") a Delaware
corporation, was formed on July 7, 1997. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary, SkyCache
Europe Ltd. All intercompany accounts and transactions have been eliminated in
the consolidated financial statements. Cidera is engaged in satellite-based
delivery of Internet content. The Company delivers Internet data such as
streaming media, Usenet News and other popular Web content through its
satellite-based distribution network directly to the edge of the Internet. The
Company currently operates in one business segment.
The Company has experienced substantial net losses since its inception and,
as of March 31, 2000, had an accumulated deficit of $29.3 million (unaudited).
Such losses and accumulated deficit resulted from the Company's lack of
substantial revenue and the costs incurred in the development of the Company's
service and the establishment of the Company's network.
Through March 31, 2000, the Company raised total gross proceeds of $62
million (unaudited) through private placement offerings of Series A mandatorily
redeemable convertible preferred stock at approximately $0.90 per share, Series
B mandatorily redeemable convertible preferred stock at approximately $2.02 per
share and Series C mandatorily redeemable convertible preferred stock at
approximately $8.75 per share.
For the foreseeable future, the Company expects to continue to experience
significant growth in its operating expenses in order to execute its current
business plan. The Company believes it is likely that it will have to raise
additional financing before cash generated from operations is sufficient to
meet the Company's liquidity requirements.
2. Summary of significant accounting policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. Intercompany transactions and accounts are
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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
Cash and cash equivalents consist of cash and investments with maturities of
three months or less from the date of acquisition.
Marketable Securities
The Company determines the appropriate classification of marketable
securities at the time of purchase and reevaluates such designation at each
balance sheet date. The Company's marketable securities are categorized as
available-for-sale.
Available-for-sale securities consist of bonds and certificates of deposit
with contractual maturities of one year or less not classified as trading
securities or as held-to-maturity securities. Unrealized holding gains and
losses on available-for-sale securities are reported as a net amount as a
component of accumulated other
F-9
<PAGE>
CIDERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
comprehensive loss in stockholders' (deficit) equity until realized. Gains and
losses on the sale of available-for-sale securities are determined using the
specific-identification method.
The historical cost, gross unrealized gains, gross unrealized losses, and
fair value of available-for-sale securities are as follows as of:
<TABLE>
<CAPTION>
December 31,
----------------- March 31,
1998 1999 2000
------ ---------- -----------
(unaudited)
<S> <C> <C> <C>
Historical cost............................ $ -- $3,922,636 $9,897,366
Gross unrealized gains..................... -- 36,928 39,881
Gross unrealized losses.................... -- (785) (17)
------ ---------- ----------
Fair value................................. $ -- $3,958,779 $9,937,230
====== ========== ==========
</TABLE>
Proceeds from sales of available-for-sale securities were approximately
$3,194,000 for 1999, and $4,970,000 (unaudited) for the three months ended
March 31, 2000. During 1998 and the three months ended March 31, 1999, no sales
of such securities occurred.
During the year ended December 31, 1999 and for the three months ended March
31, 1999 and 2000, gross realized gains on the sale of securities available-
for-sale amounted to $48,585, $0 (unaudited), and $50,079 (unaudited),
respectively, and are included in interest income in the consolidated
statements of operations. There were no gross realized losses.
Revenue Recognition
The Company recognizes revenue for providing services to customers. Such
services include the delivery for customers of news and other Internet content
(the "Cidera Cache Turbocharging" and "Cidera Usenet News" service), the
delivery for a customer of streaming media content (the "Cidera Streaming
Media" service) and the transmission for customers of large data files (the
"Cidera Big File Mover" service). Substantially all customers purchasing the
service related to the delivery of news and other Internet content subscribe to
receive unlimited service under contracts which range from six months to a year
for a fixed monthly fee. Customers purchasing the streaming media service and
Cidera Big File Mover service are charged based upon the volume of data
delivered or transmitted and other customer specific factors. Amounts billed to
customers may decrease on a unit basis as the volume of data transmitted
increases. To date, no customer contracts contain multiple elements that would
require the Company to allocate value among various elements. Through March 31,
2000, substantially all revenue has related to services for the delivery of
news and other Internet content.
Revenue from services is recognized as the service is provided, assuming
that evidence of an arrangement exists, the terms of the arrangement are fixed
and determinable and collection of the resulting receivable is considered
probable. Through March 31, 2000 the Company has not entered into relationships
that would involve revenue sharing. Accordingly, revenue is recognized on a
gross basis. Through March 31, 2000, the Company has not entered into any
barter transactions.
The sale terms of future products have not been determined. Accordingly, the
Company has not determined how revenue associated with future products will be
recognized.
Basic and Diluted Loss Per Share and Unaudited Pro Forma Per Share Information
Basic loss per share is computed using the weighted-average number of common
shares outstanding during the period. Diluted loss per share is computed based
on the weighted average number of common shares outstanding adjusted for the
dilutive effect of common stock, of common stock options and warrants and
F-10
<PAGE>
CIDERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
contingently issuable shares of common stock. For all periods presented, basic
and diluted loss per share are identical as the effect of such common stock
equivalents is antidilutive. Accordingly, no reconciliation of basic and
diluted loss per share is presented.
The following table sets forth the weighted average effect of the following
securities that are not included in the basic and diluted net loss per share
calculation for each respective period because all such securities are
antidilutive.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------- ---------------------
1997 1998 1999 1999 2000
---- --------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average effect
of common stock
equivalents:
Convertible preferred
shares.................. -- 4,065,454 12,619,346 7,066,147 18,305,203
Options outstanding.... -- 2,250,063 3,214,416 2,223,230 5,729,214
Warrants............... -- 1,135,034 1,135,034 1,135,034 1,183,824
---- --------- ---------- ---------- ----------
-- 7,450,551 16,968,796 10,424,411 25,218,241
==== ========= ========== ========== ==========
</TABLE>
Unaudited pro forma basic and diluted net loss per share have been computed
assuming the conversion of all outstanding shares of mandatorily redeemable
convertible preferred stock, as if the shares had converted immediately as of
the beginning of the period or upon their issuance.
The table below reconciles the weighted average number of shares used in the
unaudited pro forma net loss per share calculation.
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, 1999 March 31, 2000
----------------- --------------
<S> <C> <C>
Weighted average number of shares used in
basic and diluted loss per share............ 5,793,324 6,510,510
Mandatorily redeemable convertible preferred
stock:
Series A.................................... 7,066,147 7,267,282
Series A Warrants........................... 333,834 132,699
Series B.................................... 5,553,199 9,887,403
Series C.................................... -- 1,329,308
---------- ----------
Weighted average number of shares used in
unaudited pro forma loss per share ......... 18,746,504 25,127,202
========== ==========
</TABLE>
Unaudited Pro Forma Stockholders' Equity
The Board of Directors has authorized the filing of a registration statement
with the Securities and Exchange Commission ("SEC") that would permit the
Company to sell shares of the Company's common stock in connection with a
proposed initial public offering ("IPO"). If the IPO is consummated under the
terms presently anticipated, upon the closing of the proposed IPO all of the
then outstanding shares of the Company's Series A, B and C mandatorily
redeemable convertible preferred stock will automatically convert into shares
of common stock on a one-for-one basis. The conversion of the Series A, B and C
mandatorily redeemable convertible preferred stock has been reflected in the
accompanying unaudited pro forma balance sheet as if it had occurred on March
31, 2000.
