<PAGE>
As filed with the Securities and Exchange Commission on April 12, 2000
Registration No. 333-31678
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PLACEWARE, INC.
(Exact Name of Registrant as Specified in its Charter)
--------------
Delaware 7371 77-0442561
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or
Organization)
295 North Bernardo Avenue
Mountain View, California 94043
(650) 526-6100
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
--------------
Barry James Folsom
Chief Executive Officer
PlaceWare, Inc.
295 North Bernardo Avenue
Mountain View, California 94043
(650) 526-6100
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
--------------
Copies to:
Mark P. Tanoury, Esq. Gregory C. Smith, Esq.
James F. Fulton, Jr., Esq. Thomas J. Ivey, Esq.
David Y. Oh, Esq. Sanjiv Singh, Esq.
COOLEY GODWARD LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM
3000 Sand Hill Road LLP
Building 3, Suite 230 525 University Ave.
Menlo Park, California 94025-7166 Suite 220
(650) 843-5000 Palo Alto, California 94301
(650) 470-4500
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared 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 to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
number 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. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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- -----------------------------------------------------------------------------------------
<CAPTION>
Title of Each Class of Amount to be Amount of
Securities to be Registered Registered (1) Registration Fee (2)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.0001 per share........... $88,550,000 $23,378
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</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee.
(2) A fee of $19,800 was previously paid.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. The 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 APRIL 12, 2000.
5,500,000 Shares
[PLACEWARE LOGO]
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of the common stock is expected to be between
$12.00 and $14.00 per share. We have applied to list our common stock on The
Nasdaq Stock Market's National Market under the symbol "PLCW."
The underwriters have an option to purchase a maximum of 825,000 additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 8.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions PlaceWare, Inc.
------------ ------------- ---------------
<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 Robertson Stephens
U.S. Bancorp Piper Jaffray
The date of this prospectus is , 2000.
<PAGE>
Inside Front Cover Graphics Description
[The words "A New Medium for Business-to-Business Communications: Web
Conferencing" appears at the top of the inside cover. A screen shot of the
PlaceWare presenter console appears with a photographic image of business
people working together. The text "Browser-based communications E-Service for
interactive meetings and presentations over the Internet" appears to the right
of the photograph of the business people working together. The PlaceWare logo
with the text "Web conferencing" below it appears in the lower right hand
corner. A screened back image of the character from the PlaceWare logo appears
in the background.]
<PAGE>
Inside Gatefold Graphics Description
[The words "From small teams to global markets.....Web conferencing is here''
appears at the top of the inside gatefold. A world map appears in the center of
the gatefold, on which there is an image of ""business professionals working''
and a screen shot of the PlaceWare presenter console with arrows extending out
to all areas on the map that end in screen shot images of the PlaceWare
audience console with the numbers 1 through 5 each containing the following
text "1: A hosted E-service for instant availability; 2: Deliver any
presentation or meeting content in real time to anyone with a Web browser and a
phone; 3: Hold presentations or meetings with up to 2,500 participants;
4: Demonstrate live applications working on your desktop to any remote
audience; 5: Collaborate with participants live through visual content and
interactivity tools." The map is surrounded by five round photographs of
business people working together. In the background the words "sales training",
"new product launches", "investor relations", "customer seminars",
"press/analyst briefings", "customer communications", "customer education",
"town hall meetings", "sales meetings", "user groups/market research", "sales
training", "employee meetings", and "channel communications". On the right side
of the gatefold there is a column of black with a photo of business people
applauding. The words "PlaceWare Web conferencing is a new communications
medium for business to business communications that helps sales and marketing
professionals accelerate business processes to reduce time to market and
decrease sales cycles. Companies can conduct all types of meetings using
PlaceWare including web seminars, product rollouts, investor relations and
sales meetings" appears at the top of the black column.The PlaceWare logo with
the text "Web conferencing" below it appears in the lower right hand corner.]
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
Special Note Regarding Forward-Looking Statements........................ 17
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Selected Consolidated Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 32
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 45
Certain Transactions....................................................... 56
Principal Stockholders..................................................... 58
Description of Capital Stock............................................... 60
Shares Eligible for Future Sale............................................ 62
Underwriting............................................................... 64
Notice to Canadian Residents............................................... 66
Legal Matters.............................................................. 67
Experts.................................................................... 67
Additional Information..................................................... 67
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.
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
. the conversion of each outstanding share of our convertible preferred
stock into one share of common stock immediately before completion of
this offering;
. no exercise of the underwriters' over-allotment option; and
. the filing of our amended and restated certificate of incorporation.
PlaceWare, PlaceWare Conference Center 2000, LiveDemo, MyPlaceWare, Web
Conferencing is Here and iVault are our trademarks. Other trademarks or service
marks appearing in this prospectus are trademarks or service marks of the
companies that use them.
Dealer Prospectus Delivery Obligation
Until , 2000 (25 days after the commencement of this offering), 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 dealer's obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
You should read this entire prospectus carefully, including the risk factors
beginning on page 8.
PlaceWare
PlaceWare is a leading provider of services and products that enable
businesses to conduct real-time, interactive meetings and presentations, or web
conferences, over the Internet. Businesses use our web conferencing services
and products as strategic tools to create new business opportunities; share and
exchange information among geographically dispersed organizations; strengthen
relationships with customers, partners, vendors and employees; enhance employee
productivity; and reduce unnecessary travel time and expenses.
At the core of our services is Conference Center 2000, the latest generation
of our technology. It enables presenters to quickly and easily upload standard
presentations and other selected file types and begin presenting in a web
conference in a relatively short period of time. Using only an Internet-enabled
personal computer and a telephone, people can attend these meetings and
presentations. Conference Center 2000 can be used to host meetings and
presentations over the Internet with up to 2,500 participants. Our web
conferencing services can be delivered either as a hosted application service
or as an in-house software application.
Forrester Research has identified web conferencing as one of the fastest
growing segments of the market for services that allow geographically dispersed
individuals to communicate, interact and work together. In their survey of
Fortune 1000 companies, 70% of all respondents indicated they would use web
conferencing by 2001. Web conferencing generally uses customers' existing voice
and data infrastructure to facilitate widespread deployment. Additionally, it
provides businesses with the ability to communicate verbally while sharing rich
visual content over Internet connections with speeds as low as 28.8Kbps. We
believe web conferencing enables businesses to increase their reach and cost-
effectively communicate time-sensitive and important information to
constituencies within and outside of an organization, thereby shortening time
to market and sales cycles.
Our services and products are designed to be:
. easy-to-use;
. highly scalable;
. simple to purchase and deploy; and
. highly interactive with support for rich visual content.
We began providing web conferencing in June 1997 and as of December 31,
1999, had over 340 customers. Our customers consist of a diverse group of
companies operating in many industries worldwide, ranging from Fortune 100 to
small private companies. Our largest customers in their respective industry
category include Ariba, Inc., Autodesk, Inc., Cisco Systems, Inc., The Dun and
Bradstreet Corporation and International Data Corporation. In addition, we
provide co-branded web conferencing services through several third-party
service providers
Our objective is to be the leading provider of web conferencing services.
Key elements of our strategy to achieve this objective include:
. promoting web conferencing, in general, and increasing brand
recognition;
. expanding our business development and sales and marketing efforts to
attract new customers;
4
<PAGE>
. increasing our customers' utilization of our existing services and
products;
. extending and expanding our service and product offerings;
. continuing to increase the scalability and reliability of our services
and products;
. leveraging and extending our technology base to more tightly integrate
our technology with third-party services and applications; and
. pursuing strategic acquisitions.
We have incurred losses since commencing operations. In the year ended
December 31, 1999, we had a net loss of $10.9 million and as of December 31,
1999 had an accumulated deficit of $19.4 million.
Our address is 295 North Bernardo Avenue, Mountain View, CA 94043. Our
telephone number is (650) 526-6100. Our web site is located at
www.placeware.com. Information contained on our web site does not constitute
part of this prospectus.
5
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered................................ 5,500,000 shares
Common stock to be outstanding after this offering.. 21,008,535 shares
Use of proceeds..................................... For general corporate
purposes, including
working capital, capital
expenditures, geographic
expansion and additional
sales and marketing
efforts.
Proposed Nasdaq National Market symbol.............. PLCW
</TABLE>
The number of shares of our common stock outstanding after this offering is
based on shares outstanding as of December 31, 1999. This table excludes:
. 1,278,343 shares of common stock underlying outstanding options as of
December 31, 1999 at a weighted average exercise price of $0.94 per
share;
. 315,625 shares of common stock that are issuable upon the exercise of
outstanding warrants at a weighted average exercise price of $3.57 per
share;
. 3,650,000 shares reserved for issuance or future grant under our stock
option plans; and
. 500,000 shares reserved for issuance under our employee stock purchase
plan.
6
<PAGE>
Summary Consolidated Financial Information
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
(in thousands, except
per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Hosting and services............................ $ -- $ 511 $ 2,433
Licensing....................................... 609 1,113 1,962
------- ------- --------
Total revenues................................ 609 1,624 4,395
------- ------- --------
Operating expenses (1):
Cost of hosting and services.................... -- 3 806
Operations...................................... 188 214 619
Sales and marketing............................. 1,516 2,819 8,410
Research and development........................ 1,490 2,057 2,778
General and administrative...................... 817 1,654 2,900
------- ------- --------
Total operating expenses...................... 4,011 6,747 15,513
------- ------- --------
Operating loss.................................... (3,402) (5,123) (11,118)
------- ------- --------
Interest income, net.............................. 130 155 200
------- ------- --------
Net loss.......................................... $(3,272) $(4,968) $(10,918)
======= ======= ========
Basic and diluted net loss per share.............. $ (4.67) $ (4.58) $ (6.41)
======= ======= ========
Shares used in computing basic and diluted net
loss per share................................... 700 1,084 1,704
======= ======= ========
Pro forma basic and diluted net loss per share.... $ (1.10)
========
Shares used in computing pro forma basic and
diluted net loss per share....................... 9,937
========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------
Pro forma,
Pro forma As Adjusted
Actual (unaudited) (unaudited)
------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..................... $14,591 $14,591 $79,586
Working capital............................... 10,152 10,152 75,147
Total assets.................................. 21,136 21,136 86,131
Notes payable and capital lease obligations,
less current portion......................... 503 503 503
Stockholders' equity.......................... 12,891 12,891 77,886
</TABLE>
The pro forma balance sheet data give effect to the conversion of all
outstanding shares of preferred stock into shares of common stock upon the
consummation of this offering. The pro forma, as adjusted balance sheet data
give effect to the foregoing and to the sale of the 5,500,000 shares of common
stock by us in this offering at an assumed initial public offering price of
$13.00 per share, based on the mid-point of the filing range, after deducting
the underwriting discounts and commissions and estimated offering expenses and
application of the net proceeds.
See note 1 to the consolidated financial statements for a description of the
method that we used to compute the net loss per share amounts.
- --------
(1) See note 3(c) to the consolidated financial statements for a description of
stock-based compensation included in operating expenses.
7
<PAGE>
RISK FACTORS
An investment in our common stock is very risky. You should carefully
consider the risks described below, together with the other information in this
prospectus, before buying shares in this offering. See "Special Note Regarding
Forward-Looking Statements."
Risks Related to our Business
We have a limited operating history, so it will be difficult for you to
evaluate an investment in our company.
We were incorporated in October 1996 and first recorded revenue in 1997. In
July 1998, we shifted the focus of our business model from sales of software
licenses to a hosted services model. In connection with this shift, we have
made changes to our services and products and have hired a significant number
of new employees, including several key members of our management team. As a
result, we have a limited relevant operating history for you to evaluate an
investment in our company, and we cannot be certain that our business model and
future operating performance will yield the results that we seek. As a company
in the new and rapidly evolving web conferencing industry, we face risks and
uncertainties relating to our ability to successfully implement our strategy.
You must consider these risks, expenses and uncertainties that a company like
ours faces in a new and rapidly evolving market such as the market for web
conferencing services. In particular, you must consider that our business model
is based on an expectation that demand for Internet-based conferencing services
will increase materially in the business community, which at present primarily
utilizes more traditional methods of communication.
You should not rely on our quarterly operating results as an indication of our
future results because they are subject to significant fluctuations.
Fluctuations in our operating results may negatively impact our stock price.
Our quarterly operating results have fluctuated in the past and we expect
them to fluctuate in the future, due to a variety of factors that could affect
our revenues or expenses in any given quarter. As such, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
future performance. Factors that may affect our quarterly results include:
. the inability to deliver our hosted service due to a service operation;
. the inability to effectively market or deliver our new product
introductions, including our Conference Center 2000 product;
. the loss of major customers or communication service providers;
. the failure to attract new customers;
. the timing of a significant marketing campaign;
. downward pressure on prices paid by our business customers, as a result
of competition or other factors, which could reduce our quarterly
revenues even if we maintain or increase the number of sales; and
. increasing costs associated with developing and maintaining our web
conferencing services, systems and infrastructure.
As a result of the factors listed above and elsewhere in this "Risk Factors"
section of the prospectus, it is possible that in some future periods our
results of operations may be below the expectations of investors and securities
analysts who may initiate coverage. This could cause our stock price to
decline. In addition, we plan to significantly increase our operating expenses
to expand our sales and marketing, administration, product development and
technology development. If revenues fall below our expectations in any quarter
and we are unable to quickly reduce our spending in response, our operating
results would be lower than expected and our stock price may fall.
Unrecognized changes in our billing practices may be seen as additional
fluctuations in our operating results, which may cause our stock price to fall.
We historically have received payments in advance for our services and
products and have deferred these revenues over a fixed period of time,
generally for a period of one year. If we modify our billing practices and
8
<PAGE>
change the period of time over which we defer revenues, and if investors or
securities analysts who may initiate coverage fail to understand this
modification, such investors or analysts may perceive this change as additional
fluctuations in our operating results which may cause the price of our stock to
decrease.
We have a history of losses, we expect continuing losses and we may never
achieve profitability.
Our operating costs have exceeded our revenue in each quarter since our
inception in October 1996. We incurred cumulative losses of approximately $19.4
million from October 1996 through December 31, 1999. We intend to increase our
expenditures on marketing, administration, product development and technology
development, and such expenditures may further contribute to our net losses.
For instance, we intend to increase our expenditures related to the PlaceWare
brand, believing that brand awareness will be critical to increasing business
customer awareness and acceptance. If we do not increase our revenues as a
result of these expenditures, we may not be able to achieve and maintain
profitability and may be unable to continue our operations.
A significant amount of our revenue comes from repeat customers, none of whom
are under an obligation to continue doing business with us. If existing
customers do not purchase additional services, our future revenue may be
limited.
A significant amount of our revenues come from repeat customers. Because our
customers are under no obligation to continue to renew their subscription to
our services and products, a failure to retain customers or maintain and
increase their utilization of our services and products, we may not be able to
generate sufficient revenues and may not achieve or sustain profitability in
the future.
If we fail to execute our growth strategy as planned, our future revenue will
be limited and our ability to achieve profitability will be harmed.
The majority of our web conferencing customers to date have been businesses
in the high technology, financial services and professional services markets.
We intend to expand our service and product offerings and to develop customer
bases in other target markets. We have had limited experience in these extended
markets and may encounter unanticipated obstacles, such as regulatory issues or
changing technical standards, which may negatively affect our growth strategy.
If we fail to gain customers in new target markets, our future revenue will be
limited and our ability to achieve profitability will be harmed.
Our competitive position could suffer if we fail to enter into acquisitions,
joint ventures or other relationships with third parties.
Part of our strategy requires us to enter into relationships with service
providers or other third parties, and we may enter into acquisitions or joint
ventures. Our failure to form beneficial relationships, or our failure to
secure terms favorable to us, may put us in a competitive disadvantage. Any
such relationship, acquisition or joint venture may:
. result in conflicts between company cultures or personnel;
. cause a disruption in our ongoing business;
. create problems incorporating other companies' technology into our
services and products, which may create additional expenses or require us
to divert our resources; or
. impair relationships with existing service providers or customers.
Any of these risks or costs that may result from entering into such
relationships, acquisitions or joint ventures could increase expenses, distract
management and harm our competitive position.
If we are unable to successfully manage growth, our ability to achieve
profitability will be harmed and the value of an investment in our stock would
decrease.
Since we began operations, we have significantly increased the size of our
operations and we plan to continue to expand our operations by hiring
additional employees and increasing the web conferencing capacity
9
<PAGE>
of our hardware and software infrastructure. If we do not expand our operations
in an efficient manner, our expenses could grow disproportionately to revenues,
our revenues could decline or grow more slowly, or the quality of our services
and products may suffer, any of which could negatively affect the value of your
investment. The growth of our operations is expensive and may require us to
implement an effective planning and management process, including improved
operational, financial and managerial controls, and enhanced reporting systems
and procedures. If we do not succeed in these efforts, it could reduce our
revenues and the value of your investment.
We may face difficulties in attempting to expand our operations in
international markets, limiting our ability to generate revenue from
international sources, decreasing our ability to achieve profitability and
causing our stock price to decline.
One component of our strategy for growth is to expand into international
markets. We have recently commenced sales operations in the United Kingdom, and
in the future intend to expand these operations and open new offices in Asia.
It will be costly to establish international sales operations, to promote our
brand internationally, and to develop localized services and products. Revenue
from international activities may not offset the expense of establishing and
maintaining these foreign operations. In addition, we may not be successful in
marketing and distributing our services and products because we have little
experience in these markets.
Some of the factors that may impact our ability to initiate and maintain
successful operations in foreign markets include:
. adoption of new laws or changes to existing international laws;
. currency fluctuations;
. increased costs associated with opening and maintaining new hosting
facilities;
. political and economic instability;
. slower or more expensive Internet access; or
. differing technology standards.
If we are unable to profitably operate in foreign markets, our business may not
grow as anticipated, substantial resources could be drained and our stock price
could suffer.
If we fail to develop new services and products, we may fail to achieve
anticipated revenues.
In order to be successful we must be able to recognize new opportunities and
develop new services and products on a timely basis to take advantage of these
opportunities. For example, we have recently focused on, and will continue to
devote significant resources to, the development of Conference Center 2000, the
most recent version of our hosted web conferencing solution. If Conference
Center 2000 does not gain widespread market acceptance, or if we fail to
implement our planned enhancements to Conference Center 2000 on a timely basis,
such as increasing the number of supported application file types, including
word processing and spreadsheet documents, we may suffer lost sales and could
fail to achieve anticipated revenues, and our business may suffer.
Alteration of our customers' or users' firewall protection policies may reduce
the effectiveness of our services and products and lead to reduced revenues.
A key feature of our services and products is their ability to traverse
corporate network firewalls that broadly block the transmission of certain
content across organizational boundaries. Our services and products are
dependent on their ability to penetrate firewalls. Recent electronic break-ins
and hacking activities have caused companies across various industries to
re-evaluate the level of firewall protection necessary to protect their data
and computer operations. If more companies improve or substantially alter their
current firewall protection, we may lose our current ability to provide web
conferencing across most corporate firewalls, leading to a loss in revenues.
10
<PAGE>
We rely heavily on the reliability, security and performance of our internally
developed systems and operations, and any difficulties in maintaining these
systems may result in service interruptions or increased expenditures.
The software and hardware configuration that underlies our service and
products, and which we market to third parties, is based on technologies that
have been developed primarily by our own engineers and employees. This
configuration is complex and requires considerable technical expertise to
maintain and the satisfactory performance, reliability and availability of this
configuration is critical to our business. Any internal system interruptions
that result in the unavailability of services or products would harm our
reputation and our ability to conduct business. The failure to develop and
execute reliability policies, procedures and tools to operate our software and
hardware infrastructure could result in intermittent to prolonged outages. Many
of the software systems we currently use will need to be enhanced over time or
replaced with equivalent commercial products, either of which could entail
considerable effort and expense.
If we are unable to maintain adequate data security, our customers may refrain
from utilizing our services and products.
Our services and products enable customers to transmit and share information
over the Internet. While we currently have security measures to prevent
unauthorized attendance and access to particular conferences, we have not
deployed any encryption technologies or similar security measures to protect
content, as it is being transmitted, from being viewed or accessed by
unauthorized users. To the extent such encryption technology and similar
security measures are required or expected by businesses for the transmission
of commercially or otherwise sensitive information, our failure to deploy such
technology and implement safeguards may result in the loss of existing
customers, the inability to attract new customers and possibly subject us to
liability for breaches of security and confidentiality.
We could lose revenues as a result of software errors or defects.
The technology underlying our services and products is complex and may
contain undetected errors when new services and products are introduced or when
new versions are released. Although we conduct extensive testing of our
services and products during development, we have in the past discovered
errors. If we market services and products that have errors or that do not
function properly, then we may experience negative publicity, loss of or delay
in market acceptance, or claims against us by customers, any of which may harm
our business.
If we are unable to scale our hosting infrastructure, we may lose market share
or experience reduced revenues.
The number of web conferences we are hosting has grown significantly. We
will need to enhance our software and hardware infrastructure to handle
anticipated increased volume in the number of events and the number of
customers using our services and products. Adding this new capacity will be
expensive, and we may not be able to do so successfully. If we are unable to
expand capacity to keep pace with our anticipated customers' demands we may
lose market share and our business may be harmed.
We may be subject to infringement claims which could harm our business.
Because we are in an industry that relies upon proprietary software and
technology to support its business, there is a substantial risk of litigation
regarding intellectual property rights in our industry. A successful
infringement claim against us and our failure or inability to license the
infringed or similar technology could harm our business. We expect that our
technologies and products may be increasingly subject to third-party
infringement claims as the number of our competitors grows. We cannot be
certain that third parties will not make a claim of infringement against us
with respect to our technologies and products. Any claims, with or without
merit, could:
. be time-consuming to defend;
. result in costly litigation;
11
<PAGE>
. divert management's attention and resources;
. cause delays in delivering services and products;
. require the payment of monetary damages which may be tripled if the
infringement is found to be willful;
. require us to re-engineer our products in a non-infringing manner;
. result in an injunction which would prohibit us from offering one or more
services or products; or
. require us to enter into royalty or licensing agreements which, if
required, may not be available on acceptable terms, if at all.
In July 1999, we were contacted by legal counsel representing Pixion, Inc.,
a web conferencing provider, with allegations that we misappropriated trade
secrets under an August 1997 license and distribution agreement. Pixion
essentially alleged that we failed to destroy any shared confidential
information disclosed pursuant to the agreement, and that their confidential
information was used in the development of our LiveDemo software product.
Pixion also alleged copyright and trademark infringement. After initial
attempts to resolve this issue, Pixion has failed to respond to any of our
requests to move this issue forward, and our last contact with Pixion was in
October 1999. Although we have not received any additional communications from
Pixion, we are prepared to vigorously defend ourselves if and when such claims
are brought to court. If a lawsuit is brought to court, we may be forced to
expend time, money and resources in defending against such lawsuit, and if we
are unsuccessful in our defense, our business may be harmed. Trade secret
misappropriation cases are inherently fact-specific, making it difficult to
predict with any degree of certainty the outcome of a given dispute. This
uncertainty is heightened by the fact that such claims may be tried before a
jury, and that if the jury finds that a defendant acted willfully or in bad
faith, it may award the plaintiff punitive damages that could be substantial,
in addition to injunctive relief, damages and attorneys' fees. It is thus
difficult to quantify the potential extent of our exposure, although it could
be very substantial.
Due to the competitive labor market in Silicon Valley, we may not be able to
attract and retain sufficient qualified professionals necessary for growth.
In order for us to succeed, we must identify, attract, retain and motivate
highly-skilled technical, managerial, sales and marketing personnel. We plan to
significantly expand our operations, and we will need to hire additional
personnel as our business grows. Competition for qualified personnel is
intense, especially in Silicon Valley, and we have experienced difficulties in
hiring highly-skilled technical personnel due to significant competition for
experienced personnel in our market. In addition, we have historically relied
on the grant of stock options to employees as a key component of overall
compensation. Stock options granted after the offering may be less attractive
to prospective employees, further hindering our ability to attract new hires.
Failure to attract and retain necessary personnel could harm our ability to
meet our growth targets.
Most of our management team has only recently joined us and has little
experience working together, which could limit the team's effectiveness in
operating our business.
Our management team does not have significant experience working together,
because most members of our management team have been employed by us for a
short period of time. Specifically, three of our executive officers joined us
during 1999. This could prevent or limit our management team's ability to work
together effectively. The failure of our management team to work together
effectively could delay efficient decision-making and execution of business
objectives, that may harm our ability to operate our business.
The termination of our service provider relationships could reduce our future
revenues and increase our costs.
As part of our strategy, we have entered into various agreements with a
number of service providers, under which we provide co-branded web conferencing
services and receive shared revenues and increased brand recognition. If these
relationships are terminated or otherwise fail, our revenues may drop and we
may be required to devote additional resources to the sales and marketing of
our services and products. We have no
12
<PAGE>
long-term contracts with these service providers and they generally are not
obligated to offer our services or products to their clients or restricted from
working with our competitors. Accordingly, our success will be affected by
their willingness to devote resources and efforts to marketing our services and
products.
We have purchased and licensed third-party technologies, may enter into third-
party licenses in the future, and we face risks in doing so.
We utilize technology licensed from Xerox PARC in our web conferencing
services and products, which enables companies to hold and participate in web
conferences with others, despite the existence of corporate firewalls. The loss
of any of this licensed technology could result in materially diminished
revenue and increased costs associated with securing rights to substitute
technology. In addition to maintaining this license, we may also need to
license additional technologies to remain competitive, and may not be able to
license these technologies on commercially reasonable terms or at all. Our
inability to obtain any of these licenses could delay the development of our
services and products until equivalent technology can be identified, licensed
and integrated, which may harm our business. These licenses may also expose us
to increased risks, including risks related to the integration of or inability
to integrate new technology, the diversion of resources from the development of
our own proprietary technology and our inability to generate revenue from new
technology sufficient to offset associated acquisition and maintenance costs.
In addition, we have developed our products to be utilized by Internet
browsers capable of integrating and running applications based on the Java
software programming language. If there are fundamental changes to existing
Internet browsers such that they no longer are compatible with or capable of
running these Java-based applications, we will be forced to modify our services
and products and our business may be harmed. Similarly, if there are
fundamental changes to the Java programming language, we will be forced to
modify our services and products and our business will be harmed.
Risks Related to Our Industry
Competition in the web conferencing services industry is intense and, if we are
unable to compete effectively, the demand for, or the prices of, our services
and products may decline.
Because the market for web conferencing services is still in an early stage,
the competition between the existing businesses is intensely competitive,
rapidly evolving and subject to technological change. We expect competition to
increase significantly in the future as new and existing competitors seek to
provide web conferencing services and products.
Our principal competitors include providers of web conferencing services
such as Contigo, INTERVU and WebEx. We may experience additional competition
from companies that provide streaming media services, audio conferencing or
video conferencing services, or other established software or distance learning
companies that decide to enter the web conferencing market. These companies
could possess large, existing customer bases, substantial financial resources
and established distribution channels and could develop, market or resell a
number of web conferencing services. Such potential competitors may also choose
to enter the market for web conferencing services by acquiring one of our
existing competitors or by forming strategic alliances with such competitors.
Either of these occurrences could harm our ability to compete effectively. In
addition, our currently licensed service providers may enter into similar
agreements with our competitors or develop parallel services based on their own
technology. This kind of competition from our service providers may harm our
business in the future.
The growth of our business will be diminished if web conferencing services are
not accepted as a medium for business communications.
The market for web conferencing is new and rapidly evolving and our business
will be harmed if sufficient demand for our services and products does not
develop. Our current and planned services and products are different from the
traditional meeting and presentation methods that many of our customers have
historically
13
<PAGE>
used to communicate with their customers, partners, vendors and employees.
Demand for our services and products may not materialize for the following
reasons:
. businesses that have already invested substantial resources in other
distance communication solutions may be reluctant to adopt our new
conferencing services and products;
. businesses may choose not to accept web conferencing as a means of
conducting business; and
. the effectiveness of web conferencing may diminish significantly if
alternative technologies or methods for distance communication develop.
If the demand for our services does not materialize, our revenues may not grow
as fast as we anticipate, if at all.
We must adopt and maintain a competitive pricing structure.
The price of Internet services and products is subject to rapid and frequent
change, and in many instances, businesses provide their services for free or on
a trial basis. Although we offer MyPlaceWare, a free service, a significant
portion of our business comes from customers that pay to obtain other enhanced
services and products. Due to competitive reasons or technical difficulties, we
may be forced to reduce or eliminate prices for certain of these revenue-
generating services or products, which may reduce revenues.
Our services and products are designed to operate in connection with the
Internet, and as such, we rely generally on the equipment and infrastructure of
the Internet and of our customers.
Our services and products are designed to operate over the Internet, as
accessed and maintained by each individual customer. As a result, the
successful use of our product will generally depend on the continued
development and maintenance of the Internet infrastructure, such as reliable
network backbones with the necessary speed, data capacity and security, and
will also depend on customers' own computer equipment, including a functional
operating system, Internet browser software and reliable connections to the
Internet. To the extent that the Internet continues to experience increased
numbers of users, a high frequency of use or increased bandwidth requirements
of users, the Internet infrastructure may not continue to be able to support
the demands placed on it by this continued growth and the performance or
reliability of the Internet may be harmed. Furthermore the Internet has
experienced a variety of outages and other delays as a result of damage to
portions of its infrastructure, and could face similar outages and delays in
the future. These outages and delays could reduce the level of Internet usage
and diminish the perception of the Internet as a viable means of communication,
such that usage of our services and products may decrease and our business may
be harmed.
Government regulations involving the transmittal of information over the
Internet are being developed and we may face liabilities in connection with the
information that is transmitted using our conferencing services.
The current legal framework that applies to the Internet is not well
developed and is continually being revised. Laws continue to be enacted that
address issues of privacy, security, pricing, taxation and quality of services
and products. Because our web conferencing services allow customers to transmit
information over the Internet, we may be found to be liable for any improper
information that our customers transmit. We may face potential liability for
defamation, negligence, copyright, patent or trademark infringement and other
claims based on the nature and content of the materials being transmitted by
our services or products. Although we currently require customers to agree not
to engage in the transmission of such content before utilizing our services or
products, there can be no guarantee that our customers will refrain from the
transmission of such content, or that we will not be deemed responsible for the
content being transmitted or hosted using our services, products or
infrastructure. These regulations could affect the cost of communicating on the
Internet and negatively affect the demand for our web conferencing services and
products, such that our business would be harmed.
We may be subjected to new federal, state and local taxes on our use of the
Internet.
The tax treatment of activities on or relating to the Internet is also
currently unsettled. A number of proposals have been made at the federal, state
and local levels and by foreign governments that could impose
14
<PAGE>
taxes on the online sale of goods and services and other Internet activities.
The Internet Tax Freedom Act of 1998 has generally imposed a U.S. moratorium
through October 2001 on the imposition of some kinds of consumer-related taxes,
other than sales or use taxes, in connection with Internet access and Internet-
related sales. However, future laws imposing taxes or other regulations on
commerce over the Internet could substantially impair the growth of Internet
commerce and, as a result, decrease our revenues or make it cost-prohibitive to
operate our business.
Risks Related to this Offering
Our stock price may be highly volatile and could drop, particularly because our
business depends on the Internet.
Prior to this offering, our common stock has not been sold in a public
market. After this offering, an active trading market in our stock might not
develop. If an active trading market does develop, it may not continue.
Moreover, if an active market develops, the trading price of our common stock
may fluctuate widely as a result of a number of factors, many of which are
outside our control. In addition, the stock market has experienced extreme
price and volume fluctuations that have affected the market prices of many
technology companies, particularly Internet-related companies. Moreover, these
price and volume fluctuations have often been unrelated or disproportionate to
the operating performance of these companies. These broad market fluctuations
could adversely affect the market price of our common stock.
We have broad discretion over the use of the proceeds of this offering, and our
use of the proceeds may not produce a favorable return.
We have broad discretion to allocate the net proceeds of the offering.
Although we intend to use the net proceeds primarily for general corporate
purposes, including working capital, capital expenditures, geographic expansion
and additional sales and marketing efforts, the timing and amount of our actual
expenditures are subject to change. Factors that may affect the timing and
amount of expenditures include:
. the success of our sales and marketing efforts;
. the timing and introduction of new services and products; and
. competitive market developments.
Our management will have the sole discretion over how to allocate the net
proceeds of the offering. The failure of management to apply these funds
effectively could harm our ability to manage our business and reduce our stock
price. See "Use of Proceeds."
If our stockholders sell substantial amounts of our common stock after the
offering, the market price of our common stock may fall.
Sales of substantial numbers of shares of our common stock in the public
market after this offering, or the perception that sales could be made, could
cause the market price of our common stock to decline. Based on shares
outstanding as of December 31, 1999 following this offering, we will have
approximately 21,008,535 shares of our common stock outstanding or 21,833,535
shares if the underwriters' over-allotment option is exercised in full.
Approximately 15,508,535 shares or 73.8% of our outstanding common stock will
be subject to resale restrictions under U.S. securities laws. Holders of
substantially all of these shares have agreed not to sell these shares for at
least 180 days following the date of this prospectus, although Credit Suisse
First Boston Corporation can waive this restriction at any time at its sole
discretion and without notice. When these restrictions on resale end beginning
on November 15, 2000, assuming an effective date of May 18, 2000, the market
price for our common stock could drop significantly if holders of these shares
sell them or are perceived by the market as intending to sell them. These sales
also may create difficulties for us if we attempt to raise additional funds by
selling equity securities in the future. See "Shares Available for Future
Sale."
15
<PAGE>
If we are unable to obtain the additional capital required to develop and
expand our business, we may be forced to curtail operations.
We may be required to raise additional capital through the issuance of debt
or equity securities. Depending on market conditions, we may choose to raise
additional capital sooner for our working capital requirements. The actual
amount and timing of our future capital requirements will depend upon a number
of factors, including:
. the number of new markets we enter and the timing of entry;
. new service and product deployment schedules and associated costs;
. the rate and price at which customers purchase our services and products;
. the level of marketing required to attract and retain customers in new
and existing markets; and
. opportunities to invest in or acquire complementary businesses.
The value of your investment may be diluted by our future capital raising
transactions. We also may be unsuccessful in raising sufficient capital on
terms that we consider acceptable, if at all, which would impair our ability to
continue to expand our business or respond to competitive developments.
After this offering, our executive officers, directors and principal
stockholders, whose interests may conflict with yours, will control
approximately 43.8% of our outstanding common stock.
Following this offering, our executive officers and directors and principal
stockholders together will beneficially own approximately 43.8% of the total
voting power of our company. These stockholders, as a group, will be able to
determine the composition of our board of directors, will retain the voting
power to approve all matters requiring stockholder approval and will continue
to have significant influence over the company. This concentration of control
could delay or prevent a change in control of our company or otherwise
discourage a potential acquirer from attempting to obtain control of our
company, which in turn could significantly lower the market price of our common
stock or prevent our stockholders from realizing a premium over the market
prices for their shares of common stock. We also plan to reserve up to 5% of
the shares offered in this offering under a directed share program in which our
executive officers, directors, principal stockholders, employees, business
associates and related persons may be able to purchase shares in this offering
at the initial public offering price. This program may further increase the
amount of stock held by persons whose interests are closely aligned with
management's interests.
We have anti-takeover provisions which may make it difficult for a third party
to acquire us.
Our corporate documents and Delaware law contain provisions that might
enable our management to resist a change in control of our company. These
provisions might discourage, delay or prevent a change in our management. These
provisions could also discourage a proxy contest and make it more difficult for
you and other stockholders to elect directors and take other corporate actions.
The existence of these provisions could limit the price that investors might be
willing to pay in the future for shares of common stock and could deprive you
of an opportunity to receive a premium for your common stock as part of a sale.
These provisions include:
. authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
. prohibiting cumulative voting in the election of directors, which would
allow less than a majority of stockholders to elect director candidates;
. limiting the ability of stockholders to call special meetings of
stockholders;
. prohibiting stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders;
. establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted upon
by stockholders at stockholder meetings; and
16
<PAGE>
. Section 203 of the Delaware General Corporation Law, which could thwart
a takeover attempt. See "Description of Capital Stock--Delaware Anti-
Takeover Law and Certain Charter and Bylaw Provisions."
Investors will experience immediate dilution.
Investors in common stock in the offering will experience immediate and
substantial dilution in the net tangible book value of their shares. At the
assumed initial public offering price of $13.00 per share, based on the mid-
point of the filing range, dilution to new investors will be $9.29 per share.
Additional dilution will occur upon exercise of outstanding stock options. See
"Dilution."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled Prospectus Summary, Risk
Factors, Management's Discussion and Analysis of Financial Condition and
Results of Operations, and Business, contains forward-looking statements. These
statements relate to future events or our future financial performance and
involve known and unknown risks, uncertainties and other factors that may cause
our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by the forward-
looking statements. These risks and other factors include those listed under
Risk Factors and elsewhere in this prospectus. In some cases, you can identify
forward-looking statements by terminology such as may, will, should, expects,
plans, intends, anticipates, believes, estimates, predicts, potential or
continue, or the negative of these terms or other comparable terminology. These
statements are only predictions. In evaluating these statements, you should
specifically consider various factors, including risks outlined under Risk
Factors.
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.
17
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the 5,500,000 shares of common stock we
are offering in this prospectus at an assumed initial public offering price of
$13.00 per share, based on the mid-point of the filing range, are estimated to
be $71,500,000, or $82,225,000 if the underwriters' over-allotment option is
exercised in full and after deducting the underwriting discounts and
commissions and estimated offering expenses.
At this time the principal purposes of this offering are to obtain
additional capital to increase our financial flexibility and to create a public
market for our common stock. We intend to use the net proceeds from this
offering over the next year as follows:
. an estimated $30 million to $35 million for sales and marketing expenses
which include expansion of our sales and marketing organizations and
marketing activities;
. an estimated $12 million to $15 million for hosting, services and
operations expenses;
. an estimated $8 million to $10 million for research and development;
. an estimated $5 million to $7 million for capital expenditures; and
. the remainder for working capital and general corporate purposes.
These estimates, however, may not be accurate and our actual use of proceeds
may vary from these estimates. Our management will have broad discretion in the
application of the net proceeds of this offering.
From time to time, we may evaluate opportunities to acquire or invest in
complimentary business, technologies or products and may use a portion of the
net proceeds from this offering to enter into these types of transactions. We
do not have any understanding, commitments or agreements with respect to any
material acquisitions.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently intend to retain all future earnings, if any, for use in the
operation and expansion of our business and do not anticipate declaring or
paying cash dividends for the foreseeable future. Any determination to pay
dividends in the future will be at the discretion of our board of directors and
will depend upon our financial condition, operating results and capital
requirements. Our existing line of credit prohibits the payment of cash
dividends.
18
<PAGE>
CAPITALIZATION
The following table sets forth the following information:
. the actual capitalization of PlaceWare as of December 31, 1999;
. the pro forma capitalization of PlaceWare after giving effect to the
automatic conversion, upon completion of this offering, of all
outstanding shares of convertible preferred stock into 11,779,785 shares
of common stock and the filing of our amended and restated certificate of
incorporation; and
. the pro forma as adjusted capitalization to give effect to the sale of
5,500,000 shares of common stock at an assumed initial public offering
price of $13.00 per share in this offering, based on the mid-point of the
filing range, less underwriting discounts and commissions and estimated
offering expenses payable by PlaceWare.
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------
Pro Forma
Pro Forma As Adjusted
Actual (unaudited) (unaudited)
-------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Notes payable and capital lease obligations,
less current portion........................ $ 503 $ 503 $ 503
Stockholders' equity:
Convertible preferred stock, $0.0001 par
value; actual--12,305,000 shares
authorized, 11,779,785 shares issued and
outstanding, aggregate liquidation
preference of $30,773; pro forma--
50,000,000 shares authorized, no shares
issued or outstanding; pro forma as
adjusted--50,000,000 shares authorized; no
shares issued or outstanding.............. 1 -- --
Common stock, $0.0001 par value; actual--
20,000,000 shares authorized; 3,728,750
shares issued and outstanding; pro forma--
300,000,000 shares authorized; 15,508,535
shares issued and outstanding; pro forma
as adjusted 300,000,000 authorized;
21,008,535 shares issued and outstanding.. -- 1 2
Additional paid-in capital................. 36,081 36,081 101,075
Treasury stock, at cost; 529,926 shares of
common stock.............................. (15) (15) (15)
Notes receivable from stockholders......... (671) (671) (671)
Deferred stock-based compensation.......... (3,102) (3,102) (3,102)
Accumulated deficit........................ (19,403) (19,403) (19,403)
-------- -------- --------
Total stockholders' equity............... 12,891 12,891 77,886
-------- -------- --------
Total capitalization................... $ 13,394 $ 13,394 $ 78,389
======== ======== ========
</TABLE>
The share amounts in this table are based on shares outstanding as of
December 31, 1999. This table excludes:
. 1,278,343 shares of common stock underlying outstanding options as of
December 31, 1999 at a weighted average exercise price of $0.94 per
share;
. 315,625 shares of common stock that are issuable upon the exercise of
outstanding warrants at a weighted average exercise price of $3.57 per
share;
. 3,650,000 shares reserved for issuance or future grant under our stock
option plans; and
. 500,000 shares reserved for issuance under our employee stock purchase
plan.
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<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted by the
difference between the initial public offering price per share of our common
stock and the pro forma as adjusted net tangible book value per share of common
stock after this offering. The pro forma net tangible book value as of December
31, 1999 was $12,891,000 or approximately $0.83 per share of common stock. Pro
forma as adjusted net tangible book value per share represents the amount of
our total tangible assets less total liabilities, divided by the total number
of shares of common stock outstanding after the offering, which will include
the conversion of all outstanding shares of convertible preferred stock into
shares of common stock. Dilution in net tangible book value per share
represents the difference between the amount per share paid by purchasers of
shares of our common stock in this offering and the net tangible book value per
share of our common stock immediately following this offering.
After giving effect to our sale of the 5,500,000 shares of common stock
offered by this prospectus and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by us, our
pro forma as adjusted net tangible book value as of December 31, 1999 would
have been $77,886,000, or approximately $3.71 per share. This represents an
immediate increase in net tangible book value of $2.88 per share to existing
stockholders and an immediate dilution in net tangible book value of $9.29 per
share to new investors. The following table illustrates this dilution on a per
share basis:
<TABLE>
<S> <C> <C>
Assumed public offering price per share......................... $13.00
Pro forma as adjusted net tangible book value per share as of
December 31, 1999............................................ $ 0.83
Increase per share attributable to new investors.............. 2.88
------
Pro forma as adjusted net tangible book value per share after
the offering................................................... 3.71
------
Dilution in pro forma as adjusted net tangible book value per
share to new investors......................................... $ 9.29
======
</TABLE>
The following table sets forth, on a pro forma as adjusted basis as of
December 31, 1999, the differences between the number of shares of common stock
purchased from us, the total price and average price per share paid by existing
investors and by the new investors, before deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by us, at the
assumed initial public offering price of $13.00 per share, based on the mid-
point of the filing range.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------- ----------------------- Average Price
Number Percentage Amount Percentage Per Share
---------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders... 15,508,535 73.8% $ 31,112,000 30.3% $ 2.01
New investors........... 5,500,000 26.2 71,500,000 69.7 $ 13.00
---------- ----- ------------ -----
Total................... 21,008,535 100.0% $102,612,000 100.0% $ 4.88
========== ===== ============ =====
</TABLE>
Except as noted above, the foregoing tables and discussion assume no
exercise of any stock options or warrants outstanding at December 31, 1999. As
of December 31, 1999, there were options outstanding to purchase 1,278,343
shares of common stock at a weighted average exercise price of $0.94 per share
and warrants to purchase 315,625 shares of common stock at a weighted average
exercise price of $3.57 per share. To the extent that any of these options and
warrants are exercised, there will be further dilution to investors purchasing
our common stock.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
This section presents our historical financial data. You should read
carefully the consolidated financial statements included in this prospectus,
including the related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected data in this
section is not intended to replace the consolidated financial statements.