F-11
<PAGE>
CIDERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Internally Developed Software
Effective for fiscal years beginning after December 15, 1998, the American
Institute of Certified Public Accountants ("AICPA") issued Statement of
Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 requires all costs related to
the development of internal use software other than those incurred during the
application development stage to be expensed as incurred. Costs incurred during
the application development stage are required to be capitalized and amortized
over the estimated useful life of the software. The Company adopted SOP 98-1 on
January 1, 1999 and capitalized $139,239 in internally developed software costs
during the year ended December 31, 1999 and $38,100 (unaudited) and $38,088
(unaudited) during the three months ended March 31, 1999 and 2000,
respectively. Capitalized software costs are amortized on a straight-line basis
over a useful life ranging from one to three years. Amortization related to the
capitalized software was $70,211 for the year ended December 31, 1999 and
$4,828 (unaudited) and $34,858 (unaudited) during the three months ended March
31, 1999 and 2000 , respectively.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the various assets. The estimated
useful lives are as follows:
<TABLE>
<S> <C>
Computer equipment.............................................. 3 years
Telecommunications bandwidth.................................... 20 years
Furniture and fixtures.......................................... 7 years
Leasehold improvements.......................................... 5 years
</TABLE>
Upon retirement or disposition of property and equipment, the cost and
related accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in the appropriate consolidated statement
of operations line based on the asset's functional classification.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments and accounts receivable. The Company's cash and cash
equivalents are held with several United States commercial banks. The Company
has not experienced any losses related to its cash and cash equivalents. The
Company performs periodic evaluations of the relative credit standing of these
institutions. From time to time, the Company's cash balances with any one
financial institution may exceed Federal Deposit Insurance Corporation
insurance limits.
The Company's customers are concentrated in the United States. The Company
performs ongoing credit evaluations, generally does not require collateral and,
if necessary, establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of customers, historical trends and other
information; to date, such losses have been within management's expectations.
Income Taxes
Prior to January 1998, the Company was taxed as an S Corporation and taxable
income (loss) was included in the individual tax returns of the stockholders.
Effective January 1998, the Company terminated its S Corporation election and
became subject to federal and state income taxes. The Company recognizes
deferred taxes using the asset and liability approach under which deferred
income taxes are provided for differences between the financial reporting and
tax bases of assets and liabilities based upon enacted tax laws and rates
applicable to the periods in which the taxes become payable. The Company
provides a valuation allowance, if necessary, to reduce deferred tax assets to
their estimated realizable value.
F-12
<PAGE>
CIDERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock Based Compensation
The Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations. Accordingly, compensation cost for stock options is measured
as the excess, if any, of the estimated fair value of the Company's stock at
the date of the grant over the amount an employee must pay to acquire the
stock. The Company has adopted the "disclosure only" alternative described in
SFAS No. 123 which requires pro forma disclosures of net income and earnings
per share as if the fair value method of accounting has been applied.
Foreign Currency Transactions
The functional currency of the Company's European subsidiary is the United
States dollar. Resulting foreign exchange gains and losses are included in
operating results and have not been material to the Company's consolidated
operating results, financial position, or cash flows in any period.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents and short term investments--The carrying amounts
of these items approximate their fair value due to the short-term maturity of
such instruments.
Short-term bank credit, long-term bank loans and capital leases--The
carrying amounts of the Company's borrowing arrangements approximate their fair
value. Fair values are estimated using discounted cash flow analyses, based on
the Company's incremental borrowing rates for similar types of borrowing
arrangements.
Impact of Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133." The Company is required to adopt
SFAS 133 for all fiscal quarters of all fiscal years beginning after June 15,
2000. SFAS 133 establishes methods of accounting for derivative financial
instruments and hedging activities. Because the Company currently holds no
derivative financial instruments as defined by SFAS 133 and does not currently
engage in hedging activities, adoption of SFAS 133 is expected to have no
material effect on the Company's financial condition, results of operations or
cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which summarizes certain of the SEC staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. In March 2000, the SEC issued SAB 101A, "Revenue Recognition in
Financial Statements," which defers the effective date of SAB 101 from January
1, 2000 to April 1, 2000. The Company's revenue recognition policies are
consistent with SAB 101 and the Company does not expect that implementation of
SAB 101 will have a material impact on its financial condition, results of
operations or cash flows.
In March 2000, the FASB issued FIN No. 44, "Accounting for Certain
Transactions Involving Stock Compensation--an Interpretation of APB Opinion No.
25" ("Fin No. 44"). The Interpretation clarifies the application of Opinion 25
for certain issues. Fin No. 44 is effective July 1, 2000, but certain
conclusions may be applied earlier. The Company does not believe the adoption
of Fin No. 44 will have a material effect on the Company's financial condition,
results of operations or cash flows.
Impairment of Long-Lived Assets
The Company has adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" ("SFAS 121"). SFAS 121 prescribes that an impairment loss is
recognized in the event that facts and circumstances indicate that the carrying
amount of an asset may not be recoverable, and an estimate of future
undiscounted cash flows is less than the carrying amount of the asset.
Impairment is recorded based on an estimate of future discounted cash flows.
F-13
<PAGE>
CIDERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comprehensive Income/Loss
The Company recognizes the unrealized gain and loss in available-for-sale
securities and foreign currency translation adjustment in comprehensive loss.
Foreign currency translation adjustments are immaterial for all periods
presented.
3. Property and equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
------------------------ March 31,
1998 1999 2000
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Computer equipment..................... $ 1,187,096 $ 5,436,387 $ 7,856,010
Telecommunications bandwidth........... -- 2,025,604 2,025,604
Furniture and fixtures................. 6,913 123,566 719,653
Leasehold improvements................. 10,860 223,485 1,002,389
----------- ----------- -----------
1,204,869 7,809,042 11,603,656
Less: accumulated depreciation and
amortization.......................... (167,266) (1,161,539) (1,786,518)
----------- ----------- -----------
$ 1,037,603 $ 6,647,503 $ 9,817,138
=========== =========== ===========
</TABLE>
As of December 31, 1998 and 1999 and March 31, 1999 and 2000, respectively,
property and equipment under capital lease totaled $1,053,524, $4,737,437,
$1,315,375 (unaudited) and $7,115,096 (unaudited), respectively.
Telecommunications bandwidth purchased under indefeasible right of use
agreements qualifying as capital leases are classified as property and
equipment. Accumulated depreciation under capital leases was $147,786,
$571,405, $241,910 (unaudited) and $1,394,860 (unaudited) for year ended
December 31, 1998 and 1999, and for the three months ended March 31, 1999 and
March 31, 2000, respectively. During 1999, the Company recognized a writedown
of $192,163 which has been included as cost of services in the Company's
consolidated statement of operations. The writedown recognized for certain
satellite hardware which represent assets to be held and used, was measured as
the amount by which the carrying amount of the asset exceeded the fair value of
the hardware. Fair value was determined based on a estimate of the sale value
of the equipment as determined by management.
4. Commitments and Contingencies
Operating Leases
The Company is obligated under operating lease agreements for equipment,
satellite communication services and office space. Future minimum lease
payments under these non-cancelable operating leases as of December 31, 1999
are as follows:
<TABLE>
<S> <C>
2000.................................. $ 3,004,833
2001.................................. 4,792,586
2002.................................. 4,888,840
2003.................................. 4,910,345
2004.................................. 4,987,838
Thereafter............................ 9,411,604
-----------
Total............................... $31,996,046
===========
</TABLE>
F-14
<PAGE>
CIDERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company accounts for operating leases with scheduled rent increases on a
straight-line basis. Rental expense under these leases was $441,746,
$1,358,602, $175,956 (unaudited) and $1,149,556 (unaudited) for the years ended
December 31, 1998 and 1999 and the three months ended March 31, 1999 and March
31, 2000, respectively.
During 1998 and 1999 and the three months ended March 31, 1999 and March 31,
2000, respectively, the Company leased office space from a related party. Total
rent expense in connection with the non-cancelable operating leases was
$15,408, $48,024, $12,006 (unaudited) and $12,006 (unaudited) for the years
ended December 31, 1998 and 1999 and the three months ended March 31, 1999 and
March 31, 2000, respectively.
Capital Leases
The Company is obligated under capital lease agreements for the purchase of
computer equipment and an indefeasible right of use agreement for fiber optic
cable. Future minimum lease payments under these non-cancelable capital leases
as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000.............................................................. $1,708,370
2001.............................................................. 1,594,009
2002.............................................................. 1,082,780
2003.............................................................. 62,882
----------
4,448,041
Less: interest portion............................................ 682,818
----------
3,765,223
Less: current portion of capital lease obligation................. 1,397,015
----------
Long-term portion................................................. $2,368,208
==========
</TABLE>
During 1999, the Company negotiated lease facilities for $3,489,255 million
of equipment. As of December 31, 1999 and March 31, 2000, the Company had drawn
approximately $1,380,122, and $2,377,659 (unaudited) on these lease facilities
in connection with the sale and leaseback of equipment. As of December 31, 1999
and March 31, 2000, the Company was not in compliance with one of the covenants
under a capital lease facility. The lender waived the covenant compliance
through December 31, 2000. In April 2000, the capital lease facility covenants
were amended and the Company was in compliance through June 30, 2001.
Line of Credit
During 1998, the Company signed a line of credit with a financial
institution for up to $750,000. The interest rate is prime plus 1.5% and the
financial institution has a lien on all corporate assets. As of December 31,
1998 and 1999 and March 31, 2000, no borrowings were outstanding on this line.
The financial institution has issued a $500,000 Irrevocable Standby Letter
of Credit ("LoC") in favor of a vendor of the Company. The LoC expires on
October 31, 2000 and reduces the available borrowing under the line of credit.
Legal
The Company is subject to various legal proceedings that arise in the
ordinary course of business including certain inquiries about its intellectual
property. The Company provides for any anticipated losses at the time an
estimate can be made. Through March 31, 2000 no action has been brought against
the Company that would require a reserve for any anticipated loss. Legal
proceedings through March 31, 2000 have not had a material adverse effect on
the financial position, results of operations, or cash flows.
F-15
<PAGE>
CIDERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Accrued expenses
Accruals consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------- March 31,
1998 1999 2000
-------- -------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Wages and taxes payable.................... $ 93,102 $209,476 $ 143,465
Vacation payable........................... -- 95,551 158,662
Accrued professional fees.................. -- -- 950,000
Other...................................... 40,504 112,519 404,417
-------- -------- ----------
$133,606 $417,546 $1,656,544
======== ======== ==========
</TABLE>
6. Related party transactions
During 1997, the Company earned revenues of $5,258 for consulting services
performed for another company in which the Company's stockholders owned 18%.
During 1998, the Company had a line of credit agreement with a stockholder
and officer of the Company for $300,000. Subsequent to the Series A mandatorily
redeemable convertible preferred stock offering, the line of credit was
terminated.
As of December 31, 1998 and 1999 and March 31, 1999 and 2000, the Company
had $13,143, $24,140, $18,014 (unaudited) and $29,340 (unaudited),
respectively, in loans due from employees.
On June 1, 1998, the Company entered into a sublease for office space with
an affiliate of the Company's chairman. This agreement was amended on March 7,
2000. The sublease expires on August 31, 2004, although the Company may
terminate it on 30 days notice. The Company has the option to extend the
sublease for an additional two years upon expiration of the initial term, with
monthly rent equal to the fair market rental rate at that time. Concurrently
with the sublease, the Company also entered into a license agreement with this
affiliate to install, operate, maintain, repair, replace and remove up to three
satellite dishes on the rooftop of the sublet building. The license is for a
five year term, although the Company may terminate it on 30 days notice. For
the years ended December 31, 1998 and 1999 and the three months ended March 31,
1999 and March 31, 2000, the Company paid $26,246, $111,720, $12,230
(unaudited) and $30,054 (unaudited), respectively, to this affiliate for rent
and associated services.
On June 1, 1998, the Company entered into a colocation agreement to lease
machine space in the facilities of another affiliate of its Chairman. This
agreement was amended on March 7, 2000. The agreement expires on August 31,
2004. For the year ended December 31, 1999 and the three months ended March 31,
2000, the Company paid $78,279 and $42,397 (unaudited), respectively to this
affiliate for rent and associated services.
On March 6, 2000, in connection with his employment agreement, the chief
financial officer acquired 620,000 shares of the Company common stock at $13.00
per share. He purchased this stock by paying $80,000 in cash and executing a
promissory note for the balance of $7,980,000. The note has a nine-year term
and accrues interest at 6.2% per year. The promissory note is full recourse to
the chief financial officer, and is secured by a security interest in his
common stock.
7. Mandatorily redeemable convertible preferred stock and stockholders'
(deficit) equity
Common Stock
On July 7, 1997, the founders of the Company purchased 100 shares of the
Company's common stock for $350,000 in connection with the Company's formation.
On January 1, 1998, the Company issued 5,768,549 shares
F-16
<PAGE>
CIDERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of common stock in connection with a 57,686.49-to-1 stock split. All share and
per share data have been adjusted to reflect this split as of the earliest
period presented.
Series A mandatorily redeemable convertible preferred stock
The Series A mandatorily redeemable convertible preferred stock has a par
value of $0.01 per share. The Company issued 7,066,147 shares of Series A
mandatorily redeemable convertible preferred stock on June 4, 1998 for
$0.898651 per share including the conversion of certain notes payable. At
issuance, the Series A mandatorily redeemable convertible preferred stock had
non-cumulative preferred dividends of 7.2% per share annually. Effective with
the issuance of the Series B mandatorily redeemable convertible preferred stock
on June 9, 1999, the Series A mandatorily redeemable convertible preferred
stock has cumulative preferred dividends of 8% per year.
Series B mandatorily redeemable convertible preferred stock
The Series B mandatorily redeemable convertible preferred stock has a par
value of $0.01 per share. The Company issued 9,887,403 shares of Series B
mandatorily redeemable convertible preferred stock on June 9, 1999 for
$2.022776 per share. The Series B mandatorily redeemable convertible preferred
stock has cumulative preferred dividends of 8% per year.
Series C mandatorily redeemable convertible preferred stock
The Series C mandatorily redeemable convertible preferred stock has a par
value of $0.01 per share. The Company issued 3,445,916 shares of Series C
mandatorily redeemable convertible preferred stock on February 28, 2000 and
668,605 shares on March 15, 2000 for $8.75 per share. The Series C mandatorily
redeemable convertible preferred stock has cumulative preferred dividends of 8%
per year.
Conversion
Each share of preferred stock, is convertible into common stock, subject to
the vote of the Preferred Stockholders, at the option of the holder at any time
at the initial conversion ratio of 1-to-1. The conversion ratio is subject to
adjustment for events such as a stock split, stock dividend, or a specified
issuance of stock. At December 31, 1998 and 1999 the conversion ratio was 1-to-
1.
Automatic conversion is required if at any time the Company effects an
initial public offering in which the price paid by the public is at least $30
million or at least 133%, 167%, or 200% of the conversion price of the Series C
mandatorily redeemable convertible preferred stock prior to February 28, 2000,
prior to August 28, 2000 or after August 28, 2000, respectively.