We derived the statement of operations data for the years ended December 31,
1997, 1998 and 1999 and the consolidated balance sheet data as of December 31,
1998 and 1999 from the audited consolidated financial statements included
elsewhere in this prospectus, which have been audited by KPMG LLP, independent
auditors. The consolidated balance sheet data as of December 31, 1997 is
derived from audited consolidated financial statements not included elsewhere
in this prospectus. The statement of operations data for the period from
inception to December 31, 1996, and the balance sheet data as of December 31,
1996 are derived from unaudited financial statements not included elsewhere in
this prospectus and include all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial results set
forth therein. Historical results are not necessarily indicative of future
results. See notes to the consolidated financial statements for an explanation
of the method used to determine the number of shares used in computing pro
forma basic and diluted loss per share.
<TABLE>
<CAPTION>
From
Inception to
December 31, Year Ended December 31,
1996 --------------------------
(unaudited) 1997 1998 1999
------------- ------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Hosting and services............... $ -- $ -- $ 511 $ 2,433
Licensing.......................... -- 609 1,113 1,962
------ ------- ------- --------
Total revenues................... -- 609 1,624 4,395
------ ------- ------- --------
Operating expenses (1):
Cost of hosting and services....... -- -- 3 806
Operations......................... -- 188 214 619
Sales and marketing................ -- 1,516 2,819 8,410
Research and development........... 196 1,490 2,057 2,778
General and administrative......... 49 817 1,654 2,900
------ ------- ------- --------
Total operating expenses......... 245 4,011 6,747 15,513
------ ------- ------- --------
Operating loss....................... (245) (3,402) (5,123) (11,118)
------ ------- ------- --------
Other income (expense):
Interest income.................... -- 130 172 309
Interest expense................... -- -- (17) (109)
------ ------- ------- --------
Total other income (expense)..... -- 130 155 200
------ ------- ------- --------
Net loss............................. $ (245) $(3,272) $(4,968) $(10,918)
====== ======= ======= ========
Basic and diluted net loss per
share............................... $(0.49) $ (4.67) $ (4.58) $ (6.41)
====== ======= ======= ========
Shares used in computing basic and
diluted net loss per share.......... 496 700 1,084 1,704
====== ======= ======= ========
Pro forma basic and diluted net loss
per share (unaudited)............... $ (1.10)
========
Shares used in computing pro forma
basic and diluted net loss per share
(unaudited)......................... 9,937
========
</TABLE>
- --------
(1) See note 3(c) to the consolidated financial statements for a description of
stock-based compensation included in operating expenses.
21
<PAGE>
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996
(unaudited) 1997 1998 1999
----------- ------ ------ -------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................... $1,112 $2,230 $3,155 $14,591
Working capital............................. 968 2,404 2,826 10,152
Total assets................................ 1,165 3,039 4,907 21,136
Notes payable and capital lease obligations,
less current portion....................... -- -- 613 503
Stockholders' equity........................ 1,007 2,708 2,819 12,891
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Selected Consolidated Financial Data and our financial statements and the
related notes included elsewhere in the prospectus. Except for historical
information, the discussion in this report contains forward-looking statements
that involve risks and uncertainties. These forward-looking statements include,
among others, those statements including the words, expects, anticipates,
intends, believes and similar language. Our actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to the risks discussed in the
section titled Risk Factors in this prospectus. See "Special Note Regarding
Forward-Looking Statements."
Overview
Since our incorporation in October 1996, our primary activities have
consisted of the following:
. developing our services and products to enable businesses to conduct
real-time interactive meetings and presentations over the Internet;
. establishing relationships with major service providers;
. creating and expanding our web conferencing services and products and
Internet infrastructure;
. expanding our direct sales force; and
. assembling an experienced management team.
We have incurred losses since commencing operations and as of December 31,
1999, we had an accumulated deficit of $19.4 million. We have not achieved
profitability on a quarterly or annual basis. We intend to invest significantly
in promoting web conferencing, in general, and increasing our brand
recognition; expanding our business development and sales and marketing
efforts; increasing our customers' utilization of our existing services and
products; extending our services and products; increasing the scalability and
reliability of our operations infrastructure and leveraging and extending our
technology base. As a result, we expect to continue to incur losses for at
least the next two years. We will need to generate significantly higher
revenues to support expected increases in expenses and to achieve and maintain
profitability.
We generate revenues by providing businesses with web conferencing services
and products that can be delivered either as a hosted application service or as
an in-house software application product. In July 1998, we shifted the focus of
our business model from sales of software licenses to a hosted services model.
We offer our customers the ability to purchase our hosted application service
as an annual subscription based on the maximum number of concurrent users
available to a customer and as an event service to meet their web conferencing
demands. The in-house software application is sold as a licensed software
product for our customers wishing to deploy our web conferencing software
inside their company, and for service providers wishing to host their own web
conferencing services.
Revenues generated from hosting and services, which include hosting
services, event services, revenue sharing arrangements and technical support
and maintenance services, accounted for 55% of total revenues for the year
ended December 31, 1999. Revenues from hosting services are recognized ratably
over the hosting period. Revenues from event services are recognized as the
event takes place. Revenues from revenue sharing arrangements are recognized as
earned. Revenues from technical support and maintenance services are recognized
ratably over the term of the support period.
Licensed software product revenues are generated from the sale of time-based
licenses and perpetual licenses and represented 45% of the total revenues for
the year ended December 31, 1999. Time-based revenues are recognized ratably
over the time period. Perpetual license revenues are recognized when the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred; the fee is fixed or determinable; collectibility is
probable; and evidence of the fair value is determinable for all undelivered
components of the arrangement.
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Our cost of hosting and services consists primarily of computer equipment
depreciation charges, network connectivity, royalties, co-location costs and
costs of third-party service providers, including audio conferencing, streaming
audio and event services providers. Our network connectivity expense, co-
location costs and costs to third-party service providers are variable and
correlate to the use of our services. Our depreciation charges generally
increase as we increase our capacity and build our infrastructure.
Our operations expenses consist primarily of compensation and related costs
for management personnel, technical support employees and consultants who
manage and maintain our service operations.
Our sales expenses consist primarily of compensation and related cost for
sales personnel. We sell our services and products through both our direct
sales organization and our service providers. Our direct sales force is
headquartered in Mountain View, California and supported by sales
representatives based in several cities throughout North America and in our
European sales office in the United Kingdom. Our European sales office is
responsible for all European, Middle Eastern and African sales opportunities.
The direct sales force consists of inside and outside sales representatives and
is primarily responsible for expanding our customer base.
Our marketing expenses consist primarily of the salaries and benefits for
our advertising and promotions, marketing personnel, consulting fees and direct
marketing expenses.
Our research and development expenses consist primarily of salaries and
benefits for research and development personnel, consulting fees, and
development and test-related infrastructure. We expense research and
development costs as they are incurred.
Our general and administrative expenses consist primarily of expenses for
finance, human resources, office operations, administrative and general
management activities, including legal, accounting and other professional fees,
travel expenses and other general corporate expenses.
In connection with the granting of stock options to, and restricted stock
purchases by, our employees through December 31, 1999, we recorded deferred
stock-based compensation totaling approximately $4.0 million. This amount
represents the difference between the exercise or purchase price, as
applicable, and the fair market value of our common stock on the date these
stock options were granted or purchase agreements were signed. This amount is
included as a component of stockholders' equity and is being amortized on an
accelerated basis by charges to operations over the vesting period of the
options consistent with the method described in Financial Accounting Standards
Board Interpretation No. 28. The stock options and restricted stock purchases
generally vest at a rate of 25% upon the first anniversary of the option grant
date or restricted stock purchase date and 2.083% each month thereafter for
three years. We expect to record additional substantial stock-based
compensation for stock options granted subsequent to December 31, 1999.
Amortization of the December 31, 1999 balance of deferred stock-based
compensation will result in charges to total operating expense of $1.9 million
in 2000, $0.8 million in 2001, $0.3 million in 2002 and $0.1 million in 2003.
24
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Results of Operations
The following table sets forth certain statement of operations data for the
periods indicated as a percentage of total revenues.
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Hosting and services..................................... --% 31% 55%
Licensing................................................ 100 69 45
---- ---- ----
Total revenues......................................... 100 100 100
---- ---- ----
Operating expenses:
Cost of hosting and services............................. -- -- 18
Operations............................................... 31 13 14
Sales and marketing...................................... 249 174 191
Research and development................................. 245 127 63
General and administrative............................... 134 101 67
---- ---- ----
Total operating expenses............................... 659 415 353
---- ---- ----
Operating loss............................................. (559) (315) (253)
---- ---- ----
Other income (expense):
Interest income.......................................... 21 11 7
Interest expense......................................... -- (1) (2)
---- ---- ----
Total other income (expense)........................... 21 10 5
---- ---- ----
Net loss................................................... (537)% (306)% (248)%
==== ==== ====
</TABLE>
Years ended December 31, 1999 and 1998
Revenues. Revenues increased $2.8 million from $1.6 million in 1998 to $4.4
million in 1999. Of this amount, hosting and services revenues increased $1.9
million in 1999 primarily due to the launch of our new web conferencing hosted
service model in July 1998. The full year availability of the hosted service
model was primarily responsible for the increase in our customer count to
approximately 340 at the end of 1999. Prior to launching the hosted service
model, we sold perpetual software licenses for our web conferencing product,
which included annual support and maintenance.
Cost of hosting and services. Cost of hosting and services increased $0.8
million from a nominal amount in 1998 to $0.8 million in 1999. The increase was
substantially due to the launch of our hosting model in July 1998. The new
model required an increase in equipment purchases, network connectivity and
co-location costs. We expect significant increases in all these expenses as we
continue to build our customer service and technical support departments in
anticipation of increased demand for our services. Cost of hosting and services
in 1999 included a nominal royalty expense pursuant to the terms of our
technology assignment from Xerox PARC, which provides for a royalty payment
equal to 2% of total revenues, up to a maximum royalty of $1 million. We expect
this royalty expense to increase substantially in 2000.
Operations. Operations costs increased $0.4 million from $0.2 million in
1998 to $0.6 million in 1999. Excluding the $0.1 million in charges due to
stock-based compensation, the remaining increase was primarily due to an
increase in compensation and related costs for management personnel, technical
support employees and consultants who manage and maintain our service
operations. We expect significant increases in operations costs to support
increased utilization by our customers.
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Sales and marketing. Sales and marketing costs increased $5.6 million from
$2.8 million in 1998 to $8.4 million in 1999. Excluding the $0.6 million
increase due to stock-based compensation, the remaining increase was a result
of the growth in the number of sales and marketing employees, the establishment
of our European sales office as well as an increase in the amount of
advertising and promotional spending. Sales and marketing costs in 1999 also
include a one-time charge associated with a warrant granted in connection with
a marketing arrangement. We expect significant increases in our sales and
marketing expenses as we expand our North American and international sales
organizations, increase advertising and promotional activities, add marketing
personnel and increase marketing programs.
Research and development. Research and development costs increased $0.7
million from $2.1 million in 1998 to $2.8 million. Excluding the $0.1 million
increase due to stock-based compensation, the remaining increase was associated
with increases in hiring additional engineers as well as product expansion and
new product development. We intend to continue to make substantial investments
in research and development and anticipate that these expenses will continue to
increase.
General and administrative. General and administrative costs increased $1.2
million from $1.7 million in 1998 to $2.9 million in 1999. Excluding the $0.3
million increase due to stock-based compensation, the remaining increase was
associated with the growth in employees, increased consulting services, the
costs associated with the addition of office space, and equipment purchases. We
expect increases in general and administrative expenses as we expand executive
management, finance, human resources and other administrative functions
required to support business and operate as a public company.
As indicated above, we recorded approximately $1.1 million of stock-based
compensation amortization expense, of which $0.1 million was included in
operations costs, $0.6 million in sales and marketing expenses, $0.1 million in
research and development expenses, and $0.3 million in general and
administrative expenses. Amortization of the December 31, 1999 balance of
deferred stock-based compensation will be approximately $1.9 million in 2000,
$0.8 million in 2001, $0.3 million in 2002 and $0.1 million in 2003.
Interest income, net. Interest income, net, remained constant at $0.2
million in 1998 and 1999. While interest income increased as a result of
increased funds from fund raising activities, this increase was fully offset by
higher interest expense from equipment financing activities.
Years ended December 31, 1998 and 1997
Revenues. Revenues increased $1.0 million from $0.6 million in 1997 to $1.6
million in 1998. Revenues for 1997 were primarily generated from our software
product license. The growth in revenues was due to increases in the number of
customers and the launch of our hosted service model. Licensing revenues
accounted for 69% of total revenues for 1998.
Cost of Hosting and Services. Cost of hosting and services were nominal in
both 1997 and 1998 as our primary business was the sale of software product
licenses.
Operations. Operations costs remained constant at $0.2 million in both 1997
and 1998.
Sales and Marketing. Sales and marketing costs increased $1.3 million from
$1.5 million in 1997 to $2.8 million in 1998. The increase was a result of the
growth in the number of sales and marketing employees as well as an increase in
the amount of advertising and promotional spending.
Research and Development. Research and development costs increased $0.6
million from $1.5 million in 1997 to $2.1 million in 1998. The increase was
associated with increases in hiring as well as product expansion and new
product development.
General and Administrative. General and administrative costs increased $0.9
million from $0.8 million in 1997 to $1.7 million in 1998. The increase was
associated with the growth in employees, addition of office space and the costs
associated with equipment purchases.
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<PAGE>
Stock-based compensation included in general and administrative expenses was
nominal in both 1997 and 1998.
Interest income, net. Interest income, net, increased $0.1 million from $0.1
million in 1997 to $0.2 million in 1998. The increase was a result of increased
funds from fund raising activity, partially offset by higher interest expense
from equipment financing activities.
Quarterly Operating Results
The following table presents our historical unaudited quarterly results of
operations for our most recent five quarters. This data has been prepared on
the same basis as our annual consolidated financial statements and includes all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial results set forth therein. Our results of
operations have fluctuated and are likely to continue to fluctuate
significantly from quarter to quarter. Results of operations for any previous
periods are not necessarily comparable to future periods.
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------
Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31,
1998 1999 1999 1999 1999
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Hosting and services............ $ 222 $ 299 $ 451 $ 609 $ 1,074
Licensing....................... 400 147 368 726 721
------- ------- ------- ------- -------
Total revenues................ 622 446 819 1,335 1,795
------- ------- ------- ------- -------
Operating expenses (1):
Cost of hosting and services.... 3 11 35 239 521
Operations...................... 6 69 86 148 316
Sales and marketing............. 792 1,284 1,325 2,062 3,739
Research and development........ 526 577 645 755 801
General and administrative...... 434 452 387 587 1,474
------- ------- ------- ------- -------
Total operating expenses....... 1,761 2,393 2,478 3,791 6,851
------- ------- ------- ------- -------
Operating loss.................... (1,139) (1,947) (1,659) (2,456) (5,056)
------- ------- ------- ------- -------
Other income (expense):
Interest income................. 33 31 24 62 192
Interest expense................ (8) (23) (26) (30) (30)
------- ------- ------- ------- -------
Total other income (expense).. 25 8 (2) 32 162
------- ------- ------- ------- -------
Net loss.......................... $(1,114) $(1,939) $(1,661) $(2,424) $(4,894)
======= ======= ======= ======= =======
</TABLE>
- --------
(1)Includes charges for stock-based compensation.
27
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------
Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31,
1998 1999 1999 1999 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
As a Percentage of Total
Revenues:
Revenues:
Hosting and services...... 36% 67 % 55 % 46 % 60 %
Licensing................. 64 33 45 54 40
---- ---- ---- ---- ----
Total revenues.......... 100 100 100 100 100
---- ---- ---- ---- ----
Operating expenses:
Cost of hosting and
services................. -- 3 4 18 29
Operations................ 1 15 11 11 18
Sales and marketing....... 127 289 162 154 208
Research and development.. 85 129 79 57 45
General and
administrative........... 70 101 47 44 82
---- ---- ---- ---- ----
Total operating
expenses................ 283 537 303 284 382
---- ---- ---- ---- ----
Operating loss.............. (183) (437) (203) (184) (282)
---- ---- ---- ---- ----
Other income (expense):
Interest income........... 5 7 3 4 11
Interest expense.......... (1) (5) (3) (2) (2)
---- ---- ---- ---- ----
Total other income
(expense).............. 4 2 -- 2 9
---- ---- ---- ---- ----
Net loss.................... (179)% (435)% (203)% (182)% (273)%
==== ==== ==== ==== ====
</TABLE>
Revenues have increased in each consecutive quarter presented, exclusive of
the first quarter of 1999. During that quarter, the effect of our shifting
focus toward a hosting services model had a negative effect on our licensing
revenues. The growth in revenues during the second, third and fourth quarters
of 1999 was primarily due to higher hosting and services revenues as we
substantially increased our sales and marketing activities.
Operating expenses have generally increased in each quarter to support
increased utilization of services and products by our customers. Sales and
marketing expenses in the first quarter of 1999 were higher compared to the
fourth quarter of 1998 and the second quarter of 1999 due to increased direct
marketing and consulting expenses. General and administrative expenses
increased in the third and fourth quarters of 1999, primarily due to
investments in administrative infrastructure to support increased utilization
of our services. Amortization of stock-based compensation was mostly recognized
in the fourth quarter of 1999, resulting in further increases in sales and
marketing expenses and general and administrative expenses.
Our quarterly operating results are difficult to predict. Due to any number
of factors, our future quarterly operating results may fluctuate and may not
meet the expectations of investors or securities analysts who may initiate
coverage, which may cause the price of our common stock to decline. Some of the
factors that may contribute to fluctuations in our operating results include
the following:
.the inability to deliver our hosted service;
.the loss of a major customer or communication service provider or the
failure to attract new customers;
.many of our expenses, such as salaries, rent, advertising and hosting
facilities, have fixed minimums;
. lower revenues than expected;
. downward pressure on prices paid by our business customers, as a result
of competition or other factors, which could reduce our quarterly
revenues even if we maintain or increase the number of sales;
. our ability to upgrade, develop, maintain and have available our
services, systems and infrastructure in a timely manner, and the related
costs and expenditures related to such activities; and
. the timing of a significant marketing campaign.
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<PAGE>
Because our customers do not have long-term obligations to purchase services
from us, our revenues and operating results depend upon the volume and timing
of customer orders and payments. We historically have received payments in
advance for our services and products and have deferred these revenues over a
fixed period of time, generally for a period of one year. If we modify our
billing and payment practices, or our periods of services to cycles shorter
than one year, the resulting effect would be to reduce deferred revenue, and if
investors or securities analysts who may initiate coverage fail to understand
this modification, such investors or analysts may perceive this change as
additional fluctuations in our operating results which may cause the price of
our stock to decrease.
Provisions for Income Taxes
No provision for federal and state income taxes was recorded as we incurred
net operating losses from inception through December 31, 1999. Due to the
uncertainty regarding the ultimate utilization of the net operating loss carry
forwards, we have not recorded any benefit for losses and a valuation allowance
has been recorded for the entire amount of the net deferred tax asset. In
addition, sales of our stock, including shares sold in this offering, may
further restrict our ability to utilize our net operating loss carry forwards.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily from the sale of
our preferred stock and, to a lesser extent, proceeds from bank loans. During
1997 we sold $5.0 million in series B preferred stock. During 1998 we sold an
additional $5.0 million in series B preferred stock. During 1999 we sold an
additional $0.2 million in series B preferred stock. In September 1999, we sold
$18.8 million in series C preferred stock.
Net cash used by operating activities was $3.6 million in 1997, $4.3 million
in 1998 and $4.7 million in 1999. In 1997 and 1998, net cash used was primarily
due to our 1997 net loss of $3.3 million and our 1998 net loss of $5.0 million.
In 1999, net cash used was primarily due to our 1999 net loss of $10.9 million
and an increase in accounts receivable of $2.3 million, partially offset by
increases of $4.5 million in deferred revenue and $1.2 million in accounts
payable. A significant portion of the outstanding accounts receivable at year
end was billed during the last quarter for services which will occur generally
over a one-year period from the date of billing, resulting in a corresponding
increase in deferred revenue.
Net cash used for investing activities was $0.2 million in 1997, $0.1
million in 1998 and $2.6 million in 1999. The cash used in investing activities
related to purchases of property and equipment. The equipment was primarily for
computer workstations used for product development, product demonstrations and
customer support, facilities improvements and infrastructure and equipment
required for hosting our services. Property cost increases were related to the
relocation of our corporate offices.
Net cash from financing activities was $5.0 million in 1997, $5.4 million in
1998 and $18.8 million in 1999. Cash provided by financing activities resulted
primarily from proceeds of preferred stock sales and borrowings under a note
payable.
As of December 31, 1999, we had a bank revolving line of credit of up to
$750,000, bearing interest at the bank's prime rate plus 1% per annum, which
was 9.5% as of December 31, 1999. Borrowings from the line will be
collateralized by substantially all of our assets. In January 2000, we
increased the borrowing capacity of this line up to $2.5 million, with an
extension of the maturity date to January 24, 2001. We currently have not drawn
on this line.
As of December 31, 1999, we had $1.1 million available under an arrangement
with a financing corporation for a lease line of credit. We have financed the
acquisition of property and equipment, primarily computer hardware and software
for our increasing employee base, as well as for our management information
systems, primarily through capital leases. We currently expect capital
expenditures of between $4 million and $6 million in 2000. As of December 31,
1999, we had no material commitments for capital expenditures.
We expect to continue to experience growth in our operating expenses. We
anticipate that operating expenses and planned capital expenditures will
continue to be a material use of our cash resources, including a significant
use of the cash raised in this offering. In addition, we may utilize cash
resources to fund acquisitions
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<PAGE>
or investments in other businesses or technologies. We believe that available
cash and cash equivalents and the net proceeds from the sale of the common
stock in this offering will be sufficient to meet our working capital and
operating expense requirements for at least the next 12 months. After that
period, we may require additional funds to support our working capital and
operating expense requirements or for other purposes and may seek to raise
these additional funds through public or private debt or equity financings.
There can be no assurance that this additional financing will be available, or
if available, will be on reasonable terms.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards for derivative financial instruments and
hedging activities related to those instruments, as well as other hedging
activities. Because we do not currently hold any derivative instruments and do
not engage in hedging activities, we expect that the adoption of SFAS No. 133
will not have a material impact on our consolidated financial position, results
of operations, or cash flows. We will be required to adopt SFAS No. 133 in
fiscal 2001.