Mandatory Redemption
On June 5, 2003, the Company is required to redeem any and all Series A,
Series B and Series C shares at cost, plus any unpaid and accrued dividends, at
the request of each stockholder. The Series A mandatorily redeemable
convertible preferred stock will be redeemed for $0.898651 per share plus
accrued dividends, the Series B mandatorily redeemable convertible preferred
stock will be redeemed for $2.022776 per share plus accrued dividends, and the
Series C mandatorily redeemable convertible preferred stock for $8.75 per share
plus accrued dividend.
Accretion to the redemption amount of the mandatorily redeemable convertible
preferred stock is determined using the interest method for the difference
between the carrying value and the ultimate redemption amount. Dividends are
recorded as an increase in the net loss applicable to common stockholders based
on the dividend rates in effect for the series A, B, and C mandatorily
redeemable convertible preferred stock.
Liquidation Preferences
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Series A mandatorily redeemable convertible preferred stock,
Series B mandatorily redeemable convertible preferred
F-17
<PAGE>
CIDERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
stock and Series C mandatorily redeemable convertible preferred stock will be
entitled to a liquidation preference over the Company's common stock. The
liquidation preference equals the original face amount plus any unpaid
dividends which have been declared or accrued. After the liquidation preference
is satisfied, the preferred stockholders and common stockholders shall share in
the net assets of the Company until the preferred stockholders have received a
per share amount equal to three times the original purchase price of each
preferred share. Thereafter, the remaining net assets are distributed ratably
among the common stockholders.
The consolidation or merger of the Company with any other entity which
results in the exchange of outstanding shares of the Company for securities or
other consideration paid by such entity, and the sale, lease, abandonment,
transfer to other disposition of substantially all its assets, shall be deemed
to be a liquidation.
Dividends, Voting and Other Rights
The Company shall not declare or pay any distributions by dividend or
otherwise, payable other than in common stock, until a dividend in an amount at
least equal to the accrued and unpaid dividends due for each outstanding share
of Series A mandatorily redeemable convertible preferred stock, Series B
mandatorily redeemable convertible preferred stock and Series C manadatorily
redeemable convertible preferred stock has been paid or declared and set apart.
Each share of Series A, Series B, and Series C mandatorily redeemable
convertible preferred stock is entitled to the number of votes equal to the
number of whole shares of common stock into which each share of Series A,
Series B, and Series C mandatorily redeemable convertible preferred stock could
be converted.
Holders of Series A, Series B, and Series C mandatorily redeemable
convertible preferred stock, voting together as a class, have the right to
elect two directors to the Board of Directors of the Company, as long as
500,000 shares of the Series A, Series B, and Series C mandatorily redeemable
convertible preferred stock remain issued and outstanding.
Based on the short period of time elapsed between the issuance of the Series
C mandatorily redeemable convertible preferred stock on February 28, 2000 and
March 16, 2000 and the initial filing of the Company's Registration Statement
on Form S-1 on March 16, 2000, the Company has recorded a deemed dividend of
$5.1 million based on the difference between the $8.75 conversion price of the
Series C mandatorily redeemable convertible preferred stock and the $10.00
assumed midpoint of the per share price range in the initial public offering.
The deemed dividend has been included in the accretion and accrued dividends
related to the Series C mandatorily redeemable convertible preferred stock for
purposes of determining basic and diluted loss per common share.
Warrants
In connection with the Series A mandatorily redeemable convertible preferred
stock financing, the Company issued warrants to purchase 333,834 shares of the
Company's Series A mandatorily redeemable convertible preferred stock at
$0.898651 per share. The warrants are fully vested and exercisable beginning
June 4, 1998 and expire at the earlier of the automatic conversion of all of
the outstanding shares of Series A mandatorily redeemable convertible preferred
stock or 7 years. The fair value of the Series A mandatorily redeemable
convertible preferred stock warrants on the date of grant was $186,847 and is
reflected as a reduction of the carrying value of the Series A mandatorily
redeemable convertible preferred stock in the Company's statement of
stockholders' (deficit) equity. The fair value of the warrants was determined
using the Black-Scholes option pricing model using the following assumptions:
53% volatility; 5.8% risk-free rate, no dividends, and a 7 year term.
In connection with service implementation agreements that, among other
things, allow the Company to install dishes at POP or data center locations,
the Company has issued warrants to acquire 300,000 shares of its
F-18
<PAGE>
CIDERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
common stock. These warrants have an exercise price of $8.75 per share, were
fully vested upon issuance and become exercisable in March 2005. However, the
exercisability will be accelerated on the achievement of specified milestones,
which generally relate to increases in the level of service that these content
distributors use. The warrants expire in March 2005. The fair value of the
warrants was calculated using the Black-Scholes option pricing model using the
following assumptions: 50% volatility, 6.0% risk-free rate, no dividends and
the five year term of the warrants.
8. Notes payable
In February 1998, the Company entered into a financing agreement for
$400,000 consisting of notes payable. In connection with the issuance of the
notes payable, the Company issued warrants to purchase 801,200 shares of the
Company's common stock at $0.49925 per share to the holders of the notes
payable. The warrants are fully vested and expire during February 2005. The
fair value of the common stock warrants on the date of grant was $48,072,
calculated using the Black-Scholes option pricing model using the following
assumptions: 55% volatility, 6.5% risk free rate, no dividends and a seven
year term. The fair value of the warrants has been recorded as a discount on
the notes payable and as additional paid-in capital in the Company's
consolidated statement of stockholders' (deficit) equity. The Company also
recognized $48,072 of interest expense related to the common stock warrants
during the period the notes payable were outstanding.
The notes payable were retired in June 1998 in connection with the
Company's Series A mandatorily redeemable convertible preferred stock
issuance. $350,000 of the notes payable were converted into Series A
mandatorily redeemable convertible preferred stock and $50,000 was repaid in
cash to the holders of the notes.
9. Income taxes
The components of the net deferred tax asset (liability) and the related
valuation allowance are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $ 1,437,969 $ 5,882,955
Other.......................................... -- 185,582
----------- -----------
Total deferred tax assets...................... 1,437,969 6,068,537
Valuation allowance............................ (1,367,730) (5,851,794)
----------- -----------
Total........................................ 70,239 216,743
----------- -----------
Deferred tax liability:
Property and equipment......................... (70,239) (211,743)
Other.......................................... -- (5,000)
----------- -----------
Total deferred tax liability................. (70,239) (216,743)
----------- -----------
Net deferred tax assets.......................... $ -- $ --
=========== ===========
</TABLE>
Based on the Company's limited operating history and management's
expectation of future losses, management believes that the Company's deferred
tax assets do not meet the "more likely than not" criteria under SFAS No. 109.
Accordingly, a valuation allowance for the entire deferred tax asset amount
has been recorded.
Ownership changes resulting from the Company's issuance of capital stock
may limit the amount of net operating losses that can be utilized annually to
offset future taxable income. The amount of annual limitation is determined
based upon the Company's value immediately prior to the ownership change.
Subsequent significant changes in the ownership could further affect the
limitation in future years. As of December 31, 1999, the Company had
approximately $15.2 million of net operating losses. The net operating losses
will begin to expire in 2018.
F-19
<PAGE>
CIDERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation between the statutory federal income tax rate and the
effective rate of income tax expense follows:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------ ------
<S> <C> <C>
United States federal income tax rate.................... 34.00 % 34.00 %
State taxes.............................................. 4.62 4.62
Other.................................................... (0.62) (0.12)
Valuation allowance...................................... (38.00) (38.50)
------ ------
Provision (benefit) for income taxes..................... -- % -- %
====== ======
</TABLE>
10. Stock Options
Employee Stock Incentive Plan
Effective January 1, 1998, the Company adopted the 1998 Employee Stock
Incentive Plan (the "EIP"), under which incentive stock options and non-
statutory stock options may be granted to employees, directors and consultants
of the Company. Incentive stock options may only be granted to, and held by,
employees of the Company. The EIP is administered by the Board of Directors.
The options are not transferable and are subject to various restrictions
outlined in the EIP. The Board determines the number of options granted to
employees, directors or consultants, the vesting period and the exercise price.
Options generally vest over a four year period which includes a one year cliff
with monthly vesting thereafter. The option agreement includes a twelve month
forward vesting provision in the event of a change in control. The exercise
price for stock options granted shall not be less than the estimated fair value
per share of common stock on the date of such grant for incentive stock options
and not less than 110% of the estimated fair value per share of common stock on
the date of such grant for stock options granted to an individual owning more
than ten percent of the total combined voting power of all classes of stock of
the Company.
The Board of Directors had reserved 962,332 and 3,804,332 shares of common
stock for option grants under the EIP as of December 31, 1998 and 1999,
respectively. Effective February 24, 2000 the EIP was terminated. Upon
termination, 1,530,987 shares that were authorized but unissued were
transferred to the 2000 Equity Incentive Plan. Options granted under the plan
expire ten years after the grant date. As of December 31, 1998 and 1999, the
Board of Directors had granted options to purchase 885,011 and 1,935,762
shares, respectively under the Plan.
2000 Equity Incentive Plan
The Board of Directors adopted the 2000 Equity Incentive Plan (the "2000
EIP") on February 24, 2000 and it became effective on that date. The 2000 EIP
was approved by the Company's stockholders on February 24, 2000. Under the
plan, the Board may award incentive stock options within the meaning of Section
422 of the Internal Revenue Code to employees, including officers and employee
directors and nonstatutory stock options to employees, including officers and
employee directors, directors and consultants, including non-employee
directors. There are 4,913,153 shares of common stock reserved for issuance
under the 2000 EIP. No person is eligible to be granted options covering more
than 2,000,000 shares of common stock in any calendar year. The maximum term of
options granted under the plan is ten years.
The exercise price of options granted under the 2000 EIP is determined by
the Board of Directors in accordance with the guidelines set forth in the 2000
EIP. The exercise price of an incentive stock option cannot be less than 100%
of the fair market value of the common stock on the date of grant. The exercise
price of a nonstatutory stock option cannot be less than 85% of the fair market
value of the common stock on the date of grant. Options granted under the plan
vest at the rate specified in the option agreement and the grant notice. The
exercise price of incentive stock options granted to any person who at the time
of grant owns stock
F-20
<PAGE>
CIDERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
representing more than 10% of the total combined voting power of all classes of
the Company's capital stock must be at least 110% of the fair market value of
such stock on the grant date and the term of such incentive stock option cannot
exceed five years.
2000 Employee Stock Purchase Plan
On February 24, 2000, the Board of Directors adopted the 2000 Employee Stock
Purchase Plan. A total of 800,000 shares of common stock have been reserved for
issuance under the purchase plan. The purchase plan is intended to qualify as
an employee stock purchase plan within the meaning of Section 423 of the
Internal Revenue Code. Under the purchase plan, the board may authorize
participation by eligible employees, including officers, in periodic offerings
following the commencement of the purchase plan. Unless otherwise determined by
the Board, employees are eligible to participate in the purchase plan only if
they are customarily employed by the Company, or an affiliate designated by the
Company's board of directors, for over 20 hours per week and more than five
months per calendar year. Employees who participate in an offering may have up
to 15% of their earnings withheld pursuant to the purchase plan. The amount
withheld is then used to purchase shares of the common stock on specified dates
determined by the Board. The price of common stock purchased under the purchase
plan will be equal to 85% of the lower of the fair market value of the common
stock at the commencement date of each offering period or the relevant purchase
date. Employees may end their participation in the offering at any time during
the offering period, and participation ends automatically on termination of
employment.
2000 Non-Employee Directors' Stock Option Plan
The Board of Directors adopted the 2000 Non-Employee Directors' Stock Option
Plan on February 24, 2000. Our stockholders approved the directors' plan on
February 24, 2000. The plan will become effective immediately following this
offering. The Company has reserved a total of 400,000 shares of common stock
for issuance under the directors' plan. The eligible participants in the
directors' plan are the members of the Company's board of directors who are not
employed by the Company or affiliates of the Company. The directors' plan
provides for the issuance of non-statutory stock options. Options granted under
the directors' plan will have a term that is no longer than ten years from the
date of grant. The exercise price for an option will be at least 100% of the
fair market value of our common stock on the date of grant. Options granted
under the directors' plan are not transferable, and may only be exercised by a
director during his or her lifetime. The option may be transferred, at the time
of a director's death, by will or by the laws of descent and distribution.
Under the directors' plan, a director may designate the recipient of the option
on the director's death.
Founders Stock Plan
Effective January 1, 1998, the Company adopted the 1998 Founders Stock
Incentive Plan (the "Founders Plan"), under which incentive stock options and
non-statutory stock options may be granted to employees, directors and
consultants of the Company. Incentive stock options may only be granted to, and
held by, employees of the Company. The Founders Plan is administered by the
Board of Directors. The options are not transferable and are subject to various
restrictions outlined in the Founders Plan. The Board determines the number of
options granted to employees, directors or consultants, the vesting period and
the exercise price. The exercise price for stock options granted shall not be
less than the estimated fair value per share of common stock on the date of
such grant for incentive stock options and not less than 110% of the estimated
fair value per share of common stock on the date of such grant for stock
options granted to an individual owning more than ten percent of the total
combined voting power of all classes of stock of the Company. As of both
December 31, 1998 and 1999, the Board of Directors has reserved 1,370,052
shares of common stock for option grants under the Founders Plan. Options
granted under the Founders Plan vest over three years and expire ten years
after the grant date for all individuals other than those who own more than ten
percent of the Company's total combined voting power on the date of grant. More
than ten percent owner's options expire
F-21
<PAGE>
CIDERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
five years after the date of grant. As of both December 31, 1998 and 1999, the
Board of Directors had granted options to purchase 1,370,052 shares under the
Founders Plan. Effective February 24, 2000 the Founders Plan was terminated.
During the year ended December 31, 1999 and the three months ended March 31,
2000, the Company determined that the fair value of the underlying common stock
exceeded the exercise prices of certain employee stock options by $2,463,125
and $973,885, (unaudited), respectively. Such amounts will be amortized over
the vesting period of the options. The Company recognized non cash stock
compensation expense of $251,538 and $206,166 (unaudited) during the year ended
December 31, 1999 and the three months ended March 31, 2000. Included in non
cash compensation are options issued to the Advisory Board members and a
consultant who are not employees for accounting purposes. Accordingly, these
options were accounted for under EITF 96-18 using the Black-Scholes option
model with the following assumptions: 50% volatility, 6.0% risk-free rate, no
dividends, and 3-4 year terms. The Company did not incur stock-based
compensation expense related to the years ended December 31, 1997 and December
31, 1998. The Company recognized stock-based compensation expense for the year
ended December 31, 1999 in the amount of $1,282 for cost of sales, $46,867 for
sales and marketing, $20,982 for research and development and $182,407 for
general and administrative. For the period ended March 31, 2000, the Company
had compensation expense for cost of sales of $780 (unaudited), $56,112
(unaudited) for sales and marketing, $14,528 (unaudited) for research and
development and $134,659 (unaudited) for general and administrative.