In March 2000, the Emerging Issues Task Force (EITF) published their
consensus on EITF No. 00-2, Accounting for Web Site Development Costs, which
require the following accounting for costs related to development of web sites:
. Costs incurred in the planning stage, regardless of whether the planning
activities relate to software, should be expensed as incurred;
. Costs incurred during the development of web site applications and
infrastructure involve acquiring or developing hardware and software to
operate the web site, including graphics that affect the look and feel
of the web page. All costs relating to software used to operate a web
site should be accounted for under Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, (SOP 98-1). However, if a plan exists or is being
developed to market the software externally, the costs relating to the
software should be accounted for pursuant to FASB Statement No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased or
Otherwise Marketed (SFAS No. 86);
. Costs paid for web site hosting services generally would be expensed
over the period of benefit; and
. Costs incurred in operating the web site, including training,
administration, maintenance, and other costs, should be expensed as
incurred. However, costs incurred in the operation stage that involved
providing additional functions or features to the web site should be
accounted for as new software. Such costs should be capitalized or
expensed based on the requirements of SOP 98-1 or SFAS No. 86, as
applicable.
We will be required to adopt EITF No. 00-2 in fiscal quarters beginning
after June 30, 2000, although earlier application is encouraged. To date, we
have not entered into activities covered by EITF No. 00-2, as all software
developed internally has been offered under license to customers.
In March 2000, the EITF published their consensus on EITF No. 00-3,
Application of AICPA Statement of Position 97-2, Software Revenue Recognition,
to Arrangements That Include the Right to Use Software Stored on Another
Entity's Hardware. EITF No. 00-3 states that a software element covered by SOP
97-2 is only present in a hosting arrangement if the customer has the
contractual right to take possession of the software at any time during the
hosting period without significant penalty and it is feasible for the customer
to either run the software on its own hardware or contract with another party
unrelated to the vendor to host the software. Our hosting arrangements
generally do not allow customers the contractual right to take possession of
the software without significant penalty. We do not expect that the adoption of
EITF No. 00-3 will have a material impact on its consolidated financial
position or results of operations.
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In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, as amended by SAB 101A, which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosure related to revenue recognition policies.
We will adopt SAB 101 effective April 1, 2000. We do not expect the adoption of
SAB 101 to have a material effect on our consolidated financial position or
results of operations.
Quantitative and Qualitative Disclosure About Market Risk
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we may
invest in may be subject to market risk. This means that a change in prevailing
interest rates may cause the principal amount of the investment to fluctuate.
For example, if we hold a security that was issued with a fixed interest rate
at the then-prevailing rate and the prevailing interest rate later rises, the
principal amount of our investment will probably decline. To minimize this risk
in the future, we intend to maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including commercial paper,
money market funds and government and non-government debt securities. In
general, money market funds are not subject to market risk because the interest
paid on such funds fluctuates with the prevailing interest rate. As of December
31, 1999, all of our cash and cash equivalents were in money market and
checking funds.
We have operated primarily in the United States, and all sales have been
made in U.S. dollars. Accordingly, we have not had any material exposure to
foreign currency rate fluctuations.
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<PAGE>
BUSINESS
Overview
PlaceWare enables businesses to conduct real-time, interactive
communications, or web conferences, over the Internet. Businesses use our web
conferencing services and products as strategic tools to improve productivity
and efficiency, and enhance business opportunities.
Industry Background
Business-to-Business Communications
Businesses today are operating in an environment that can be characterized
by rapid change and increasingly complex business interactions with customers,
partners, vendors and employees. Advances in technology have created broad
market opportunities, but have also accelerated the pace at which competitors
have entered the market. True global competition has emerged and businesses are
required to bring new services and products to market faster and provide
superior customer support to remain competitive. To successfully compete in
this new environment, businesses must effectively communicate with their
geographically distributed base of customers, partners, vendors and employees.
Companies have historically relied on in-person meetings and traditional
business collaboration technologies, such as audio conferencing and video
conferencing, to communicate. These means of communication, either individually
or in combination, have a number of limitations, including:
Opportunity Cost of In-person Meetings. As customers, partners, vendors and
employees grow increasingly distributed geographically, holding in-person
meetings with these constituencies requires greater travel time and expense.
While actual travel expenses are not insignificant, the time lost to travel may
represent the true opportunity cost to a company. When personnel are travelling
to or from meetings, businesses lose opportunities to engage in the type of
collaborative and real-time interactions with others that are necessary to
build and strengthen customer and partner relationships and improve employee
productivity.
Lack of Visual Content in Audio Conferencing. While audio conferencing
offers broad accessibility and real-time interaction, it supports only voice
communication and lacks support for other critical elements of effective
business collaboration, including rich visual content necessary to better
comprehend information that participants are attempting to convey. In addition,
as content becomes more complicated and the number of people participating on a
conference call increases, it becomes difficult to follow the presenter,
increasing confusion and hindering participant interaction. Finally, real-time
collaboration is difficult since any changes or clarifications discussed
verbally cannot be visually incorporated and reviewed by the group in real-
time.
Limited Availability, Complexity and Expense of Video Conferencing. The lack
of widespread availability, technical limitations, such as minimum bandwidth
requirements, latency and limited resolution of visual content limit the
effectiveness of video conferencing. In addition, video conferencing is costly
and complex to install, implement and maintain, and often requires a dedicated
video conferencing hosting facility and internal technical assistance, further
limiting the number of occasions in which it can be used.
The Emergence of the Internet as a Tool for Business-to-Business Communications
The Internet has emerged as a global medium for communication and commerce.
According to International Data Corporation, or IDC, the number of web users
worldwide is expected to grow from 239 million at the end of 1999 to 602
million by the end of 2003. Since the Internet has become more accessible,
functional and widely used, it has emerged as an effective communications and
collaboration vehicle for businesses of all sizes to create new revenue
opportunities by enhancing their interaction with new and existing customers.
IDC estimates that worldwide commerce over the Internet conducted by businesses
is
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<PAGE>
expected to increase from approximately $97 billion in 1999 to $1.4 trillion in
2003. As such, businesses are increasing resources devoted to applications that
enable businesses to leverage the power and accessibility of the Internet to
communicate more effectively with customers, partners, vendors and employees.
The Internet possesses a number of unique characteristics that differentiate
it from traditional media. It allows users to communicate or access information
from almost anywhere, use interactive content on a real-time basis and
communicate instantaneously with individuals or groups. Despite the
availability and use of Internet-based communications tools, such as e-mail,
instant messaging and webcasting, these tools have several important
limitations when used for business-to-business communications:
E-Mail. E-mail is widely used as a tool for asynchronous business
communications. However, it is primarily a text-based solution with a limited
ability to facilitate real-time interactive collaboration.
Instant Messaging. Instant messaging is used primarily as a mechanism for
consumer communications. Its ability to enable business communications is
limited, because it is text-only and designed to work effectively only for one-
to-one or one-to-few communications.
Webcasting. Broadcasting of audio and video content over the Internet for
larger group communications through streaming media has become popular in
consumer applications. Its limitations include a lack of two-way interactivity,
limited resolution of visual content, high production costs, difficulty in
traversing corporate firewalls and limited reliability for bandwidth intensive
audio and video streaming.
Trend Towards Outsourced Applications
In addition to facilitating communications, the Internet has created
widespread opportunities for software companies to host applications from a
centrally managed facility. This allows customers to avoid the need to devote
internal resources to install, maintain and continually upgrade applications.
By outsourcing these applications, businesses can more quickly realize the
benefits that they offer. Forrester Research estimates that the market for
application hosting services will increase from $933 million in 1999 to over
$11 billion in 2003.
Market Opportunity
According to IDC, one of the most rapidly growing segments of the
application services market is collaboration services, or services that allow
geographically dispersed individuals to communicate, interact and work
together. Collaboration services combine Internet-based communications with
dynamic and interactive content on a real-time basis. The web-based hosted
model is well suited for collaboration services largely due to the fact that it
enables businesses to deploy these services rapidly without requiring valuable
internal resources.
Forrester Research has identified web conferencing as one of the fastest
growing segments of the collaboration services market. In their survey of
Fortune 1000 companies, 70% of all respondents indicated they would use web
conferencing by the year 2001. Web conferencing leverages customers existing
voice and data infrastructure, which facilitates widespread deployment. It
provides businesses with the ability to communicate verbally while sharing rich
visual content on a real-time basis over Internet connections with speeds as
low as 28.8Kbps. Web conferencing enables businesses to increase their reach
and cost-effectively communicate time-sensitive and important information to
constituencies within and outside the company.
The PlaceWare Solution
We are a leading provider of comprehensive web conferencing services and
products that enable businesses to conduct real-time, interactive meetings and
presentations over the Internet. Our services and products are designed to
overcome some of the limitations of traditional business collaboration
technologies and today's Internet-based communications tools. Some of the ways
in which our customers utilize our services include sales and marketing
activities, such as new product launches, seminars and product demonstrations
and corporate communications, such as investor communications and employee
meetings.
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We provide our customers with web conferencing services that can be
delivered either as a hosted application service or as an in-house software
application. Customers that choose to host their applications on the web are
not required to install, maintain and upgrade software. Additionally, our
hosted service is designed to reduce customers' administrative burden of
deploying web conferencing.
Strategic Benefits
Extend Communications Reach. Our services enable users to reach people
located at a distance, and to reach more people in total, because of a
reduction in the time required for travel.
Enhance Communications Effectiveness. The visual component and real-time
interactive nature of our services are intended to improve the understanding
and retention of meeting content.
Shorten Sales Cycles and Accelerate Time To Market. Our services enable
customers to communicate more quickly and effectively with both internal and
external parties, and streamline and accelerate sales and other business
processes throughout an entire organization. This can mean shorter sales
cycles, quicker time to market for product development efforts, faster sales
and distribution channel training and more effective customer communication.
Services and Products Benefits
Ease of Use. Our services are designed to be easy to use both by our
customers and their conference participants. Presenters who are accustomed to
using standard presentation software and end-users who are familiar with web
browsers are able to use our services without the need to install additional
software or hardware. Moreover, our services operate effectively without
requiring high-speed access to the Internet.
Highly Scalable and Reliable. Our proprietary hosting infrastructure
technology, iVault, is designed to be highly scalable and reliable and to
enable us to quickly react to the increasing demands of our clients. Our system
is designed to be expanded to enable thousands of concurrent meetings and up to
2,500 users in a single web conference. We have designed our services to enable
content to be presented securely and viewed only by individuals and
organizations that are authorized to have access to it. Our services enable
business users to communicate through most corporate firewalls and participate
in web conferences without requiring any policy changes or physical changes to
the firewalls or proxy servers.
Simple to Purchase and Deploy. Our hosted services rely upon the existing
infrastructure that is generally ubiquitous throughout an organization,
including an Internet-enabled personal computer and a telephone. Users can
subscribe to some of our services, schedule meetings, load content and conduct
meetings within minutes without the assistance of a customer service or
technical support representative.
Real-Time Interactivity with Rich Visual Content. We provide customers with
the ability to conduct web conferences in real-time using rich visual content.
Real-time interactivity includes shared whiteboard with annotations, polling
and the ability to have multiple presenters and moderators answering questions
from conference participants.
The PlaceWare Strategy
Our objective is to be the leading provider of web conferencing services.
Key elements of our strategy to achieve this objective include:
Promote web conferencing and increase our brand recognition. Our goal is to
promote web conferencing, in general, and to establish our services as the most
reliable and well-known web conferencing services for business communications.
We are promoting web conferencing and intend to increase our brand awareness
through the use of our web site, branding campaigns and selected media events.
We have also established relationships with major audio conference service
providers, Internet portals and application service
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providers that offer our services through co-branding arrangements, thereby
enhancing the recognition of our brand and increasing our customer base. We
plan to increase our co-branding relationships and continue to promote our
client success stories through the use of case studies, technical papers and
regular briefings with industry analysts.
Expand our business development and sales and marketing efforts. We have
relationships with a number of major Internet, communications and conferencing
service providers, including Conference Plus, Inc., Envoyglobal.com, General
Dynamics Corporation, Hewlett-Packard Company and Sprint. These service
providers offer our services to their customers either as an independent,
value-added service or as a bundled service to their own product offerings. We
intend to continue to expand the scope of our existing relationships and build
additional relationships to leverage their strong sales, marketing and
engineering capabilities as well as their large, established customer bases. We
also intend to broaden our sales and marketing efforts by increasing the size
and geographic reach of our direct sales force and adding additional sales and
marketing personnel to focus on further penetration of our existing customer
base.
Increase our customers' utilization of our existing services. We have over
340 direct customers. In addition, our services are used by the customers of
our service providers. Our web conferencing services are typically used for
medium to large size meetings and presentations, such as sales training, new
product launches and web seminars, and have typically been adopted by one or
more departments within each customer's enterprise. We intend to increase the
utilization of our services by existing customers by promoting the services to
other groups and departments within those existing customers and by
demonstrating the benefits of our services and products for medium and smaller
group meetings.
Extend and expand our service offerings. We intend to leverage our web
conferencing, collaborative computing and technology expertise to develop new
services, applications and features that will enable us to make online meetings
and presentations as effective as in-person meetings. Our recently introduced
Conference Center 2000 contains a number of enhancements designed to make our
services both easier to use and administer. We intend to continue to enhance
our services while maintaining and improving their usability, scalability and
reliability. We plan to make it even easier for customers to subscribe to our
services by introducing self-service tools to enable our customers to pay for
web conferencing services over the Internet.
Continue to increase the scalability and reliability of our web conferencing
services. Our proprietary hosting infrastructure technology is designed to be
expanded to enable thousands of concurrent meetings and up to 2,500 users in a
single web conference. We intend to continue to invest in our hosting
infrastructure and related services to maintain and enhance the usability,
scalability, security and reliability of our services as well as increase the
aggregate number of customers who can attend conferences simultaneously. We
intend to add industry standard encryption support.
Leverage and extend our technology base. Current efforts are underway to
more tightly integrate our technology with third party services and
applications, including streaming audio and video, audio bridges, e-mail and
scheduling and reservation applications. We also plan to integrate Internet
protocol voice and video when they become more reliable for business
communication use.
Pursue Strategic Acquisitions. We intend to pursue acquisitions of
businesses, products, services, technologies, and distribution channels that
are complementary to our existing business to expand our position in the web
conferencing market. Although we have no present commitments or agreements
regarding any acquisitions, we believe that there are many acquisition
candidates that could enhance our position in this market.
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Services, Products and Capabilities
Our web conferencing services enable our customers with an Internet-enabled
personal computer and a telephone to conduct real-time interactive meetings and
presentations with rich visual content over the Internet. Web conferencing
enables effective communication, coordination and collaboration among
customers, partners, vendors and employees in many sales, marketing and other
business contexts. We provide a comprehensive suite of services and products
that offer web conferencing capabilities to companies, individuals, Internet
portals, service providers and resellers. Our suite of services are currently
based on our Conference Center 2000 technology and our proprietary iVault
hosting infrastructure technology.
[CHART APPEARS HERE]
Web conferencing Corporate Service Portal
Services E-Service Provider E-Service MyPlaceWare
E-Service
Technology
Platform Conference Center 2000
Hosting iVault Hosting Infrastructure
environment
Service Offerings
We offer customers and service providers the option to subscribe to an
annual hosted service or to rent our software for their web conferencing
requirements. Our services are delivered to customers in four separate
editions: Corporate E-Service; Service Provider E-Service; Portal E-Service;
and MyPlaceWare.
Corporate E-Service. Our Corporate E-Service enables businesses of all sizes
to use web conferencing as a new medium for business communications. The
Corporate E-Service is a multi-user version of the service. An administrator
can authorize as many users of the system as appropriate. Users are then able
to access the full capabilities of the Corporate E-Service, including meeting
provisioning, scheduling and reports.
Service Provider E-Service. Our Service Provider E-Service enables service
providers, such as audio conference service providers or streaming audio
providers, to bundle web conferencing with their existing services, and offer a
co-branded solution. The Service Provider E-Service offers a software
programming interface that enables service providers to integrate our web
conferencing service with existing proprietary reservations, scheduling and
billing systems. Conference Plus, Inc., Envoyglobal.com, General Dynamics
Corporation, Hewlett-Packard Company and Sprint have licensed our software and
deliver a co-branded web conferencing service to their customers.
Portal E-Service. Our Portal E-Service enables an Internet portal to
incorporate a self-service, web conferencing capability to its existing suite
of services. The Portal E-Service allows for co-branding and also varying
levels of service integration, including billing, user registration and login.
For example, Autodesk is offering a co-branded service to enable their
authorized training centers to deliver training courses over the Internet.
MyPlaceWare. MyPlaceWare is a self-service, web conferencing service that
offers many of the features available through Corporate E-Service. MyPlaceWare
enables registered members to host web conferences with up to five people and
is currently offered free of charge. Over 15,000 people have subscribed to this
service since its launch in October 1999. We intend to enhance MyPlaceWare to
enable members to subscribe to a paid service. This service will enable
customers to host meetings and presentations with more than five people and
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have enhanced features, including the ability to store and retrieve
presentation materials and record actual meetings and presentations for future
viewing.
Technology Infrastructure
These service offerings are primarily based on our Conference Center 2000
technology.
Conference Center 2000. Conference Center 2000 was announced in January 2000
and became available to selected users in February 2000 and will become
generally available in March 2000. Conference Center 2000 is the latest
generation of our technology and is offered as a hosted communications e-
service that can be turned on the same day as receipt of an order. It enables a
presenter to quickly and easily upload any standard presentation or other
supported file type on their computer and begin presenting in a web conference.
Individuals authorized on Conference Center 2000 can use the service to hold
meetings and presentations over the Internet with up to 2,500 participants.
Conference Center 2000 offers two virtual meeting environments that address
different meeting and presentation needs. Web Meeting Places are designed for
small group collaborative meetings and enable some or all of the participants
to collaborate on a real-time basis. Auditorium Places are uniquely designed to
meet the needs of large group presentations and include real-time interactive
features, such as audience feedback indicators and text chat and other features
which enable polling of participants and moderated questions and answers.
Conference Center 2000 features include:
. Real-time Interactive Meetings with Rich Visual Content. Conference
Center 2000 enables presenters to deliver real-time, interactive
presentations with rich visual content over the Internet.
. Scheduling, Invitation and Personal Calendar. Scheduling and invitation
features enable authorized users to quickly and easily schedule web
conferences, and together with the customers' e-mail system, generate
meeting-specific invitations to send to audience members. The invitation
feature integrates with e-mail tools, such as Microsoft Outlook, or
other browser-based, e-mail programs. A personal calendar of meetings
scheduled by the user is the default home page for each user.
. Meeting Provisioning. Users can set up as many meetings as needed to
fulfill their specific requirements. Users can customize each meeting
for the number of attendees, time, date, time zone, type of meeting room
and type of security policy.
. Content Persistence and Security. All presentation material uploaded
into our service remains available until the user chooses to delete it,
enabling them to reuse content for multiple presentations. Web Meeting
Places or Auditorium Places are protected by a variety of user specified
security policies which prevent unauthorized users from viewing content.
. Meeting Reports. Users can obtain detailed meeting reports, including
reports for individual meetings and summary level reports on meetings
scheduled, users, attendance, capacity utilization and future
reservations. These reports can be exported to third party applications,
such as Excel or corporate sales or marketing databases.
. Record and Playback of Meeting Content. The audio and visuals of any
meeting can be recorded for later playback by those who could not attend
or want additional reinforcement. Recordings can have security controls
to permit access to authorized personnel only.
Conference Center 2000 is based on the iVault hosting infrastructure, which
is designed to deliver reliable, highly scalable, fault-tolerant web-based
services.
iVault Hosting Infrastructure. Our hosted servers are physically located at
Exodus Communications in Santa Clara, California. Exodus provides fully
redundant Internet access with an aggregate network capacity of
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over 17 gigabits per second. Additionally, Exodus provides power, climate
control and monitoring services 24 hours per day, seven days per week. We
intend to add a similar facility in Europe within the next 12 months. Our
internal network operations are managed by experienced personnel who provide
operations and database administration support 24 hours per day.
Our proprietary technology leverages our scalable architecture and runs on
Sun Microsystems and Hewlett-Packard, Intel-based servers. These servers are
connected to the Internet through several 100-megabit network connections. Our
production and internal networks are protected by a firewall system. We have
also implemented a secure link between our hosting service and our corporate
office facility that allows direct access to our data center systems, enabling
timely system administration.
Conference Center 3.5. Conference Center 3.5 was until recently our flagship
service and product offering. Conference Center 3.5 is currently available to
our customers seeking to obtain the software for deployment within their
organization, and for service providers wishing to host their own web
conferencing service.
PlaceWare Development Kit. Our PlaceWare Development Kit is an application
developer's kit that enables resellers to build web-based collaborative
applications on top of our technology. Two resellers, General Dynamics and
Hewlett-Packard, have developed applications based on this technology, which
they license into targeted market segments. General Dynamics builds
InfoWorkSpace, a collaborative application, licensed to the Department of
Defense. Hewlett-Packard has developed the HP Virtual ClassRoom application
which they offer as a service to the corporate training market.
Event Services and Customer Support
We provide our customers with event management services that can be tailored
to their particular needs. These services include web conferencing services,
presenter training, web-based audience registration, event moderation and
technical support services. We also resell audio conferencing and audio
streaming services from third party service providers.
We offer online classes and on-demand recordings using our services to
provide knowledge and skills to successfully deploy, use and maintain our
services and products. These training classes include material presenters,
moderators, event managers and system administrators.
Our hosted service agreement and annual maintenance agreement provide
customers access to new product enhancements and technical support. We also
offer customer support to resolve technical and user issues by phone and e-
mail.
Customers
We began providing web conferencing in June 1997 and as of December 31,
1999, had over 340 customers. Our customers consist of a diverse group of
companies operating in many industries worldwide, ranging from Fortune 1000 to
small private companies. In addition, we provide co-branded web conferencing
technology and services to our communications service providers. During 1999,
General Dynamics accounted for 27% of our revenues. No other customer accounted
for more than 10% of our revenues in 1999.
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Below is a list of our top customers as of March 1, 2000, based on the
number of authorized concurrent users in each of the categories listed below:
Internet Software and Rational Software DHL Worldwide Express
Services Corporation Dow Jones & Company,
AltaVista Company Remedy Corporation Inc.