The following table summarizes information about stock options activity:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
Three Months Ended
1998 1999 March 31, 2000
------------------ ------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- ---------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 2,250,063 $0.11 3,214,416 $0.48
Granted................. 2,250,063 0.11 1,155,750 1.16 3,734,680 10.70
Exercised............... -- -- (91,398) 0.19 (1,199,716) 6.78
Cancelled............... -- -- (99,999) 0.30 (20,166) 0.40
--------- --------- ----------
Outstanding at end of
period................. 2,250,063 0.11 3,214,416 0.48 5,729,214 5.82
========= ========= ==========
Exercisable at end of
period................. 288,432 0.06 1,222,313 0.10 886,943 0.07
========= ========= ==========
</TABLE>
The following table summarizes information about stock options outstanding
at the following dates.
<TABLE>
<CAPTION>
December 31,
------------------------------------------- March 31,
1998 1999 2000
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Years Years Years
Remaining Remaining Remaining
Contractual Contractual Contractual
Exercise Price Per Share Shares Life Shares Life Shares Life
------------------------ --------- ----------- --------- ----------- --------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
$13.00.................. -- -- -- -- 357,750 9.5
$10.00.................. -- -- -- -- 2,500,430 9.9
$8.75................... -- -- -- -- 256,500 9.9
$3.00................... -- -- 15,000 10.0 15,000 9.8
$1.25................... -- -- 945,750 9.8 939,750 9.6
$0.50................... -- -- 180,000 9.3 159,166 9.1
$0.20................... 880,011 9.7 708,614 8.5 428,156 8.3
$0.06................... 1,370,052 9.0 1,365,052 7.7 1,072,462 7.0
</TABLE>
F-22
<PAGE>
CIDERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company calculates the fair value of stock options at the date of grant
using an option pricing model. The Company has elected the "pro forma,
disclosure only" option permitted under SFAS 123 "Accounting For Stock Based
Compensation" instead of recording a charge to operations. The following table
reflects pro forma net loss had the Company elected to adopt the fair value
approach of valuing stock options of SFAS 123:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
Net loss applicable to common stockholders:
As reported................................... $(3,663,418) $(12,905,800)
Pro forma..................................... (3,783,600) (12,959,838)
Loss per share applicable to common
stockholders:
As reported................................... $ (0.64) $ (2.23)
Pro forma..................................... (0.66) (2.24)
</TABLE>
The weighted-average exercise price and the weighted-average grant date fair
value of options granted whose exercise price equals, exceeds or is less than
the market price of the stock at the date of grant is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1999
----------------- -----------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Fair Exercise Fair
Exercise Price Price Value Price Value
-------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Equals market price.................... $0.12 $0.05 $0.35 $0.35
Exceeds market price................... -- -- -- --
Less than market price................. -- -- 1.31 7.13
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------
Options Granted 1998 1999
--------------- --------- -------
<S> <C> <C>
Equals market price.......................................... 2,250,063 732,250
Exceeds market price......................................... -- --
Less than market price....................................... -- 423,500
</TABLE>
The estimated fair value of each option is calculated using the Black-
Scholes option-pricing model. The following table summarizes the weighted-
average of the assumptions used for stock options granted during 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Risk-free interest rate.......................................... 6.5% 6.1%
Expected years until exercise.................................... 9.3 10.0
Expected volatility.............................................. -- --
Dividend yield................................................... -- --
</TABLE>
The weighted-average per share fair value of options granted in 1998 and
1999 was $0.12 and $1.19, respectively.
F-23
<PAGE>
CIDERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. 401 (k) Plan
On January 1, 1998, the Company adopted the Cidera, Inc. 401(k) Plan. All
employees of the Company are eligible to participate in the 401(k) Plan.
Participants may contribute up to 15% of their eligible earnings. The Company
may make additional contributions to the plan, although it is not required to
do so. Participants are fully vested in contributions made directly to the plan
and vest over a five-year period for contributions made by the Company. Total
costs recognized by the Company related to the plan were not material for all
periods presented.
12. Geographic and Segment Information
The Company markets its services primarily from its operations in the United
States, and operates in a single industry segment. Information regarding
operations in different geographic regions is as follows:
<TABLE>
<CAPTION>
Period from
July 7, 1997 Year Ended Three Months Ended
(date of inception) December 31, March 31,
to December 31, ------------------------- ------------------------
1997 1998 1999 1999 2000
------------------- ----------- ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenue:
United States......... $ 5,407 $ 5,471 $ 252,725 $ 27,999 $ 119,355
Europe................ -- -- 105,485 5,218 67,742
--------- ----------- ------------ ----------- -----------
Total............... $ 5,407 5,471 358,210 $ 33,217 $ 187,097
========= =========== ============ =========== ===========
Operating loss:
United States......... $(270,310) (3,584,630) (11,034,110) (1,651,556) (8,468,234)
Europe................ -- -- (765,100) (201,339) (498,077)
--------- ----------- ------------ ----------- -----------
Total............... $(270,310) $(3,584,630) $(11,799,210) $(1,852,895) $(8,966,311)
========= =========== ============ =========== ===========
<CAPTION>
December 31,
--------------------------------------------- March 31,
1997 1998 1999 2000
------------------- ----------- ------------ -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Identifiable assets:
United States......... $ 111,597 $ 3,786,012 $ 16,084,147 $48,268,507
Europe................ -- -- 222,256 331,615
--------- ----------- ------------ -----------
Total............... $ 111,597 $ 3,786,012 $ 16,306,403 $48,600,122
========= =========== ============ ===========
</TABLE>
F-24
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the Common Stock being registered. All the amounts
shown are estimates except for the SEC registration fee and the NASD filing
fee.
<TABLE>
<S> <C>
Registration fee................................................. $ 22,770
NASD filing fee.................................................. 9,125
Nasdaq Stock Market Listing Application fee...................... 95,000
Blue sky qualification fees and expenses......................... 25,000
Printing and engraving expenses.................................. 400,000
Legal fees and expenses.......................................... 400,000
Accounting fees and expenses..................................... 350,000
Transfer agent and registrar fees................................ 25,000
Miscellaneous.................................................... 398,105
----------
Total.......................................................... $1,725,000
==========
</TABLE>
---------------------
* to be filed by amendment
Item 14. Indemnification of Directors and Officers.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act").
The Registrant's Amended and Restated Certificate of Incorporation and
Bylaws include provisions to (i) eliminate the personal liability of its
Directors for monetary damages resulting from breaches of their fiduciary duty
to the extent permitted by Section 102(b)(7) of the General Corporation Law of
Delaware (the "Delaware Law") and (ii) require the Registrant to indemnify its
Directors and officers to the fullest extent permitted by Section 145 of the
Delaware Law, including circumstances in which indemnification is otherwise
discretionary. Pursuant to Section 145 of the Delaware Law, a corporation
generally has the power to indemnify its present and former directors,
officers, employees and agents against expenses incurred by them in connection
with any suit to which they are, or are threatened to be made, a party by
reason of their serving in such positions so long as they acted in good faith
and in a manner they reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action, they had
no reasonable cause to believe their conduct was unlawful. The Registrant
believes that these provisions are necessary to attract and retain qualified
persons as Directors and officers. These provisions do not eliminate the
Directors' duty of care and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under the Delaware Law. In addition, each Director will continue to be subject
to liability for breach of the Director's duty of loyalty to the Registrant,
for acts or omissions not in good faith or involving intentional misconduct,
for knowing violations of law, for acts or omissions that the Director believes
to be contrary to the best interests of the Registrant or its stockholders, for
any transaction from which the Director derived an improper personal benefit,
for acts or omissions involving a reckless disregard for the Director's duty to
the Registrant or its stockholders when the Director was aware or should have
been aware of a risk of serious injury to the Registrant or its stockholders,
for acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the Director's duty to the Registrant or its
stockholders, for improper transactions between the Director and the Registrant
and for improper distributions to stockholders and loans to Directors and
officers. The provision also does not affect a Director's responsibilities
under any other law, such as the federal securities law or state or federal
environmental laws.
II-1
<PAGE>
The Registrant has agreed to indemnify each of its Directors and executive
officers against expenses, judgments, fines, settlements and other amounts
incurred (including expenses of a derivative action) in connection with any
proceeding, whether actual or threatened, to which any such person may be made
a party by reason of the fact that such person is or was a Director or an
executive officer of the Registrant or any of its affiliated enterprises,
provided that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful. The indemnification agreements also
set forth certain procedures that will apply in the event of a claim for
indemnification thereunder.
At present, there is no pending litigation or proceeding involving a
Director or officer of the Registrant as to which indemnification is being
sought, nor is the Registrant aware of any threatened litigation that may
result in claims for indemnification by any officer or Director.
The Registrant has an insurance policy covering the officers and Directors
of the Registrant with respect to certain liabilities, including liabilities
arising under the Securities Act or otherwise.
Item 15. Recent Sales of Unregistered Securities.
Since July 10, 1997, the Registrant has sold and issued the following
unregistered securities:
(a) On March 13, 2000, Cidera issued warrants to acquire 100,000 shares
of its common stock to ServiceCo LLC ("Road Runner"), an accredited
investor, in conjunction with Cidera's service implementation agreement
with Road Runner. The warrants have an exercise price of $8.75 per share
and expire on March 13, 2005. On March 15, 2000, Cidera issued warrants to
acquire 200,000 shares of its common stock to Digital Island, Inc, an
accredited investor, in conjunction with Cidera's service implementation
agreement with Digital Island. The warrants have an exercise price of $8.75
per share and expire on March 15, 2005. Cidera issued these warrants to
Road Runner and Digital Island in a private transaction not involving a
public offering. Cidera relied on the exemption provided by Section 4(2)
under the Act for the issuance of the warrants.
(b) On March 15, 2000, Cidera issued and sold 668,605 shares of its
Series C Convertible Preferred Stock to certain accredited investors, in an
offering involving no general solicitation, for an aggregate purchase price
of $5,848,960, or $8.75 per share. Upon the closing of this offering the
shares of Series C Preferred Stock will automatically convert into 668,605
shares of common stock. Cidera relied on the exemption provided by Section
4(2) under the Act and Rule 506 of Regulation C promulgated thereunder for
the sale of its Series C Convertible Preferred Stock.
(c) On March 6, 2000, Cidera issued and sold 620,000 shares of common
stock to Edward D. Postal pursuant to our 2000 Equity Incentive Plan for a
purchase price of $13.00 per share. Mr. Postal paid for these shares
through a combination of $80,000 cash and a promissory note issued to the
company for $7,980,000. The note has a nine-year term and accrues interest
at 6.2% per year. The note is a full recourse obligation of Mr. Postal and
is secured by the shares. These shares were issued in a compensatory
arrangement pursuant to a written compensatory plan. Cidera relied on the
exemption provided by Rule 701 under the Act for the issuance of the
shares.
(d) On February 28, 2000, Cidera issued and sold 3,445,916 shares of its
Series C Convertible Preferred Stock to certain accredited investors, in an
offering involving no general solicitation, for an aggregate purchase price
of $30,150,042, or $8.75 per share. Upon the closing of this offering the
shares of Series C Preferred Stock will automatically convert into
3,445,916 shares of common stock. Cidera relied on the exemption provided
by Section 4(2) under the Act and Rule 506 of Regulation D promulgated
thereunder for the sale of its Series C Convertible Preferred Stock.
(e) On November 10, 1999, Cidera issued 56,250 shares of common stock to
Howard Fisher Associates International, an executive search firm, in
consideration for its services in recruiting a new chief financial officer
and chief executive officer. Cidera issued these shares in a private
transaction not
II-2
<PAGE>
involving any public offering. Cidera relied on the exemption provided by
Section 4(2) under the Securities Act for the issuance of the shares of
common stock.
(f) On June 9, 1999, Cidera issued and sold 9,887,403 shares of its
Series B Convertible Preferred Stock to certain accredited investors, in an
offering involving no general solicitation, for an aggregate purchase price
of $20,000,002, or $2.02 per share. Upon the closing of this offering, the
shares of Series B Preferred Stock will automatically convert into
9,887,403 shares of common stock. Cidera relied on the exemption provided
by Section 4(2) under the Act and Rule 506 of Regulation D promulgated
thereunder for the sale of its Series B Convertible Preferred Stock.
(g) On June 4, 1998, Cidera issued and sold 7,066,147 shares of its
Series A Convertible Preferred Stock to certain accredited investors, in an
offering involving no general solicitation, for an aggregate purchase price
of $6,350,000, or $.90 per share. Upon the closing of this offering, the
shares of Series A Preferred Stock will automatically convert into
7,066,147 shares of common stock. Cidera relied on the exemption provided
by Section 4(2) of the Act and Rule 506 of Regulation D promulgated
thereunder for the sale of its Series A Convertible Preferred Stock.
(h) On June 4, 1998, in consideration for services provided in the
Series A financing, Cidera issued 333,834 warrants to purchase Series A
Convertible Preferred Stock to nine accredited investors and sophisticated
purchasers. The exercise price of these warrants is $0.90 per share. The
warrants may be exercised by applying the value of a portion of the
warrants (equal to the number of shares issuable under the warrant being
exercised multiplied by the fair market value of the Series A Convertible
Preferred Stock less the aggregate per share exercise price) in lieu of
payment of the exercise price per share. The warrants will expire on the
earlier of February 16, 2005 or Cidera's initial public offering. Cidera
issued these warrants in a private transaction involving no public
offering. Cidera relied on the exemption provided by Section 4(2) under the
Act for the issuance of these warrants.
(i) On February 16, 1998, in a bridge financing, Cidera issued
promissory notes in the aggregate amount of $400,000 and 801,200 warrants
to purchase common stock to eleven accredited investors. All promissory
notes were retired on June 4, 1998 in connection with issuance of the
Series A Convertible Preferred Stock. The exercise price of the warrants is
$0.50 per share. The warrants may be exercised by applying the value of a
portion of the warrants (equal to the number of shares issuable under the
warrant being exercised multiplied by the fair market value of the common
stock, less the aggregate per share exercise price) in lieu of payment of
the exercise price per share. The warrants will expire on February 16,
2005. Cidera relied on the exemption provided by Section 4(2) under the Act
for the bridge financing.
(j) On September 5, 1997, Cidera issued 5,768,649 shares of common stock
to its founders, Douglas E. Humphrey and Lisa M. Losito, for $.06 per
share. Cidera relied on the exemption provided by Section 4(2) under the
Act for the issuance of stock to the founders. Mr. Humphrey and Ms. Lasito
are both accredited investors and acquired these shares in a transaction
not involving any public offering.
(k) Since inception, Cidera has issued options to purchase a total of
8,236,527 options for shares of its common stock at exercise prices ranging
from $0.06 to $13.00 per share to employees, consultants, directors and
other service providers pursuant to Cidera's 1998 Equity Incentive Plan and
the 2000 Equity Incentive Plan. As of May 31, 2000, optionees have
exercised 758,142 options at a weighted-average exercise price of $0.49 and
6,858,385 options are outstanding. All of these options have been granted
in compensatory arrangements pursuant to written compensatory benefit plans
established by Cidera. Cidera relied on the exemption provided by Rule 701
under the Act for the issuance of these options.