Ariba, Inc. SalesLogix Corporation Dun & Bradstreet
AXENT Technologies, Inc. Symantec Corporation Corporation
BEA Systems, Inc. Veritas Software FedEx Corporation
Corporation
BroadVision, Inc. Computer Hardware, Ingram Micro, Inc.
CacheFlow Inc. Semiconductors and Network World, Inc.
Excite@Home Network Networking Rosenbluth
Hyperion Solutions Corp. Amdahl Corporation International
PC Week
Netscape/AOL-America Cisco Systems, Inc.
Online, Inc. EMC Corporation Manufacturing/Other
USWeb/CKS Corporation Encanto Networks, Inc. Child Health
Vignette Corporation Hewlett-Packard Company Corporation
Web Hire, Inc. of America
International Business
Financial Services Machines Corporation Epic Learning, Inc.
American International Motorola, Inc. General Dynamics
Group, Inc. Sun Microsystems, Inc. Corporation
Bank of Montreal Unisys Corporation General Electric
Bank One Corporation Xilinx Inc. Plastics
The Charles Schwab Professional Services GTE Corporation
Corporation Andersen Consulting KnowledgeNet
Dain Rauscher Corporation Andersen Worldwide KRM Information
J.P. Morgan & Co. The Boston Consulting Services, Inc.
Incorporated Group Morrison Knudsen
Morgan Stanley Dean Gartner Group, Inc. Corporation
Witter & Co. GIGA Information Group, The Procter & Gamble
Paine Webber Group Inc. Inc. Company
T Rowe Price Associates, Grant Thornton Telcordia
Inc. International Technologies Inc.
Xerox Corporation
TD Waterhouse Group, Inc.
International Data
Computer Software Corporation Service Providers
Autodesk, Inc. Lippert/Heilshorn & Activate.net
Cadence Design Systems, Associates Corporation
Inc. Mainspring Conference Plus, Inc.
Eprise Corporation Communications, Inc. Envoyglobal.com
Informix Corporation Miller Shandwick Gemisis
Technologies
J.D. Edwards & Company Business Services Geoconference
JetForm Corporation ABC Radio Hugin Expert
Microsoft Corporation Corporate Software and MCI WorldCom, Inc.
Oracle Corporation Technology, Inc. Sprint
Parametric Technology
Corporation
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Selected Customer Profiles
<TABLE>
<CAPTION>
Customer Profile
- -------------------------------------------------------------------------------
<C> <S>
Autodesk Autodesk initially selected our services to deliver real-
time web seminars for marketing its geographic information
system software solutions. Their first web conference
series consisted of 24 real-time online seminars conducted
twice per week. Since September 1999, Autodesk has reached
over 4,500 people around the world, and has had
approximately 500 people in a single web seminar. Most of
these attendees were people who otherwise would not take
the time to attend a seminar in-person.
Autodesk currently uses our services for distribution
channel, partner and customer communications in its
learning and training department. Autodesk selected our
service as its enterprise-wide web conferencing standard in
February 2000. They have also selected our Portal E-Service
as the basis for a co-branded service endorsed by the their
learning and training department for the delivery of
eLearning courses through their authorized training centers
and distribution channel partners.
- -------------------------------------------------------------------------------
International Data IDC, a division of International Data Group, selected our
Corporation (IDC) services in May 1999, as their new medium for delivering
customer research presentations online through web
conferences. IDC used our service to train their lead
analysts in more than 40 countries worldwide as well as
their sales and marketing teams. IDC then launched a
monthly web conference series, where IDC's leading industry
analysts speak to a worldwide audience of as many as 300
people over the Internet.
- -------------------------------------------------------------------------------
GTE GTE uses our services in numerous ways to enhance its
ability to communicate with its customers, investors and
employees. GTE has selected our services to deliver real-
time presentations of financial information to its global
audience of investors and analysts. GTE held its first
investor web conference to describe its $3.27 billion
acquisition of Ameritech's wireless assets last year, and
has used our services in several subsequent analyst
briefings. These real-time, dynamic events attracted a
number of key GTE investors and analysts. GTE currently
uses our services to facilitate communications among
employees within the company.
</TABLE>
Sales and Marketing
We sell our services and products through both a direct sales organization
and our service providers. We target companies looking to enhance their
business-to-business communications effectiveness. Our direct sales force is
headquartered in Mountain View, California, and we have sales representatives
based in several cities throughout North America. We have a European sales
office located in the United Kingdom that is responsible for all European,
Middle East and African sales opportunities. Asian sales opportunities are
handled through our headquarters. The direct sales force consists of inside and
outside sales representatives and is responsible for acquiring new customers.
We intend to increase the size of our domestic and international sales force.
We also sell through our service providers, which include Conference Plus,
Inc., Envoyglobal.com, General Dynamics Corporation, Hewlett-Packard Company
and Sprint. These companies maintain direct sales organizations that sell our
services, often bundled with audio conferencing or other services. We have
sales personnel who help our service providers in selling our services.
Our marketing strategy is to build and promote our brand, to grow awareness
and demand for the web conferencing category and to generate qualified leads
for our sales force. We focus our marketing efforts on sales, marketing and
corporate communications applications inside high technology, financial
services and
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professional services companies. We rely on a range of available marketing
avenues to pursue our objectives and educate our target markets, including
print advertisements, billboards, online seminars, e-mail newsletters, targeted
permission-based e-mail and web banners, targeted direct mail, trade shows,
marketing promotions, press and industry analyst relations programs, our web
site and selected media events. We publish collateral materials to support the
sales process, including a company brochure, feature data sheets, technology
white papers and customer case studies.
As of December 31, 1999, we had 32 sales and marketing professionals,
including sales engineers, account managers and service provider sales
executives.
Research and Development and Operations
We have assembled a team of skilled operations and engineering personnel
with extensive experience in the fields of software development, applications
and user interface design and testing, Internet software, collaborative
computing, network system design and network operations.
Our research and development process is driven by the availability of new
technology, market demand and customer feedback. We have invested significant
time and resources in creating a structured process for undertaking all
development projects. This process involves all functional groups and all
levels in the company. Following an assessment of market demand, our research
and development team develops a full set of comprehensive functional product
specifications based on input from the product management and sales
organizations. We are continuing to invest in the development of the Conference
Center 2000 web conferencing service and our iVault hosting infrastructure.
Our operations team designs, monitors, and supports the iVault hosting
infrastructure. They specify network system design, architect and build the
network operations center, and provide ongoing 24 hours per day, seven days per
week support. The operations team also provides technical support for our
customers.
As of December 31, 1999, we employed 18 people in research and development,
and 9 people in operations.
Technology
Our web conferencing technology was originally developed at Xerox PARC and
was assigned to us in 1996. Our web conferencing technology enables a wide
variety of business collaboration applications. It is designed to deliver
scalable, reliable, real-time interactivity with minimal latency over the
Internet. Our technology is designed to accommodate the transmission of data
and voice over the Internet at connection speeds as low as 28.8Kbps and to
support user access through corporate firewalls and web proxy servers. Our
technology efforts focus on developing the key proprietary components of the
underlying communication and collaboration infrastructure. In addition, we
utilize existing products and services and industry standards when appropriate
to enhance our services.
Real-time Collaboration Technology: PSOM.
Persistent Shared Object Messaging is the set of core proprietary component
technologies our applications are built upon. PSOM is an object-oriented
technology with several unique advantages over other contemporary development
technologies. PSOM was specifically architected for enabling scalable,
reliable, secure, real-time interaction and collaboration over the often
congested Internet.
PSOM offers the following advantages:
Persistence. PSOM objects automatically have persistence, thus the objects
are preserved with no additional programming efforts across different
invocations of the application and across service interruptions. This
capability enables faster development times of real-time collaborative
applications and increases our service reliability by ensuring key information
and content is preserved.
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Shared objects. Every client and the server have a copy of each shared
object, thereby allowing any change to an object to be immediately displayed
and quickly sent to all other copies of the object. Changes made to a shared
object at the same time by different users are quickly exchanged over the
Internet and synchronized at each client. This capability enables the delivery
of real-time interactivity with minimal latency over the Internet.
Messaging. The messaging subsystem automatically adapts to both the type of
firewall connections and speed of the connections. Messages between the
browser-based client and the server are grouped together and immediately sent
over the Internet without waiting for the results from prior sent messages to
be returned. This capability enables the traversal of firewalls, minimizes
bandwidth utilization, optimizes performance based on the speed of each
individual connection, and supports our ability to scale up to 2,500
simultaneous users.
We utilize a number of industry standard technologies including Java, C++,
JavaScript, Visual Basic, and HTML languages, widely used Internet network
protocols, audio and video streaming technologies from Microsoft and
RealNetworks, and Microsoft Internet Explorer and Netscape Navigator browsers.
Use of Java on browsers provides audience members with both universal
accessibility and immediate access because no software needs to be installed on
an Internet-enabled personal computer prior to using the service to attend a
meeting or a presentation.
Scalable, Reliable Infrastructure: iVault.
iVault is the proprietary carrier-class architecture our applications run on
to deliver our services to our hosted customers and service providers. The
architecture divides the applications processing into several functions, with
each function running on a separate set of servers, including one or more
backup units. This architecture enables the service to provide redundancy in
the event of a server failure by diverting to a backup unit and allows us to
incrementally increase service capacity by adding additional servers as the
usage of our service increases.
iVault uses off-the-shelf networking systems including Cisco Systems
routers, switches and local director, Sun Solaris on Sun Microsystems Unix-
bases servers, Windows NT on Hewlett-Packard, Intel-based servers, and content
storage on Network Appliance file servers. This equipment is physically located
at our set of cages at Exodus Communications Internet co-location facility in
Santa Clara, California. Exodus provides our data center redundancy through
multiple Internet connections, fully redundant power on the premises, multiple
backup generators, and around-the-clock systems management with onsite
personnel trained in the areas of networking, Internet, and systems management.
Use of these products and services helps to ensure the best overall service
levels are supplied to our customers and service providers.
Competition
The market for web conferencing services is intensely competitive, rapidly
evolving and subject to technological change. We expect competition to increase
significantly in the future as new and existing competitors seek to provide web
conferencing services and products.
We believe the principal factors affecting the competitive environment
include a significant base of referenceable customers, the quality and
performance of the service, including scalability, reliability and security,
product features, customer service, core technology, the quality of the event
services offering, price and the value of a given service. Although we believe
that our services and products currently compete favorably with respect to
these factors, our market is relatively new and is evolving rapidly. We may not
be able to maintain our competitive position against current and potential
competitors.
Our principal competitors include providers of web conferencing services
such as Contigo, INTERVU and WebEx. We may experience additional competition
from companies that provide streaming media services, audio conferencing or
video conferencing services, or other established software or distance learning
companies that decide to enter the web conferencing market. These companies
could possess large, existing customer bases, substantial financial resources
and established distribution channels and could develop, market or resell a
number
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of web conferencing services. Such potential competitors may also choose to
enter the market for web conferencing services by acquiring one of our existing
competitors or by forming strategic alliances with such competitors. Either of
these occurrences could harm our ability to compete effectively. In addition,
our currently licensed service providers may enter into similar agreements with
our competitors or develop parallel services based on their own technology.
This kind of competition from our service providers may harm our business in
the future.
Many of our potential competitors have longer operating histories, greater
name recognition, larger customer bases, more diversified lines of services and
products and significantly greater resources than we have. These competitors
may be able to undertake more extensive marketing campaigns, adopt more
aggressive pricing policies and deliver superior solutions. In addition, many
of our current or potential competitors have broad distribution channels that
may be used to bundle competing services or products directly to end-users or
purchasers. If such competitors bundle competing services or products for their
customers, the demand for our services and products could substantially
decline. As a result of the above factors, we cannot assure you that we will
compete effectively with the current or future competitors or that competitive
pressures will not harm our business.
Intellectual Property Rights
Our success and ability to compete are substantially dependent upon our
technology and intellectual property. While we rely on copyright, trade secret
and trademark law to protect our technology, we believe that factors such as
the technological and creative skills of our personnel, new product and service
developments, frequent product and service enhancements and reliable product
and service maintenance are more essential to establishing and maintaining an
intellectual property leadership position. We have no patents to date. We have
three patent applications pending. Others may develop services and products
that are similar or superior to ours.
PlaceWare is a registered trademark in the United States. We have applied
for trademark applications on the following terms: PlaceWare Conference Center
2000, Live Demo, MyPlaceWare, Web Conferencing is Here, Real Meetings No Travel
and iVault.
We will continue to assess appropriate occasions for seeking patent and
other intellectual property protections for those aspects of our technology
that we believe constitute innovations providing significant competitive
advantage. The pending and future applications may or may not result in the
issuance of valid patents and trademarks.
We generally enter into confidentiality or non-disclosure agreements with
our employees, consultants and others, and generally control access to and
distribution of our products, documentation and other proprietary information.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use our products, services or
technology. Policing unauthorized use of our proprietary information is
difficult, and the steps we have taken might not prevent misappropriation of
our technology, particularly in foreign countries where the laws may not
protect our proprietary rights as fully as do the laws of the United States.
Substantial litigation regarding intellectual property rights exists in the
technology industry. From time to time, third parties have asserted and may
assert exclusive patent, copyright, trademark and other intellectual property
rights to technologies and related standards that are important to us. We
expect that we may increasingly be subject to infringement claims as the number
of competitors in our industry grows and the functionality of products in
different industries overlap. In addition, our competitors may have filed or
intend to file patent applications covering aspects of their technology that
they may claim our intellectual property infringes. Although we have not been
party to any litigation asserting claims that allege infringement of
intellectual property rights, we cannot assure you that we will not be a party
to litigation in the future. Any third party claims, with or without merit,
could be time-consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays or require
us to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to us, if at
all. A successful claim of product infringement against us could harm our
business. See "Business--Legal Proceeding."
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<PAGE>
Employees
As of December 31, 1999, we had 71 employees, including 32 in sales and
marketing, 18 in research and development, nine in operations and 12 in general
and administrative functions. We are not subject to any collective bargaining
agreements and believe that our employee relations are good. Competition for
employees in our industry is intense and our future success depends on our
ability to attract, retain and motivate highly-skilled employees.
Facilities
Our executive offices are located in Mountain View, California, where we
lease approximately 40,000 square feet under the terms of a lease that expires
in August 2002. We believe that these existing facilities are adequate to meet
current foreseeable requirements or that suitable additional or substitute
space will be available on commercially reasonable terms.
Legal Proceedings
In July 1999, we were contacted by legal counsel representing Pixion, Inc.,
a web conferencing provider, with allegations that we misappropriated trade
secrets under an August 1997 license and distribution agreement. Pixion
essentially alleged that we failed to destroy any shared confidential
information disclosed pursuant to the agreement, and that their confidential
information was used in the development of our LiveDemo software product.
Pixion also alleged copyright and trademark infringement. After initial
attempts to resolve this issue, Pixion has failed to respond to any of our
requests to move this issue forward, and our last contact with Pixion was in
October 1999. Although we have not received any additional communications from
Pixion, we are prepared to vigorously defend ourselves if and when such claims
are brought to court. If a lawsuit is brought to court, we may be forced to
expend time, money and resources in defending against such lawsuit, and if we
are unsuccessful in our defense, our business may be harmed. Trade secret
misappropriation cases are inherently fact-specific, making it difficult to
predict with any degree of certainty the outcome of a given dispute. This
uncertainty is heightened by the fact that such claims may be tried before a
jury, and that if the jury finds that a defendant acted willfully or in bad
faith, it may award the plaintiff punitive damages that could be substantial,
in addition to injunctive relief, damages and attorneys' fees. It is thus
difficult to quantify the potential extent of our exposure, although it could
be very substantial.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information with respect to our executive
officers and directors as of March 31, 2000:
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
Barry James Folsom.......... 52 President, Chief Executive Officer and Director
Kevin R. Evans.............. 42 Chief Financial Officer and Secretary
Kathy Hearn Bosse........... 50 Vice President, Operations
Stephen C. Brown............ 43 Vice President, Worldwide Sales
William G. Glazier.......... 41 Vice President, Marketing
James A. Hogan.............. 42 Vice President, Business Development
Michael R. Jordan........... 50 Vice President, Engineering
J. Phillip Samper........... 65 Chairman of the Board of Directors
Lon H. H. Chow.............. 35 Director
Philip T. Gianos............ 50 Director
Domenic J. LaCava........... 59 Director
Richard P. Magnuson......... 44 Director
Rory T. O'Driscoll.......... 35 Director
</TABLE>
Barry James Folsom has served as our president, chief executive officer and
a director since October 1997. From September 1996 to August 1997, Mr. Folsom
served as a consultant and vice president of sales and marketing for Exodus
Communications, an Internet hosting company. From January 1995 to August 1996,
Mr. Folsom served as chief executive officer and president of Vivid Business
Systems, an e-commerce tools company. Prior to that, Mr. Folsom served in
various capacities at Spectrum Holobyte, Radius, Focus Systems, Sun
Microsystems and Digital Equipment Corporation. Mr. Folsom holds a B.S. degree
in electrical engineering and a M.S. degree in computer science from the
Georgia Institute of Technology.
Kevin R. Evans has served as our chief financial officer and secretary since
November 1999. From January 1998 to June 1999, Mr. Evans served as the chief
financial officer of Sequel, Inc., a computer service and support company. From
December 1995 to October 1997, Mr. Evans served as chief financial officer of
Madge Networks, N.V., a networking company. From May 1990 to November 1995, Mr.
Evans served as Vice President of Merisel, Inc., a computer equipment and
software distribution company. Prior to that, Mr. Evans served in various
capacities at Kerr Glass Group, Wells Fargo Bank and ARA Services, Inc. Mr.
Evans holds a dual B.A. degree in economics and management from Sonoma State
University and a M.B.A. degree from San Diego State University.
Kathy Hearn Bosse has served as our vice president of operations since
November 1999. From November 1997 to October 1999, Ms. Bosse served as vice
president of operations at UpShot.com, an Internet-based sales tool provider.
From August 1995 to August 1997, Ms. Bosse worked as a director of channel
marketing with Remedy, an enterprise software company. From October 1993 to
March 1995, Ms. Bosse worked as a director of worldwide sales support with
Network General Corporation, a network equipment company. Prior to that, Ms.
Bosse worked in various capacities at Network Equipment Technologies,
Ungermann-Bass and Tymnet. Ms. Bosse holds a B.S. degree in Mathematics and a
M.A.S. degree in Computer Science from Southern Methodist University.
Stephen C. Brown has served as our vice president of worldwide sales since
June 1999. From August 1998 to May 1999, Mr. Brown served as director of
business development with Tumbleweed Software, an Internet
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messaging company. From July 1997 to July 1998, Mr. Brown was a private
investor. From June 1995 to June 1997, Mr. Brown served as vice president of
sales with QRS Corporation, an electronic commerce information services
company. From December 1984 to June 1995, Mr. Brown served in various sales
management capacities with Federal Express, a global transportation and
logistics information company. Mr. Brown holds a B.A. degree in political
science from California State University at Long Beach.
William G. Glazier has served as our vice president of marketing since
January 1999. From June 1997 to October 1998, Mr. Glazier served as vice
president of marketing with Eloquent, Inc., an internet software and services
firm. From April 1995 to June 1997, Mr. Glazier served as a director of the
workstations business with Digital Equipment Corporation, a computer company.
From October 1989 to April 1995, Mr. Glazier served as director of marketing at
Silicon Graphics Inc., a computer company. Prior to that, Mr. Glazier served in
various capacities at Bain and Company. Mr. Glazier holds a B.A. degree in
government and economics from Harvard College and a M.B.A. degree from Stanford
University.
James A. Hogan has served as our vice president of business development
since March 1999. From July 1998 to February 1999, Mr. Hogan served as
president and chief executive officer of Silicon Systems and Technologies, a
systems software company. From October 1996 to July 1998, Mr. Hogan served as
general manager and corporate vice president of worldwide marketing and sales
for Zitel Corporation, a systems software and services company. From November
1995 to October 1996, Mr. Hogan served as a senior director of market
development with NETCOM On-Line Communications Services, Inc., an Internet
access provider. From January 1995 to November 1995, Mr. Hogan served as vice
president of marketing and sales at CyberSource Corporation, an Internet-based
software distribution company. Prior to that, Mr. Hogan served in various
capacities at CompuServe, Inc. and IBM Corporation. Mr. Hogan holds a B.B.A.
degree and a M.B.A. degree from the University of Michigan.
Michael R. Jordan has served as our vice president of engineering since
November 1996. From May 1994 to September 1996, Mr. Jordan served as a director
and as a vice president of console software at 3DO, a software development
company. Prior to that, Mr. Jordan served in various capacities at NCD, Ridge &
Gavilan, Stratus & Tandem and GE/Honeywell. Mr. Jordan holds a B.S.E.E. from
Arizona State University.
J. Phillip Samper has served as the chairman of the board of directors of
PlaceWare since December 1998. Mr. Samper is currently a managing director of
Gabriel Venture Partners, L.L.C., a venture capital firm, and has been a member
of that firm since November 1998. From November 1997 to June 1998, Mr. Samper
served as chief executive officer and president of Avistar Systems Corporation,
a video collaboration company. From 1996 to 1997, Mr. Samper served as
chairman, chief executive officer and president of Quadlux, Inc., a commercial
and residential cooking appliances company. From May 1995 to March 1996, Mr.
Samper served as chairman and chief executive officer of Cray Research, Inc., a
computer products company. From January 1994 to March 1995, Mr. Samper served
as president and chief executive officer of Sun Microsystems Computer
Corporation. Prior to that, Mr. Samper served as managing partner of FRN Group,
a private investment consulting firm. Mr. Samper currently serves on the boards
of iTango Systems, Inc. and SalesHound.com, Inc., each of which is a privately-
held company, and the Interpublic Group of Companies, Inc. and Sylvan Learning
Systems, Inc. Mr. Samper holds a B.S. degree from the University of California,
Berkeley, a B.F.T. from the American Graduate School of International
Management and a M.S.M from the Massachusetts Institute of Technology.
Lon H. H. Chow has served as a director of PlaceWare since April 1999. Mr.
Chow is currently a general partner with Apex Investment Partners, a venture
capital firm, and has been a member of that firm since October 1997. From
September 1993 to October 1997, Mr. Chow was a management consultant with
Mercer Management Consulting (formerly Strategic Planning Associates). Prior to
that, Mr. Chow served in various operating management roles at Pacific Telesis.
Mr. Chow holds a B.A. degree in international relations from the University of
California, Davis and an M.B.A. degree from the Wharton School.
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<PAGE>
Philip T. Gianos has served as a director of PlaceWare since September 1999.
Mr. Gianos is currently a general partner with InterWest Partners, a venture
capital firm, and has been a member of that firm since 1982. Prior to joining
InterWest Partners, Mr. Gianos was with IBM Corporation. Mr. Gianos is a board
member of Xilinx, Ramp Networks, T/R Systems and the Western Association of
Venture Capitalists. Mr. Gianos holds a B.S. degree and an M.S. degree in
electrical engineering from Stanford University and an M.B.A. degree from
Harvard University.
Domenic J. LaCava has served as a director of PlaceWare since November 1998.
Mr. LaCava is currently the president of Eastman Software, Inc., and has been
with that company since November 1999. From November 1997 to October 1999, Mr.
LaCava worked with several emerging growth companies. From January 1997 to
October 1997, Mr. LaCava served as president and chief operating officer of
PictureTel Corporation, a video conferencing company. From December 1993 to
December 1996, Mr. LaCava served as a vice president of PictureTel Corporation.
Prior to that, Mr. LaCava served in various capacities at PowerOpen
Association, Digital Equipment Corporation and IBM. Mr. LaCava currently sits
on the board of Acunet.net, a privately held company. Mr. LaCava holds an
A.S.E.E. degree from the Wentworth Institute of Technology.
Richard P. Magnuson has served as a director of PlaceWare since November
1996. Mr. Magnuson is currently a private venture capital investor in a number
of emerging growth companies, and has been engaged in this activity since
January 1996. From 1982 to December 1996, Mr. Magnuson was a general partner
and associate with Menlo Ventures, a venture capital firm. Mr. Magnuson
currently serves on the boards of AVCOM Technologies, Inc., eSavingsCenter,
Inc., HealthAnswers, Inc. and HotData, Inc., each of which is a privately-held
company, and Rogue Wave Software, Inc. and California Water Service Group. Mr.
Magnuson holds a B.A degree in economics, a J.D. degree and an M.B.A. degree
from Stanford University.
Rory T. O'Driscoll has served as a director of PlaceWare since September
1999. Mr. O'Driscoll is currently a vice president and general partner of
BankAmerica Ventures, a venture capital firm, and has served in this capacity
since September 1993. Mr. O'Driscoll serves on the boards of netGenesis, a
business intelligence software and services provider, and several other
privately held companies. Mr. O'Driscoll holds a B.Sc. degree in economics from
the London School of Economics.
Board Composition
We currently have authorized seven directors. Our certificate of
incorporation provides for a classified board of directors consisting of three
classes of directors, each serving staggered three-year terms. As a result, a
portion of the board of directors will be elected each year. To implement the
classified structure, prior to the consummation of the offering, two of the
nominees will be elected to one-year terms, two will be elected to a two-year
term and three will be elected to three-year terms. Thereafter, directors will
be elected for three-year terms. Lon H. H. Chow and Rory T. O'Driscoll have
been designated Class I directors whose term expires at the 2001 annual meeting
of stockholders. Philip T. Gianos and Richard P. Magnuson have been designated
Class II directors whose term expires at the 2002 annual meeting of
stockholders. Barry James Folsom, Domenic J. LaCava and J. Phillip Samper have
been designated Class III directors whose term expires at the 2003 annual
meeting of stockholders. There are no family relationships among any of our
directors, officers or key employees.
Board Committees
Our Board of Directors has an audit committee and a compensation committee.
Our audit committee reviews, acts on and reports to our Board of Directors
with respect to various auditing and accounting matters, including the
selection of our independent accountants, the scope of our annual audits, fees
to be paid to the independent accountants, the performance of our independent
accountants and our accounting practices. Domenic J. LaCava, Richard P.
Magnuson and J. Phillip Samper are the members of our audit committee.
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<PAGE>
Our compensation committee establishes salaries, incentives and other forms
of compensation for officers and other employees. This committee also
administers our incentive compensation and benefit plans. Lon H. H. Chow, Rory
T. O'Driscoll and J. Phillip Samper are the members of the compensation
committee. Barry James Folsom, our chief executive officer, will participate in
all discussions and decisions regarding salaries and incentive compensation for
all of our employees and consultants, except that he will be excluded from
decisions regarding his own compensation.
Director Compensation
Our directors do not currently receive any cash compensation for services on
the board of directors or any committee of our board, but directors may be
reimbursed for certain expenses in connection with attendance at board of
directors and committee meetings. All directors are eligible to participate in
our 2000 Equity Incentive Plan. Non-employee directors are eligible to
participate in our 2000 Non-Employee Directors' Stock Option Plan.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee is one of our officers or
employees. No interlocking relationship exists between our Board of Directors
or compensation committee and the board of directors or compensation committee
of any other company, nor has such an interlocking relationship existed in the
past.
Executive Compensation
The following table sets forth information concerning the compensation
earned that we paid during the year ended December 31, 1999 to our chief
executive officer and the four next most highly compensated executive officers
whose aggregate cash compensation exceeded $100,000 during that fiscal year.
All option grants were made under our 1997 Stock Plan.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------- ------------
Securities
Other Annual Underlying
Name and Principal Position Salary($) Bonus($) Compensation Options
- --------------------------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Barry James Folsom
President and Chief Executive Officer.. 175,012 46,579 -- 228,500
Kevin R. Evans
Chief Financial Officer and Secretary.. 30,775 10,000 -- 210,000
Stephen C. Brown
Vice President, Worldwide Sales........ 91,809 24,577 $27,397 135,000
William G. Glazier
Vice President, Marketing.............. 143,298 39,383 -- 200,000
Michael R. Jordan
Vice President, Engineering............ 139,510 38,722 -- 10,000
</TABLE>
Mr. Evans joined us in November 1999, Mr. Brown joined us in June 1999 and
Mr. Glazier joined us in January 1999.
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<PAGE>
Option Grants in 1999
The following table sets forth summary information regarding the option
grants made to our chief executive officer and each of our four other most
highly paid executive officers during 1999. Options granted to purchase shares
of our common stock under our 1997 Stock Plan are generally immediately
exercisable by the optionee but are subject to a right of repurchase pursuant
to the vesting schedule of each specific grant. In the event that a purchaser
ceases to provide service to us and our affiliates, we have the right to
repurchase any of that person's unvested shares of common stock at the original
option exercise price. 25% of each option vests on the one year anniversary of
employment and the remainder vest in a series of equal monthly installments
beginning on the one year anniversary of employment and continuing over the
next three years of service. The exercise price per share is equal to the fair
market value of our common stock on the date of grant as determined by our
board of directors.
The percentage of total options was calculated based on options to purchase
an aggregate of 1,973,883 shares of common stock granted under our 1997 Stock
Plan in 1999. The potential realizable value is calculated by assuming that the
initial public offering price of $13.00 per share, based on the mid-point of
the filing range, appreciates at the indicated rate for the remaining term of
the option and that the option is exercised at the exercise price and sold on
the last day of its term at the appreciated price. The potential realizable
value computation is net of the applicable exercise price, but does not take
into account applicable federal or state income tax consequences and other
expenses of option exercises or sales of appreciated stock. The values shown do
not consider non-transferability or termination of the options upon termination
of such employment with us. These assumed rates of appreciation comply with the
rules of the Securities and Exchange Commission and do not represent our
estimate of future stock prices. Actual gains, if any, on stock option
exercises will be dependent on the future performance of our common stock. See
"Compensation Plans" for a description of the material terms of these options.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------
% of Total
Number of Options Potential Realizable
Securities Granted to Value at Assumed
Underlying Employees Exercise Annual Rates of Stock
Options In Last Price Expiration Price Appreciation
Name Granted (#) Fiscal Year ($/share) Date for Option Term
- ---- ----------- ----------- --------- ---------- ----------------------
5% 10%
<S> <C> <C> <C> <C> <C> <C>
Barry James Folsom...... 228,500 11.6% $2.00 12/30/09 4,381,631 7,247,712
Kevin R. Evans.......... 210,000 10.6% $1.00 11/23/09 4,236,882 6,870,917
Stephen C. Brown........ 135,000 6.8% $0.20 6/09/09 2,831,710 4,525,018
William G. Glazier...... 200,000 10.1% $0.20 2/10/09 4,195,126 6,703,730
Michael R. Jordan....... 10,000 0.4% $0.20 7/14/09 209,756 335,187
</TABLE>
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<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table sets forth, as to the named executive officers,
information concerning stock options granted during the fiscal year ended
December 31, 1999.
The information regarding the value realized reflects the fair market value
of our common stock underlying the option of date of exercise minus the
aggregate exercise price of the option.
The information regarding the value of unexercised in-the-money options is
based on a value of $13.00 per share, the assumed initial public offering
price, minus the per share exercise price, multiplied by the number of shares
underlying the option.
Certain of the shares held by Mr. Evans and Mr. Brown are subject to our
right to repurchase them at cost.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares Fiscal Year End (#) Fiscal Year End ($)
Acquired on Value -------------------------------------------------
Name Exercise (#) Realized ($) Vested Unvested Exercisable Unexercisable
- ---- ------------ ------------ ---------- ------------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Barry James Folsom...... -- -- -- 228,500 2,513,500 --
Kevin R. Evans.......... 210,000 2,520,000 -- -- -- --
Stephen C. Brown........ 135,000 1,728,000 -- -- -- --
William G. Glazier...... -- -- -- 200,000 2,560,000 --
Michael R. Jordan....... 10,000 128,000 -- -- -- --
</TABLE>
Compensation Plans
1997 Stock Plan
In March 1997 the board of directors adopted, and the stockholders approved,
the 1997 stock plan. Our 1997 stock plan was amended in July 1998 and the
stockholders approved the amendment. The incentive stock option plan was again
amended in July 1999 and the stockholders approved this second amendment. The
plan was further amended in December 1999 and the stockholders approved this
third amendment. An aggregate of 4,752,833 shares of common stock currently are
authorized for issuance under the plan. The plan will terminate as of the
effective date of the initial public offering. The termination of the plan will
have no effect on the options that have been granted thereunder.
The plan permits the grant of stock options to employees, non-employee
directors and consultants. Stock options may be either incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, or nonstatutory stock options. In addition, the plan permits the award
or sale of shares of our common stock.
The plan is administered by our board of directors. Our board of directors
may delegate its authority to administer the plan to a committee of one or more
Board members appointed by our board of directors.
In the event of certain changes in control in our beneficial ownership, all
outstanding stock awards under the 1997 stock plan may be assumed, continued or
substituted for by any surviving entity. If the surviving entity determines not
to assume, continue or substitute for such awards, then for those optionholders
in our service at that time, the vesting of such stock awards will be
accelerated and such stock awards will be terminated upon the change in control
if not previously exercised.
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Our board of directors may amend or modify the plan at any time. However, no
amendment or modification shall adversely affect the right and obligations with
respect to options or unvested awards unless the participant consents to the
amendment or modification. In addition, our board of directors shall not,
without the approval of the stockholders,
. increase the maximum number of shares issuable under the 1997 Plan
(except for permissible adjustments in the event of certain changes in
the company's capitalization); or
. materially change the class of persons who are eligible for the grants
of the incentive stock options.
2000 Equity Incentive Plan
In February 2000, our board of directors adopted our 2000 equity incentive
plan. The 2000 plan will be effective on the effective date of this initial
public offering. The 2000 plan is intended to replace and supersede the 1997
stock plan. A total of 3,000,000 shares of our common stock have been reserved
for issuance under the 2000 plan. When a stock award expires or is terminated
before it is exercised, the shares not acquired pursuant to the stock awards
shall again become available for issuance under the 2000 plan. No optionee may
be granted options covering more than 1,500,000 shares during any calendar
year. In no event may an option be exercised following its expiration date.
The 2000 plan permits the grant of options to employees, directors and
consultants. Options may be either incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended, or
nonstatutory stock options. In addition, the 2000 plan permits the grant of
stock bonuses and rights to purchase restricted stock.
The 2000 plan is administered by our board of directors. The board of
directors may delegate its authority to administer the 2000 plan to a committee
of two or more board members appointed by the board of directors. The
administrator has the authority to select the eligible persons to whom award
grants are to be made, to designate the number of shares to be covered by each
award, to determine whether an option is to be an incentive stock option or
nonstatutory stock option, to establish vesting schedules, to specify the
exercise price of options and the type of consideration to be paid upon
exercise and to specify other terms of awards.
In general, the terms of stock options granted under the 2000 plan may not
exceed 10 years. An optionholder may not transfer a stock option other than by
will or the laws of descent and distribution. The exercise price for 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 for a nonstatutory stock
option cannot be less than 85% of the fair market value of the common stock on
the date of grant. In the event the optionholder is a 10% stockholder, then the
exercise price per share shall not be less than 110% of the fair market value
of common stock on the date of grant.
Unless the terms of an optionholder's stock option agreement provide for
earlier termination, in the event an optionholder's service relationship with
us, or any affiliate of ours, ceases due to death, the optionholder's
beneficiary may exercise any vested options up to 18 months after the date such
service relationship ends. In the event an optionholder's service relationship
with us, or any affiliate of ours, ceases due to disability, the optionholder
may exercise any vested option up to 12 months after the cessation of service.
If an optionholder's relationship with us, or any affiliate of ours, ceases for
any reason other than disability or death, the optionholder may (unless the
terms of the stock option agreement provide for earlier termination) exercise
any vested options up to 3 months after cessation of service.
Incentive stock options may be granted only to our employees. The aggregate
fair market value, determined at the time of grant, of shares of our common
stock with respect to which incentive stock options are exercisable for the
first time by an optionholder during any calendar year under all of our stock
plans may not exceed $100,000. No incentive stock option may be granted to any
person who at, the time of the grant, owns or is deemed to own stock possessing
more then 10% of our total combined voting power unless the term of the
incentive stock option award does not exceed five years from the date of grant.
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<PAGE>
In the event of certain changes in control in our beneficial ownership all
outstanding stock awards under the 2000 plan may be assumed, continued or
substituted for by any surviving entity. If the surviving entity determines not
to assume, continue or substitute for such awards, then for those optionholders
in our service at that time, the vesting of such stock awards will be
accelerated and such stock awards will be terminated upon the change in control
if not previously exercised.
The terms of any stock bonuses or restricted stock purchase awards granted
under the 2000 plan will be determined by the administrator. The administrator
may award stock bonuses in consideration of past services without a purchase
payment. Shares sold or awarded under the 2000 plan may be subject to
repurchase by the company. The purchase price of restricted stock under any
restricted stock purchase agreement will not be less than 85% of the fair
market value of the company's common stock on the date of grant.
Our board of directors may amend or modify the 2000 plan at any time.
However, no amendment or modification shall adversely affect the right and
obligations with respect to options or unvested awards unless the participant
consents to the amendment or modification. In addition, the board of directors
shall not, without the approval of the stockholders, (i) increase the maximum
number of shares issuable under the 2000 plan (except for permissible
adjustments in the event of certain changes in the company's capitalization),
materially modify the eligibility requirements for participation or (ii)
materially increase the benefits accruing to participants.
2000 Employee Stock Purchase Plan
In February 2000, the board of directors adopted our 2000 employee stock
purchase plan. A total of 500,000 shares of common stock have been authorized
for issuance under the purchase plan. As of each December 31st, beginning with
December 31, 2001 and continuing through and including December 31, 2008 the
share reserve will increase by the least of the following:
. 1% of our total outstanding common stock;
. 250,000 shares of common stock; or
. a lesser amount as determined by our board of directors. The purchase
plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Internal Revenue Code of 1986, as
amended.
Under our purchase plan, eligible employees will be able to purchase common
stock at a discount price in periodic offerings not to exceed twenty-seven
months in length. The purchase plan will commence on the effective date of this
initial public offering. The first offering period is scheduled to commence
with our initial public offering and end on April 30, 2002.
Unless otherwise determined by the board of directors, all employees are
eligible to participate in the purchase plan so long as they are employed by us
(or a subsidiary designated by the board of directors) for at least 20 hours
per week and are customarily employed by us (or a subsidiary designated by the
board of directors) for at least five months per calendar year.
Under the purchase plan, employees who participate in an offering may have
up to 15% of their earnings for the period of that offering withheld. The
amount withheld is used on each purchase date of the offering period to
purchase shares of common stock. The price paid for common stock on the
purchase dates will equal the lower of 85% of the fair market value of the
common stock first day of the offering period or 85% of the fair market value
of the common stock on the 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.
Upon a change in control of the beneficial ownership of our outstanding
stock or substantially all of our assets, the board of directors has discretion
to provide that each right to purchase common stock will be assumed or an
equivalent right substituted by the successor entity, or the board of directors
may provide for all sums collected by payroll deductions to be applied to
purchase stock immediately prior to the effective date of the change in control
transaction.
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Our board of directors has the authority to amend or terminate the purchase
plan; provided, however, that no amendment or termination of the purchase plan
may adversely affect any outstanding rights to purchase common stock.
Amendments will generally be submitted for stockholder approval only to the
extent required by law.
2000 Non-Employee Directors' Stock Option Plan
In February 2000, our board of directors adopted our 2000 non-employee
directors' stock option plan. The non-employee directors' plan will be
effective on the effective date of this initial public offering. A total of
650,000 shares of our common stock have been reserved for issuance under our
non-employee directors' plan. When a stock option expires or is terminated
before its is exercised, the shares not acquired pursuant to the stock option
shall again become available for issuance under the non-employee directors'
plan.
Our non-employee directors' plan permits the grant of nonstatutory options
to non-employee directors. Our non-employee directors' plan is administered by
the board of directors, however; the grant of stock options is automatic, as
described below:
. Upon the completion of the initial public offering, each non-employee
director who was a non-employee director as of the date of the initial
public offering or who is first elected or appointed after the date of
the prospectus as a non-employee director will automatically be granted
an option to purchase 30,000 shares of common stock. Such option shall
vest ratably over 36 months. Notwithstanding the foregoing, Messrs.
LaCava and Samper are not eligible for this initial grant.
. On the date of each annual meeting of our stockholders, commencing with
our annual meeting in 2001, each non-employee director will
automatically receive an option to purchase 10,000 shares of our common
stock; provided, however, that if the person has not been serving as a
non-employee director for the entire period since the preceding annual
meeting, then the number of shares subject to the grant will be reduced
pro rata for each full quarter prior to the date of grant during which
such person did not serve as a non-employee director. Such option will
vest ratably over 12 months.
. Upon the completion of the initial public offering each non-employee
director who is then the chairman of a primary committee will
automatically be granted an option to purchase 3,000 shares of common
stock. Any non-employee director who is appointed or elected chairman of
a primary committee after the completion of the initial public offering,
commencing with our annual meeting in 2001, will automatically be
granted an option to purchase 3,000 shares of common stock on the date
of each annual meeting. Each such option shall vest ratably over 12
months. Primary committees consist of the compensation committee, audit
committee, and any other committee designated as a primary committee by
the board of directors.
In general, the terms of stock options granted under the non-employee
directors' plan may not exceed 10 years. An optionholder may not transfer a
stock option other than by will or the laws of descent and distribution. The
exercise price for nonstatutory stock options will be 100% of the fair market
value of the common stock on the date of grant.
Unless the terms of an optionholder's stock option agreement provide for
earlier termination, in the event an optionholder's service relationship with
us, or any affiliate of ours, ceases due to death, the optionholder's
beneficiary may exercise any vested options up to 18 months after the date such
service relationship ends. In the event an optionholder's service relationship
with us, or any affiliate of ours, ceases due to disability, the optionholder
may exercise any vested option up to 12 months after the cessation of service.
If an optionholder's relationship with us, or any affiliate of ours, ceases for
any reason other than disability or death, the optionholder may (unless the
terms of the stock option agreement provide for earlier termination) exercise
any vested options up to 3 months from cessation of service.
In the event a non-employee director, who first became a non-employee
director prior to the initial public offering, is terminated in connection with
certain changes in control in our beneficial ownership, the vesting of
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100% of the unvested options held by such non-employee director shall
accelerate. In the event a non-employee director, who first became a non-
employee director on after the initial public offering, is terminated within 12
months of certain changes in control in our beneficial ownership, the vesting
of 100% of the unvested options held by such non-employee director shall
accelerate.
The board of directors may amend or modify the non-employee directors' plan
at any time. However, no such amendment or modification shall adversely affect
the right and obligations with respect to options unless the participant
consents to such an amendment or modification.
401(k) Plan
We sponsor a 401(k) plan, a defined contribution plan intended to qualify
under Section 401(a) of the Internal Revenue Code of 1986, as amended. All
employees are eligible to participate. Participants may make pre-tax
contributions to the 401(k) plan of up to 25% of their eligible earnings,
subject to a statutorily prescribed annual limit ($10,500 in calendar year
2000). Under the 401(k) Plan, each employee is fully vested in his or her
deferred salary contributions. Employee contributions are held and invested by
the 401(k) Plan's trustee. The 401(k) Plan also permits us to make matching
contributions and profit-sharing contributions, subject to established limits.
Each participant's contributions, and the corresponding investment earnings,
are generally not taxable to the participants until withdrawn. Individual
participants may direct the trustee to invest their accounts in authorized
investment alternatives.
Executive Severance Benefit Plan
Currently, Kathy Bosse, Stephen Brown, Kevin Evans, Barry James Folsom,
William Glazier, James Hogan and Michael Jordan are participants in our
executive severance benefit plan . Under the plan, we agreed that in the event
the executive's employment is terminated without cause, we would;
. continue the base salary of the executive for three (3) months (or such
longer period as we determine, in our sole discretion); and
. if the executive elects COBRA coverage, pay the continued cost for such
coverage for a number of months equal to the number of months of the
salary continuation payments under the plan.