The recipients of the above-described securities represented their intention
to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock
certificates issued in such transactions. All recipients had adequate access,
through employment or other relationships, to information about Cidera.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
3.1 Second Amended and Restated Certificate of Incorporation.*
3.2 Second Amended and Restated Bylaws.*
4.1 Specimen Stock Certificate.(1)
4.2 Registration Rights Agreement.*
4.3 Amendment No. 1 to Registration Rights Agreement.*
4.4 Amendment No. 2 to Registration Rights Agreement.*
5.1 Opinion of Cooley Godward LLP.(1)
10.1 1998 Founders Stock Incentive Plan.*
10.2 1998 Equity Incentive Plan.*
10.3 Form of Incentive Stock Option Agreement pursuant to the 1998 Equity
Incentive Plan.*
10.4 Form of Non-Qualified Stock Option Agreement pursuant to the 1998 Equity
Incentive Plan.*
10.5 2000 Equity Incentive Plan.*
10.6 Form of Stock Option Agreement for Incentive and Nonstatutory Stock Options
pursuant to the 2000 Equity Incentive Plan.*
10.7 2000 Non-Employee Directors Stock Option Plan.*
10.8 2000 Employee Stock Purchase Plan.*
10.9 Employment Agreement dated June 1, 1998 with Douglas E. Humphrey.*
10.9a Amendment to Employment Agreement with Douglas E. Humphrey, dated May 31,
2000.
10.10 Employment Agreement dated July 1, 1998 with Robert Marggraf.*
10.11 Employment Agreement dated June 1, 1998 with Robert M. Dunham.*
10.11a Amendment to Employment Agreement with Robert M. Dunham, dated May 31, 2000.
10.12 Employment Agreement dated February 17, 2000 with Edward D. Postal.*
10.13 Employment Agreement dated March 16, 2000 with Richard J. Hanna.
10.14 Strategic Partnership Agreement with bCandid, dated July 16, 1999. +*
10.15 Service Implementation Agreement with Akamai Technologies, Inc. dated May
22, 2000.+
10.16 Software Distribution Agreement with RealNetworks, Inc., dated January 25,
2000. +*
10.17 License Agreement with Microsoft, dated February 17, 2000. +*
10.18 Exodus Alliance Partnership Agreement, dated March 30, 1999. +*
10.19 Satellite Transponder Service Agreement with GE American Communications,
Inc., dated November 2, 1999. +*
10.20 Satellite Transponder Agreement with GE Capital Europe Limited, dated
November 1, 1999. +*
10.21 Office Sublease with Phase 1 Incubator, Inc., dated June 1, 1998.*
10.22 Rooftop Space License with Phase 1 Incubator, Inc., dated June 1, 1998.*
10.23 Colocation Agreement with The Colocation Corporation, dated March 7, 2000.*
10.24 Digital Satellite Uplink Service Agreement with Kingston Satellite Services,
Ltd., dated November 10, 1998.+*
10.25 Amendment to Office Sublease and Rooftop Space license with Phase1
Incubator, Inc., dated March 7, 2000.*
21.1 List of Subsidiaries.*
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1 Power of Attorney (contained on page II-5).*
27.1 Financial Data Schedule.
</TABLE>
---------------------
+ Confidential treatment has been requested with respect to certain
portions of this exhibit. Omitted portions have been filed separately
with the Securities and Exchange Commission.
(1) To be filed by amendment.
* Previously filed.
II-4
<PAGE>
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 Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, 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 Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes:
(1) That, 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) That, 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Laurel, State of Maryland, on June 21, 2000.
/s/ Douglas E. Humphrey
By: _________________________________
Douglas E. Humphrey
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board June 21, 2000
______________________________________
Douglas E. Humphrey
/s/ Richard J. Hanna President, Chief Executive June 21, 2000
______________________________________ Officer and Director
Richard J. Hanna (principal executive
officer)
* Executive Vice President June 21, 2000
______________________________________ and Chief Financial
Edward D. Postal Officer (principal
financial and accounting
officer)
* Director June 21, 2000
______________________________________
Brian W. Hayhurst
* Director June 21, 2000
______________________________________
John Landry
* Director June 21, 2000
______________________________________
Peter Barris
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director June 21, 2000
______________________________________
Suzanne H. King
* Director June 21, 2000
______________________________________
J. Mitchell Reese
* Director June 21, 2000
______________________________________
Robert M. Stewart
</TABLE>
/s/ Douglas E. Humphrey
*By: _______________________
Douglas E. Humphrey
(Attorney-in-Fact)
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
3.1 Second Amended and Restated Certificate of Incorporation.*
3.2 Second Amended and Restated Bylaws.*
4.1 Specimen Stock Certificate.(1)
4.2 Registration Rights Agreement.*
4.3 Amendment No. 1 to Registration Rights Agreement.*
4.4 Amendment No. 2 to Registration Rights Agreement.*
5.1 Opinion of Cooley Godward LLP.(1)
10.1 1998 Founders Stock Incentive Plan.*
10.2 1998 Equity Incentive Plan.*
10.3 Form of Incentive Stock Option Agreement pursuant to the 1998 Equity
Incentive Plan.*
10.4 Form of Non-Qualified Stock Option Agreement pursuant to the 1998 Equity
Incentive Plan.*
10.5 2000 Equity Incentive Plan.*
10.6 Form of Stock Option Agreement for Incentive and Nonstatutory Stock Options
pursuant to the 2000 Equity Incentive Plan.*
10.7 2000 Non-Employee Directors Stock Option Plan.*
10.8 2000 Employee Stock Purchase Plan.*
10.9 Employment Agreement dated June 1, 1998, with Douglas E. Humphrey.*
10.9a Amendment to Employment Agreement with Douglas E. Humphrey, dated May 31,
2000.
10.10 Employment Agreement dated July 1, 1998, with Robert Marggraf.*
10.11a Amendment to Employment Agreement with Robert M. Dunham, dated May 31, 2000.
10.11 Employment Agreement dated June 1, 1998 with Robert M. Dunham.*
10.12 Employment Agreement dated February 17, 2000 with Edward D. Postal.*
10.13 Employment Agreement dated March 16, 2000 with Richard J. Hanna.
10.14 Strategic Partnership Agreement with bCandid, dated July 16, 1999.+*
10.15 Service Implementation Agreement with Akamai Technologies, Inc., dated May
22, 2000.+
10.16 Software Distribution Agreement with RealNetworks, Inc., dated January 25,
2000.+*
10.17 License Agreement with Microsoft, Inc., dated February 17, 2000.+*
10.18 Exodus Alliance Partnership Agreement, dated March 30, 1999.+*
10.19 Satellite Transponder Service Agreement with GE American Communications,
Inc., dated November 2, 1999.+*
10.20 Satellite Transponder Agreement with GE Capital Europe Limited, dated
November 1, 1999.+*
10.21 Office Sublease with Phase 1 Incubator, Inc., dated June 1, 1998.*
10.22 Rooftop Space License with Phase 1 Incubator, Inc., dated June 1, 1998.*
10.23 Colocation Agreement with The Colocation Corporation, dated March 7, 2000.*
10.24 Digital Satellite Uplink Service Agreement with Kingston Satellite Services,
Ltd., dated November 10, 1998.+*
10.25 Amendment to Office Sublease and Rooftop Space license with Phase1
Incubator, Inc., dated March 7, 2000.*
21.1 List of Subsidiaries.*
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1 Power of Attorney (contained on page II-5).*
27.1 Financial Data Schedule.
</TABLE>
---------------------
+ Confidential treatment has been requested with respect to certain
portions of this exhibit. Omitted portions have been filed separately
with the Securities and Exchange Commission.
(1) To be filed by amendment.
* Previously filed.
II-8