In addition, if the executive's employment is terminated without cause or
the executive terminates employment for good reason, in either event within 13
months following a change in control in our beneficial ownership, we would
. accelerate 100% of the vesting all of such executive's unvested stock
options,
. continue the base salary of the executive for at least three (3) months;
and
. if the executive elects COBRA coverage, pay the continued cost for the
such coverage for a number of months equal to the number of months of
the salary continuation payments under the executive severance benefit
plan.
Limitations on Liability and Indemnification of Directors and Officers
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
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<PAGE>
. unlawful payments of dividends or unlawful stock repurchases or
redemption; or
. any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and executive officers and may indemnify other officers and
employees and our agents to the fullest extent permitted by law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions in such capacity,
regardless of whether the bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors
and executive officers for expenses, including attorneys' fees, judgments,
fines and settlement amounts incurred by any such person in any action or
proceeding, including any action by or in the right of PlaceWare, arising out
of such person's services as a director or executive officer of ours, any
subsidiary of ours or any other company or enterprise to which the person
provides services at our request. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
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CERTAIN TRANSACTIONS
Other than compensation agreements and other arrangements, which are
described as required in "Management," and the transactions described below,
since October 1996, there has not been, nor is there currently proposed, any
transaction or series of similar transactions to which we were or will be a
party:
. in which the amount involved exceeded or will exceed $60,000; or
. in which any holder of more than 5% of our common stock on an as-
converted basis, director, executive officer or any member of their
immediate family had or will have a direct or indirect material interest.
Series A Preferred Stock Financing
On November 25, 1996, we issued and sold shares of our series A preferred
stock, which shares are convertible into 1,705,000 shares of our common stock,
to investors at a per share price of approximately $1.00 per common equivalent
share. The price of our series A preferred stock was determined through arms
length negotiations among us and investors not affiliated with us at the time
of this financing. Upon the closing of this offering, each share of series A
preferred stock will automatically convert into one share of common stock. At
the assumed initial public offering price of $13.00 per share, the series A
preferred stock will have a value of $22,165,000. The investors in the
financing included the following principal stockholders, officers and directors
and their related entities:
<TABLE>
<CAPTION>
Equivalent
Common
Stock
Name Purchased
---- ----------
<S> <C>
Xerox Corporation................................................. 455,000
Rekhi Family Trust................................................ 300,000
Magnuson Revocable Trust.......................................... 200,000
</TABLE>
The shares issued to Xerox Corporation were issued in connection with the
execution of a software license and technology assignment agreement.
Series B Preferred Stock Financing
On April 23, 1997, May 22, 1998, June 28, 1998, March 8, 1999 and April 1,
1999, we issued and sold shares of our series B preferred stock, which shares
are convertible into 5,120,000 shares of our common stock, to investors at a
per share price of approximately $2.00 per common equivalent share. The price
of our series B preferred stock was determined through arms length negotiations
among us and investors not affiliated with us at the time of this financing.
Upon the closing of this offering, each share of series B preferred stock will
automatically convert into one share of common stock. At the assumed initial
public offering price of $13.00 per share, the series B preferred stock will
have a value of $66,560,000. The investors in the financing included the
following principal stockholders, officers and directors and their related
entities:
<TABLE>
<CAPTION>
Equivalent
Common
Stock
Name Purchased
---- ----------
<S> <C>
Entities affiliated with InterWest Partners....................... 1,587,500
Entities affiliated with Apex Investment Fund..................... 1,250,000
Bay Partners SBIC, L.P............................................ 1,000,000
Xerox Corporation................................................. 447,514
Magnuson Revocable Trust.......................................... 85,191
J. Phillip Samper................................................. 50,000
Domenic H. LaCava................................................. 10,000
</TABLE>
Series C Preferred Stock Financing
On September 17, 1999, we issued and sold shares of our series C preferred
stock, which shares are convertible into 4,954,785 shares of our common stock,
to investors at a per share price of approximately
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<PAGE>
$3.80 per common equivalent share. The price of our series C preferred stock
was determined through arms length negotiations among us and investors not
affiliated with us at the time of this financing. Upon the closing of this
offering, each share of series C preferred stock will automatically convert
into one share of common stock. At the assumed initial offering price of $13.00
per share, the series C preferred stock will have a value of $64,412,205. The
investors in the financing included the following principal stockholders,
officers and directors and their related entities:
<TABLE>
<CAPTION>
Equivalent
Common
Stock
Name Purchased
---- ----------
<S> <C>
BankAmerica Ventures.............................................. 1,447,368
Entities affiliated with InterWest Partners....................... 657,894
Entities affiliated with Gabriel Venture Partners................. 394,737
Bay Partners SBIC, L.P............................................ 263,157
Entities affiliated with Apex Investment Fund..................... 263,085
Xerox Corporation................................................. 131,578
Magnuson Revocable Trust.......................................... 52,631
Barry James Folsom................................................ 13,157
</TABLE>
Investor Rights Agreement
PlaceWare and the preferred stockholders described above have entered into
an agreement, pursuant to which these and other preferred stockholders possess
registration rights with respect to their shares of common stock.
Indemnification Agreements
We have entered into indemnification agreements with our directors and our
executive officers for the indemnification of an advancement of expenses to
these persons to the fullest extent permitted by law. We also intend to enter
into indemnification agreements with our future directors and officers. See
"Management--Limitations on Liability and Indemnification of Directors and
Officers."
Employment Contracts and Change of Control Arrangements
At the time of commencement of employment, our employees generally sign
offer letters specifying basic terms and conditions of employment. In general,
our employees are not subject to written employment agreements.
On February 2, 1998, we entered into an employment offer letter with Barry
James Folsom, our president, chief executive officer and a director. The letter
was subsequently amended pursuant to the executive severance benefit plan
described below. Pursuant to such amended offer letter and in addition to any
benefits he is entitled to receive under the executive severance benefit plan,
in the event that Mr. Folsom is terminated without cause prior to February 16,
2001, he will be entitled to receive, as severance, continued payment of his
base salary and health benefits for six months. In the event that Mr. Folsom is
terminated without cause on or after February 16, 2001, he will be entitled to
receive, as severance, continued payment of his base salary and health benefits
for nine months.
On November 5, 1999, we entered into an employment offer letter with Kevin
R. Evans, our chief financial officer and secretary. The letter was
subsequently amended pursuant to the executive severance benefit plan described
below. Pursuant to such amended offer letter and in addition to any benefits he
is entitled to receive under the executive severance benefit plan, in the event
that Mr. Evans is terminated without cause, he shall be entitled to receive, as
severance, continued payment of his base salary for three months and an extra
six months of vesting. Furthermore, in the event that Mr. Evans is
constructively terminated, he shall be entitled to receive, as severance,
continued payment of his base salary and health benefits for six months and an
extra six months of vesting.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of December 31, 1999, by
. each of our directors;
. each of our named executive officers;
. all of our named executive officers and directors as a group; and
. each person known by us to be the beneficial owner of more than 5% of our
outstanding common stock.
Except as otherwise noted, the address of each person listed in the table is
c/o PlaceWare, 295 North Bernardo Avenue, Mountain View, California 94043. The
table includes all shares of common stock issuable within 60 days of December
31, 2000 upon the exercise of options and other rights beneficially owned by
the indicated stockholders on that date. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
includes voting and investment power with respect to the shares.
To our knowledge, except under applicable community property laws or as
otherwise indicated, the persons named in the table have sole voting and sole
investment control with respect to all shares beneficially owned.
The applicable percentage of ownership for each stockholder is based on
15,508,535 shares of common stock outstanding as of December 31, 1999, together
with applicable options for that stockholder. Shares of common stock issuable
upon exercise of options and other rights beneficially owned are deemed
outstanding for the purpose of computing the percentage ownership of the person
holding those options and other rights, but are not deemed outstanding for
computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
Percentage
Beneficially
Number of Owned
Shares -----------------
Beneficially Prior to After
Name and Address Owned Offering Offering
- ---------------- ------------ -------- --------
<S> <C> <C> <C>
Directors and named executive officers:
Philip T. Gianos(1)........................... 2,245,394 14.5% 10.7%
Lon H. H. Chow(2)............................. 1,513,085 9.8 7.2
Rory T. O'Driscoll(3)......................... 1,447,368 9.3 6.9
J. Phillip Samper(4).......................... 794,737 5.1 3.8
Richard P. Magnuson(5)........................ 371,947 2.4 1.8
Domenic J. LaCava(6).......................... 60,000 * *
Barry James Folsom(7)......................... 834,157 5.3 4.0
Kevin R. Evans(8)............................. 210,000 1.4 1.0
William G. Glazier(9)......................... 200,000 1.3 1.0
Stephen C. Brown(8)........................... 135,000 * *
Michael R. Jordan(8).......................... 120,000 * *
All executive officers and directors as a
group (11 persons)........................... 7,931,688 49.6 37.8
Other 5% stockholders
Bay Partners SBIC, L.P........................ 1,263,157 8.1 6.0
10600 North DeAnza Blvd.
Cupertino, CA 95014
Xerox Corporation............................. 1,034,092 6.7 4.9
3333 Coyote Hill Road
Palo Alto, CA 94304
</TABLE>
- ---------------------
* Less than 1% of the outstanding shares of common stock.
(1) Consists of 2,178,098 shares held by InterWest Partners VI, L.P. and 67,296
shares held by InterWest Investors VI, L.P. Philip T. Gianos, one of our
directors is a managing director of the general partner of
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InterWest Partners VI, L.P. and InterWest Partners VI, L.P. The other
managing directors are Harvey B. Cash, Alan W. Crites, W. Scott Hedrick, W.
Stephen Holmes, Robert R. Momsen and Arnold L. Oronsky. Each managing
director may be deemed to share voting and investment power with respect to
these shares. Each managing director disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(2) Consists of 1,439,731 shares held by Apex Investment Fund III and 73,354
shares held by Apex Strategic Partners LLC. Lon H. H. Chow, one of our
directors, serves as a director and was an associate of Apex Investment
Partners III and Apex Strategic Partners. The other individuals with voting
and dispositive control of the shares are James A. Johnson, Brian E. Hand,
Mark T. Koulogeorge, Bret R. Maxwell and George M. Middlemas. Each such
individual may be deemed to share voting and investment power with respect
to these shares. Each such individual disclaims beneficial ownership of
such shares except to the extent of his pecuniary interest therein.
(3) Represents shares held by BankAmerica Ventures. Rory T. O'Driscoll, one of
our directors, is a general partner of BankAmerica Ventures. The other
managing directors are Lou Bock, Mark Brooks, John Dougery Jr., Kate D.
Mitchell and Robert M. Obuch. Each managing director may be deemed to share
voting and investment power with respect to these shares. Each managing
director disclaims beneficial ownership of such shares except to the extent
of his pecuniary interest therein.
(4) Includes 382,272 shares held by Gabriel Venture Partners, L.P. and 12,465
shares held by Gabriel Legacy Fund, L.P. J. Phillip Samper, our chairman of
the board of directors, is a managing director of the general partner of
Gabriel Venture Partners L.P. and Gabriel Legacy Fund, L.P. The other
managing director is Frederick W.W. Bolander. Each managing director may be
deemed to share voting and investment power with respect to these shares.
Each managing director disclaims beneficial ownership of such shares except
to the extent of his pecuniary interest therein.
(5) Consists of shares held by Richard P. Magnuson, one of our directors, held
in a revocable trust.
(6) Includes 50,000 shares exercisable within 60 days of December 31, 1999.
(7) Includes 228,500 shares exercisable within 60 days of December 31, 1999.
(8) A portion of these shares are subject to a right to repurchase which lapses
over time.
(9) Represents shares exercisable within 60 days of December 31, 1999.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Upon the completion of this offering, we will be authorized to issue
300,000,000 shares of common stock, $0.0001 par value, and 50,000,000 shares of
undesignated preferred stock, $0.0001 par value. The following description of
our capital stock does not purport to be complete and is subject to and
qualified in its entirety by our certificate of incorporation and bylaws, which
are included as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of applicable Delaware law.
Common Stock
As of December 31, 1999, there were 15,508,535 shares of common stock
outstanding which were held of record by 124 stockholders.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available for that
purpose. See "Dividend Policy." In the event we liquidate, dissolve or wind up,
the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
preferred stock, if any, then outstanding. The holders of common stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon the closing of this offering will be
fully paid and nonassessable.
Preferred Stock
Under our certificate of incorporation, the board has the authority, without
further action by stockholders, to issue up to 50,000,000 shares of preferred
stock in one or more series and to fix the rights, preferences, privileges,
qualifications and restrictions granted to or imposed upon such preferred
stock, including dividend rights, conversion rights, voting rights, rights and
terms of redemption, liquidation preference and sinking fund terms, any or all
of which may be greater than the rights of the common stock. The issuance of
preferred stock could adversely affect the voting power of holders of common
stock and reduce the likelihood that such holders will receive dividend
payments and payments upon liquidation. Such issuance could have the effect of
decreasing the market price of the common stock. The issuance of preferred
stock could also have the effect of delaying, deterring or preventing a change
in control. We have no present plans to issue any shares of preferred stock.
Warrants
In September 1997, in connection with a lease agreement, we issued a warrant
to purchase 40,625 shares of series B preferred stock at an exercise price of
$2.00 per share. These warrants are exercisable and will terminate upon the
later of September 30, 2007 or five years following the completion of this
offering or, subject to certain conditions, a change of control.
In November 1999, in connection the execution of a marketing arrangement, we
issued a warrant to purchase 275,000 shares of series C preferred stock at an
exercise price of $3.80 per share. The warrants become exercisable on the
earlier of ten years of the date of issuance of the warrant, upon certain
revenue milestones or upon breach of the agreement.
Registration Rights
As of December 31, 1999, the holders of 11,779,785 shares of our common
stock or their transferees are entitled to rights with respect to the
registration of these shares under the Securities Act. These rights are
provided under the terms of an agreement between us and the holders of these
securities. Subject to limitations in the
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<PAGE>
agreement, if we register any of our common stock either for our own account or
for the account of other security holders, these holders are entitled to
include their shares of common stock in that registration, subject to the
ability of the underwriters to limit the number of shares included in the
offering. We will be responsible for paying all registration expenses, and the
holders selling their shares will be responsible for paying all selling
expenses.
Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions
Delaware Takeover Statute
PlaceWare is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a business combination with an interested
stockholder for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A business combination includes
mergers, asset sale or other transactions resulting in a financial benefit to
the stockholder. An interested stockholder is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
a corporation's voting stock. The statute could have the effect of delaying,
deferring or preventing a change in control of PlaceWare.
Amended and Restated Certificate of Incorporation and Amended and Restated
Bylaws
Our amended and restated certificate specifies that our board of directors
will be classified into three classes of directors and each of the directors
may be removed from the board only for cause. In addition, the amended and
restated certificate specifies that the authorized number of directors may be
changed only by resolution of the board of directors and does not include a
provision for cumulative voting for directors. Our amended and restated
certificate also provides that any action required or permitted to be taken by
our stockholders must be effected at a duly called annual or special meeting of
stockholders and may not be effected by any consent in writing. In addition,
our amended and restated bylaws provide that special meetings of our
stockholders may be called only by the chairman of the board of directors, the
chief executive officer or the board of directors pursuant to a resolution
adopted by a majority of the total number of authorized directors, or by the
holders of 50% of the outstanding voting stock of PlaceWare. Our amended and
restated certificate may only be amended with the approval of 66 2/3% of our
outstanding voting stock and our amended and restated bylaws may be amended
either by the board or by the approval of 66 2/3% of our outstanding voting
stock. Furthermore, our amended and restated certificate requires the advance
notice of stockholders' nominations for the election of directors and business
brought before a meeting of stockholders. These provisions contained in our
amended and restated certificate and our amended and restated bylaws could
delay or discourage certain types of transactions involving an actual or
potential change in control or our management.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services L.L.C.
Nasdaq Stock Market National Market Listing
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "PLCW."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of our common stock in the
public market could adversely affect the market price of our common stock.
Upon completion of this offering, based on shares outstanding as of December
31, 1999, we will have outstanding 21,008,535 shares of common stock, assuming
(1) the issuance of 5,500,000 shares of common stock in this offering, (2) no
exercise of the underwriters over-allotment option, and (3) no exercise of
options after December 31, 1999. All of the 5,500,000 shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act. However, the sale of any of these share if purchased
by "affiliates" as that term is defined in Rule 144 are subject to certain
limitations and restrictions that are described below.
The remaining 15,508,535 shares of common stock held by existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. These shares are "restricted
shares" as that term is defined in Rule 144 and therefore may not be sold
publicly unless they are registered under the Securities Act or are sold
pursuant to Rule 144 or another exemption from registration. In addition, our
directors and officers as well as substantially all of our stockholders and
optionholders have entered into "lock-up agreements" with the underwriters.
These lock-up agreements provide that, except under limited exceptions, the
stockholder may not offer, sell, contract to sell, pledge or otherwise dispose
of any of our common stock or securities that are convertible into or
exchangeable for, or that represent the right to receive, our common stock for
a period of 180 days after the effective date. Credit Suisse First Boston
Corporation, however, may in its sole discretion, at any time without notice,
release all or any portion of the shares subject to lock-up agreements.
Accordingly, of the remaining 15,508,535 shares, 15,501,035 shares will become
eligible for sale on November 15, 2000, the 181st day after the effective date
subject to Rules 144 and 701, assuming an effective date of May 18, 2000.
As of December 31, 1999, there were a total of 1,278,343 shares of common
stock subject to outstanding options, 116,789 of which were vested, and
substantially all of which are subject to lock-up agreements. Immediately after
the completion of the offering, we intend to file registration statements on
Form S-8 under the Securities Act to register all of the shares of common stock
issued or reserved for future issuance under our 2000 equity incentive plan,
our 2000 employee stock purchase plan and our 2000 non-employee directors'
stock option plan. On the date 180 days after the effective date of the
offering, the date that the lock-up agreements expire, a total of 394,179
shares of our common stock subject to outstanding options will be vested. After
the effective dates of the registration statements on Form S-8, shares
purchased upon exercise of options granted pursuant to our 2000 equity
incentive plan, our 2000 employee stock purchase plan and our 2000 non-employee
directors' stock option plan generally would be available for resale in the
public market.
Rule 144
In general, under Rule 144 as currently in effect beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell, within any three-
month period, a number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately 210,085 shares immediately after this offering; or
. the average weekly trading volume of the common stock on the Nasdaq Stock
Market's National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain other requirements regarding
the manner of sale, notice filing and the availability of current public
information about us.
62
<PAGE>
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
generally including the holding period of any prior owner other than an
affiliate, is entitled to sell such shares without complying with the manner of
sale, notice filing, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, 144(k) shares may be sold immediately
upon the completion of this offering.
Rule 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to resell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with certain restrictions including the holding period, contained in
Rule 144.
The Securities and Exchange Commission has indicated that Rule 701 will
apply to typical stock options granted by an issuer before it becomes subject
to the reporting requirements of the Securities Exchange Act of 1934, along
with the shares acquired upon exercise of such options (including exercises
after the date of this prospectus). Securities issued in reliance on Rule 701
are restricted securities and, subject to the contractual restrictions
described above, beginning 90 days after the date of this prospectus, may be
sold by persons other than affiliates, as defined in Rule 144, subject only to
the manner of sale provisions of Rule 144. Securities issued in reliance on
Rule 701 may be sold by affiliates under Rule 144 without compliance with its
one-year minimum holding period requirement.
63
<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, FleetBoston
Robertson Stephens Inc. and U.S. Bancorp Piper Jaffray Inc. are acting as
representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
FleetBoston Robertson Stephens Inc. ...............................
U.S. Bancorp Piper Jaffray Inc. ...................................
</TABLE>
<TABLE>
<S> <C>
---
Total..................................................................
===
</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 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 brokers/dealers. After the initial public offering, the public offering
price and concession and discount to dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<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 Paid 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 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 a registration statement under the Securities Act of 1933
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 or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus.
64
<PAGE>
Our officers, directors, and substantially all of our shareholders 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 any such transaction, swap, hedge or other arrangements, 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 275,000 shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for
sale to the general public in the offering will be reduced to the extent such
persons purchase such 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.
Before this offering, there has been no public market for the common stock.
The initial public offering price will be determined by negotiation between us
and the underwriters. Among the principal factors to be considered in
determining the public offering price of our common stock will be:
. the information set forth in this prospectus and otherwise available to
the underwriters;
. the history and the prospectus for the industry in which we compete;
. the ability of our management;
. the prospects for future earnings, the present state of our development
and our current financial condition;
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies; and
. the general condition of the securities markets at the time of this
offering.
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 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 syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would be in
the absence of these transactions. These transactions may be effected on The
Nasdaq Stock Market's National Market or otherwise and, if commenced, may be
discontinued at any time. The public offering price, underwriting discount and
other terms set forth in the underwriting agreement will be approved by the
pricing committee of our board of directors prior to the sale of the common
stock offered.
65
<PAGE>
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 distributions will
be allocated by the underwriters who will make Internet distributions 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 recission 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 of 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 judgement against the issuer or such person
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.
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.
66
<PAGE>
LEGAL MATTERS
The validity of our common stock offered hereby will be passed upon for
PlaceWare by Cooley Godward LLP, Menlo Park, California. Legal matters will be
passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP,
Palo Alto, California.
EXPERTS
The consolidated balance sheets of PlaceWare, Inc. and subsidiary as of
December 31, 1998 and 1999, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1999, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, and upon the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered hereby. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement and the exhibits filed as a part thereof, certain parts
of which are omitted in accordance with the rules and regulations of the
Securities and Exchange Commission. For further information with respect to us
and the common stock offered hereby, reference is made to the registration
statement and to the exhibits filed as a part thereof. The registration
statement, including the exhibits and schedules thereto, may be inspected
without charge at the principal office of the Securities and Exchange
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at
the Regional Offices of the Securities and Exchange Commission at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center, Suite 1300, New York, New York 10048. Our SEC filings are
also available to the public from the Securities and Exchange Commission's web
site at http://www.sec.gov. Copies of such material may be obtained by mail
from the Public Reference Branch of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
67
<PAGE>
PLACEWARE, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity............................ F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
PlaceWare, Inc.:
We have audited the accompanying consolidated balance sheets of PlaceWare,
Inc. (the Company) and subsidiary as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PlaceWare,
Inc. and subsidiary as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Mountain View, California
February 25, 2000, except as to
Note 8, which is as of March 13, 2000
F-2
<PAGE>
PLACEWARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1999 Pro forma
------- -------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 3,155 $ 14,591
Accounts receivable, less allowance for
doubtful accounts of $11 and $383 as of
December 31, 1998 and 1999, respectively..... 999 2,964
Prepaid expenses and other current assets..... 147 339
------- --------
Total current assets........................ 4,301 17,894
Property and equipment, net..................... 606 2,908
Other assets.................................... -- 334
------- --------
Total assets................................ $ 4,907 $ 21,136
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 65 $ 1,283
Accrued employee compensation................. 124 563
Other accrued liabilities..................... 208 239
Current portion of notes payable and capital
lease obligations............................ 201 300
Deferred revenue.............................. 877 5,357
------- --------
Total current liabilities................... 1,475 7,742
Notes payable and capital lease obligations,
less current portion........................... 613 503
------- --------
Total liabilities........................... 2,088 8,245
------- --------
Stockholders' equity:
Convertible preferred stock, $0.0001 par
value; actual--8,000,000 and 12,305,000
shares authorized as of December 31, 1998 and
1999, respectively; 6,750,000 and 11,779,785
shares issued and outstanding as of December
31, 1998 and 1999, respectively; aggregate
liquidation preference of $11,795 and $30,773
as of December 31, 1998 and 1999,
respectively; pro forma--no shares
authorized, issued, or outstanding........... 1 1 $ --
Common stock, $0.0001 par value; actual--
20,000,000 shares authorized; 2,209,951 and
3,728,750 shares issued and outstanding as of
December 31, 1998 and 1999, respectively;
pro forma--300,000,000 shares authorized;
15,508,535 shares issued and outstanding..... -- -- 1
Additional paid-in capital.................... 11,431 36,081 36,081
Treasury stock, at cost; 482,633 and 529,926
shares of common stock as of December 31,
1998 and 1999, respectively.................. (6) (15) (15)
Notes receivable from stockholders............ (110) (671) (671)
Deferred stock-based compensation............. (12) (3,102) (3,102)
Accumulated deficit........................... (8,485) (19,403) (19,403)
------- -------- --------
Total stockholders' equity.................. 2,819 12,891 $ 12,891
========
Commitments and contingencies
------- --------
Total liabilities and stockholders' equity.. $ 4,907 $ 21,136
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PLACEWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Revenues:
Hosting and services............................ $ -- $ 511 $ 2,433
Licensing....................................... 609 1,113 1,962
------- ------- --------
Total revenues................................ 609 1,624 4,395
------- ------- --------
Operating expenses:
Cost of hosting and services.................... -- 3 806
Operations...................................... 188 214 619
Sales and marketing............................. 1,516 2,819 8,410
Research and development........................ 1,490 2,057 2,778
General and administrative...................... 817 1,654 2,900
------- ------- --------
Total operating expenses...................... 4,011 6,747 15,513
------- ------- --------
Operating loss................................ (3,402) (5,123) (11,118)
------- ------- --------
Other income (expense):
Interest income................................. 130 172 309
Interest expense................................ -- (17) (109)
------- ------- --------
Total other income (expense).................. 130 155 200
------- ------- --------
Net loss...................................... $(3,272) $(4,968) $(10,918)
======= ======= ========
Basic and diluted net loss per share.............. $ (4.67) $ (4.58) $ (6.41)
======= ======= ========
Shares used in computing basic and diluted net
loss per share................................... 700 1,084 1,704
======= ======= ========
Pro forma basic and diluted net loss per share
(unaudited)...................................... $ (1.10)
========
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)........... 9,937
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PLACEWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1998, and 1999
(In thousands, except share data)
<TABLE>
<CAPTION>
Convertible Notes
preferred stock Common stock Additional Treasury stock receivable Deferred
----------------- ----------------- paid-in -------------- from stock-based Accumulated
Shares Amount Shares Amount capital Shares Amount stockholders compensation deficit
---------- ------ --------- ------ ---------- ------- ------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of
December 31,
1996............ 1,705,000 $ -- 1,935,000 $ -- $ 1,252 -- $ -- $ -- $ -- $ (245)
Issuance of
Series B
convertible
preferred stock,
net of $34,758
issuance costs.. 2,500,000 -- -- -- 4,965 -- -- -- -- --
Repurchase of
common stock.... -- -- (350,016) -- -- 350,016 (4) -- -- --
Deferred stock
compensation
relating to
stock option
grants.......... -- -- -- -- 23 -- -- -- (23) --
Amortization of
stock-based
compensation.... -- -- -- -- -- -- -- -- 5 --
Non-employee
stock
compensation.... -- -- -- -- 6 -- -- -- -- --
Issuance of
common stock in
connection with
the exercise of
stock options... -- -- 22,000 -- 1 -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- (3,272)
---------- ---- --------- ---- ------- ------- ---- ----- ------- --------
Balances as of
December 31,
1997............ 4,205,000 -- 1,606,984 -- 6,247 350,016 (4) -- (18) (3,517)
Issuance of
Series B
convertible
preferred stock,
net of $46,459
issuance costs.. 2,545,000 1 -- -- 5,043 -- -- -- -- --
Repurchase of
common stock.... -- -- (132,617) -- -- 132,617 (2) -- -- --
Amortization of
stock-based
compensation.... -- -- -- -- -- -- -- -- 6 --
Issuance of
common stock in
connection with
the exercise of
stock options... -- -- 603,534 -- 114 -- -- (96) -- --
Issuance of
common stock.... -- -- 132,050 -- 27 -- -- (14) -- --
Net loss........ -- -- -- -- -- -- -- -- -- (4,968)
---------- ---- --------- ---- ------- ------- ---- ----- ------- --------
Balances as of
December 31,
1998............ 6,750,000 1 2,209,951 -- 11,431 482,633 (6) (110) (12) (8,485)
Issuance of
Series B
convertible
preferred
stock........... 75,000 -- -- -- 150 -- -- (100) -- --
Issuance of
Series C
convertible
preferred stock,
net of $16,235
issuance costs.. 4,954,785 -- -- -- 18,811 -- -- -- -- --
Repurchase of
common stock.... -- -- (47,293) -- -- 47,293 (9) -- -- --
Deferred stock
compensation
relating to
stock option
grants.......... -- -- -- -- 3,992 -- -- -- (3,992) --
Amortization of
stock-based
compensation.... -- -- -- -- -- -- -- -- 902 --
Non-employee
stock
compensation.... -- -- -- -- 226 -- -- -- -- --
Issuance of
common stock in
connection with
the exercise of
stock options... -- -- 1,566,092 -- 622 -- -- (461) -- --
Warrant granted
in connection
with marketing
arrangement..... -- -- -- -- 849 -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- (10,918)
---------- ---- --------- ---- ------- ------- ---- ----- ------- --------
Balances as of
December 31,
1999............ 11,779,785 $ 1 3,728,750 $ -- $36,081 529,926 $(15) $(671) $(3,102) $(19,403)
========== ==== ========= ==== ======= ======= ==== ===== ======= ========
<CAPTION>
Total
stockholders'
equity
-------------
<S> <C>
Balances as of
December 31,
1996............ $ 1,007
Issuance of
Series B
convertible
preferred stock,
net of $34,758
issuance costs.. 4,965
Repurchase of
common stock.... (4)
Deferred stock
compensation
relating to
stock option
grants.......... --
Amortization of
stock-based
compensation.... 5
Non-employee
stock
compensation.... 6
Issuance of
common stock in
connection with
the exercise of
stock options... 1
Net loss........ (3,272)
-------------
Balances as of
December 31,
1997............ 2,708
Issuance of
Series B
convertible
preferred stock,
net of $46,459
issuance costs.. 5,044
Repurchase of
common stock.... (2)
Amortization of
stock-based
compensation.... 6
Issuance of
common stock in
connection with
the exercise of
stock options... 18
Issuance of
common stock.... 13
Net loss........ (4,968)
-------------
Balances as of
December 31,
1998............ 2,819
Issuance of
Series B
convertible
preferred
stock........... 50
Issuance of
Series C
convertible
preferred stock,
net of $16,235
issuance costs.. 18,811
Repurchase of
common stock.... (9)
Deferred stock
compensation
relating to
stock option
grants.......... --
Amortization of
stock-based
compensation.... 902
Non-employee
stock
compensation.... 226
Issuance of
common stock in
connection with
the exercise of
stock options... 161
Warrant granted
in connection
with marketing
arrangement..... 849
Net loss........ (10,918)
-------------
Balances as of
December 31,
1999............ $ 12,891
=============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PLACEWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(3,272) $(4,968) $(10,918)
Adjustments to reconcile net loss to net cash
used for operating activities:
Allowance for doubtful accounts................ -- 11 372
Depreciation and amortization.................. 95 325 567
Revenue resulting from nonmonetary exchange for
computer equipment and software and services.. (154) -- --
Amortization of stock-based compensation....... 5 6 902
Nonemployee stock-based compensation expense... 6 -- 226
Warrant granted in connection with marketing
arrangement................................... -- -- 849
Changes in operating assets and liabilities:
Accounts receivable.......................... (403) (608) (2,337)
Prepaid expenses and other assets............ (86) (46) (526)
Accounts payable............................. (42) (52) 1,218
Accrued employee compensation and other
liabilities................................. 134 198 470
Deferred revenue............................. 79 798 4,480
------- ------- --------
Net cash used for operating activities..... (3,638) (4,336) (4,697)
------- ------- --------
Cash flows used for investing activities--purchases
of property and equipment......................... (207) (97) (2,648)
------- ------- --------
Cash flows from financing activities:
Repayments of capital lease obligations.......... -- (19) (144)
Issuance of convertible preferred stock, net..... 4,961 5,044 18,861
Issuance of common stock......................... 1 31 161
Repurchase of common stock....................... (4) (2) (9)
Borrowings under note payable and line of
credit.......................................... -- 333 625
Repayments of note payable and line of credit.... -- (29) (713)
------- ------- --------
Net cash provided by financing activities.. 4,958 5,358 18,781
------- ------- --------
Net increase in cash and cash equivalents.......... 1,113 925 11,436
Cash and cash equivalents at beginning of year..... 1,117 2,230 3,155
------- ------- --------
Cash and cash equivalents at end of year........... $ 2,230 $ 3,155 $ 14,591
======= ======= ========
Supplemental disclosures of noncash investing and
financing activities:
Equipment acquired under capital leases.......... $ -- $ 529 $ 221
======= ======= ========
Deferred stock-based compensation................ $ 23 $ -- $ 3,992
======= ======= ========
Issuance of common stock in exchange for notes
receivable from stockholders.................... $ -- $ 110 $ 461
======= ======= ========
Issuance of preferred stock in exchange for note
receivable from stockholders.................... $ -- $ -- $ 100
======= ======= ========
Issuance of warrant.............................. $ -- $ -- $ 849
======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PLACEWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1998 and 1999
(1) Organization and Significant Accounting Policies
(a) Description of Business
PlaceWare, Inc. (the Company) was incorporated in Delaware in 1996 to
develop and market web conferencing services and products that enable
businesses to conduct real-time, interactive meetings, and events over the
Internet.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Placeware, Inc. and its wholly owned subsidiary, PlaceWare Europe, Ltd. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
(c) Revenue Recognition
The Company recognizes revenue in accordance with the provisions of
Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by
SOP 98-9 and Emerging Issues Task Force Issue (EITF) No. 00-3, Application of
AICPA Statement of Position 97-2, Software Revenue Recognition, to Arrangements
That Include the Right to Use Software Stored on Another Entity's Hardware. SOP
97-2 generally requires revenue earned on software arrangements involving
multiple elements such as software products, upgrades, enhancements, post-
contract customer support, installation, and training to be allocated to each
element based on the relative fair values of the elements. The fair value of
the element must be based on evidence that is specific to the vendor. If a
vendor does not have evidence of the fair value for all elements in a multiple-
element arrangement, all revenue from the arrangement is deferred until such
evidence exists or until all elements are delivered. The Company records
estimates for product returns and warranty costs at the time of sale.
Hosting and services revenues represent (a) revenues from post-contract
customer support services which are recognized ratably over the term of the
support period; (b) revenues from hosting arrangements where the Company's
software is resident on a company server, which are recognized ratably over the
hosting period; (c) revenues from event services which are recognized as the
events take place; and (d) revenues from revenue sharing arrangements which are
recognized as earned. Under hosting arrangements, customers do not have the
contractual right to take possession of the software during the hosting period.
Therefore, in accordance with EITF 00-3, these arrangements are service
contracts, and recognition over the service period is appropriate. The Company
records revenues from revenue sharing arrangements at the gross invoice amount
only where the Company acts as principal to the revenue sharing transaction and
the Company bears the credit risk on the related customer receivable.
Licensing revenues represent revenues recorded relating to perpetual and
time-based licenses for software delivered to customers for in-house
applications. Revenues from perpetual software license agreements are
recognized upon shipment of the software when all of the following criteria
have been met: persuasive evidence of an arrangement exists; delivery has
occurred; the fee is fixed or determinable; collectibility is probable; and
vendor-specific objective evidence is available of the fair value of all
undelivered elements. The Company has established sufficient vendor-specific
objective evidence to ascribe a value to post-contract customer support and
consulting services based on the price charged when these elements are sold
separately. Accordingly, license revenue is recorded under the residual method
described in SOP 98-9 for arrangements in which licenses are sold with
consulting services, post-contract customer support, or both. However, the
entire fee related to arrangements that require the Company to deliver
unspecified additional products is deferred and recognized ratably over the
term of the contract. Time-based licenses are recognized ratably over the
license period.
F-7
<PAGE>
PLACEWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cost of hosting and services consists primarily of computer equipment
depreciation expense, network connectivity, royalties, co-location costs and
costs of third-party service providers. Operations expenses consist primarily
of compensation and related costs for management personnel, technical support
employees and consultants who manage and maintain the Company's conferencing
solutions infrastructure and support the Company's customer base. Cost of
licensing revenues are not significant.
Deferred revenue includes amounts billed to customers for which revenues
have not been recognized, which generally results from the following: (1)
deferred licensing, maintenance, and support; (2) amounts billed to customers
under hosting arrangements; (3) amounts billed to customers which are due
within three months; and (4) customer advances received under revenue sharing
arrangements.
(d) Initial Public Offering and Unaudited Pro Forma Balance Sheet
Information
In fiscal 2000, the Board of Directors 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). Following the closing
of the Company's IPO, the number of authorized shares of preferred stock and
common stock will be 50,000,000 and 300,000,000, respectively. If the offering
is consummated under the terms presently anticipated, all the then outstanding
shares of the Company's convertible preferred stock will automatically convert
into shares of common stock on a one-for-one basis upon the closing of the
proposed IPO. The pro forma balance sheet information reflects the conversion
of all of the convertible preferred stock as if it had occurred on December 31,
1999.
(e) Cash and Cash Equivalents
Cash and cash equivalents consist of cash and investments in a certificate
of deposit and mutual funds with purchased maturities of less than 90 days.
(f) Accounting for Certain Investments in Debt and Equity Securities
The Company classifies its investments in debt and equity securities as
available-for-sale. Available-for-sale securities are carried at fair market
value, which approximates amortized cost. As of December 31, 1998 and 1999, the
Company had no investments in debt or equity instruments.
(g) Financial Instruments and Concentration of Credit Risk
The carrying value of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable, accrued employee
compensation, other accrued liabilities and notes payable, approximates fair
market value. Cash and cash equivalents, accounts receivable, accounts payable,
accrued employee compensation and other accrued liabilities approximate fair
market value due to their short-term nature. Notes payable approximate fair
market value as interest rates on these notes approximate those currently
available in the market.
Financial instruments that subject the Company to concentration of credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company is exposed to credit risk related to cash and cash
equivalents in the event of default by the financial institutions or the
issuers of these investments to the extent of the amounts recorded on the
balance sheet. Credit risk is concentrated in North America. The Company
performs ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. The Company has had
immaterial write-offs of accounts receivable to date. Based on its ongoing
evaluations, the Company believes it has adequately provided for doubtful
accounts as of the date of each balance sheet presented herein.
F-8
<PAGE>
PLACEWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(h) Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation
and amortization. Depreciation is calculated using the straight-line method
over the estimated useful lives of the respective assets, generally three to
five years. Assets obtained through capital leases are amortized over the
shorter of their estimated useful lives or the lease term, generally three to
five years. Leasehold improvements are amortized over the shorter of the
estimated useful lives of the improvements or the remaining lease term.
(i) Software Development Costs
Costs related to research, design and development of products are charged to
research and development expenses as incurred until technological feasibility
has been established. Technological feasibility of products is established on
the release of a beta version of the software. Historically, technological
feasibility on software releases has coincided with the general release of the
product for sale, because no beta version was developed. As a result, the
Company has not capitalized any software development costs since such costs
have not been significant.
(j) Impairment of Long-Lived Assets
The Company assesses the recoverability of the carrying amount of its long-
lived assets whenever events or changes in circumstances indicate that the
carrying amount of such assets may be impaired. If the estimated future
undiscounted cash flows over the remaining useful life of the long-lived asset
is less than the carrying amount of the asset, an impairment charge would be
recognized in the statement of operations for the excess carrying amount of the
asset over its fair value.
(k) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is recorded against deferred tax assets
if it is more likely than not that all or a portion of the deferred tax assets
will not be realized.
(l) Stock-Based Compensation
The Company accounts for stock option grants under Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting For Stock-Based Compensation,
which permits the use of the intrinsic-value method in accordance with
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations. Expense associated with stock-based
compensation is being amortized on an accelerated basis over the vesting period
of the individual award consistent with the method described in Financial
Accounting Standards Board (FASB) Interpretation No. 28.
(m) Comprehensive Loss
The Company did not have any significant components of other comprehensive
loss for the years ended December 31, 1997, 1998, and 1999.
(n) Foreign Currency Transactions
The Company considers the functional currency of its foreign subsidiary to
be the U.S. dollar. Accordingly, this entity remeasures monetary assets and
liabilities at year-end exchange rates while
F-9
<PAGE>
PLACEWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
nonmonetary items are remeasured at historical rates. Income and expense
accounts are remeasured at the average rates in effect during the year, except
for depreciation which is remeasured at historical rates. Foreign currency
transaction gains and losses are recognized in income in the period of
occurrence, and have not been significant to date.
(o) Net Loss Per Share
Basic net loss per share is computed using the weighted-average number of
outstanding shares of common stock, excluding shares of restricted stock
subject to repurchase summarized below. Diluted net loss per share is computed
using the weighted-average number of shares of common stock outstanding and,
when dilutive, potential common shares from options and warrants to purchase
common stock using the treasury stock method and from convertible securities
using the if-converted basis. The following potential common shares have been
excluded from the computation of diluted net loss per share for all periods
presented because the effect would have been anti-dilutive, (in thousands):
<TABLE>
<CAPTION>
Year ended
December 31,
------------------
1997 1998 1999
----- ----- ------
<S> <C> <C> <C>
Shares issuable under stock options..................... 456 1,079 1,278
Shares of restricted stock subject to repurchase........ 740 808 1,537
Shares issuable pursuant to warrants to purchase common
and convertible preferred stock........................ -- 41 316
Shares of convertible preferred stock on an "as-if-
converted" basis....................................... 4,205 6,750 11,780
</TABLE>
The weighted-average purchase price of restricted stock was $0.01, $0.11,
and $0.39 for the years ended December 31, 1997, 1998, and 1999, respectively.
The weighted-average exercise price of the warrants was $2.00 and $3.57 for the
years ended December 31, 1998 and 1999, respectively.
Pro forma basic and diluted net loss per share is presented for the year
ended December 31, 1999, to reflect per share data assuming the conversion of
all outstanding shares of convertible preferred stock into common stock on a
one-for-one basis, as if the conversion had taken place at the beginning of
fiscal 1997, or at the date of issuance if later. This data is unaudited.
(p) Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because the
Company does not currently hold any derivative instruments and does not engage
in hedging activities, the Company expects that the adoption of SFAS No. 133
will not have a material impact on its consolidated financial position, results
of operations, or cash flows. The Company will be required to adopt SFAS No.
133, as amended, in fiscal 2001.
In March 2000, the EITF published their consensus on EITF No. 00-2,
Accounting for Web Site Development Costs, which require the following
accounting for costs related to development of web sites:
. Costs incurred in the planning stage, regardless of whether the planning
activities relate to software, should be expensed as incurred.
. Costs incurred during the development of web site applications and
infrastructure involve acquiring or developing hardware and software to
operate the web site, including graphics that affect the look and feel
of the web page. All costs relating to software used to operate a web
site should be accounted for
F-10
<PAGE>
PLACEWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
under Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, (SOP 98-1). However, if a
plan exists or is being developed to market the software externally, the
costs relating to the software should be accounted for pursuant to FASB
Statement No. 86, Accounting for the Costs of Computer Software to Be
Sold, Leased or Otherwise Marketed (SFAS No. 86).
. Costs paid for web site hosting services generally would be expensed
over the period of benefit.
. Costs incurred in operating the web site, including training,
administration, maintenance, and other costs, should be expensed as
incurred. However, costs incurred in the operation stage that involved
providing additional functions or features to the web site should be
accounted for as new software. Such costs should be capitalized or
expensed based on the requirements of SOP 98-1 or SFAS No. 86, as
applicable.
The Company will be required to adopt EITF No. 00-2 in fiscal quarters
beginning after June 30, 2000, although earlier application is encouraged. To
date, the Company has not entered into activities covered by EITF No. 00-2, as
all software developed internally has been offered under license to customers.
In March 2000, the EITF published their consensus on EITF No. 00-3,
Application of AICPA Statement of Position 97-2, Software Revenue Recognition,
to Arrangements That Include the Right to Use Software Stored on Another
Entity's Hardware. EITF No. 00-3 states that a software element covered by SOP
97-2 is only present in a hosting arrangement if the customer has the
contractual right to take possession of the software at any time during the
hosting period without significant penalty and it is feasible for the customer
to either run the software on its own hardware or contract with another party
unrelated to the vendor to host the software. The Company's hosting
arrangements generally do not allow customers the contractual right to take
possession of the software without significant penalty. The Company does not
expect that the adoption of EITF No. 00-3 will have a material impact on its
consolidated financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, as amended by SAB 101A, which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosure related to revenue recognition policies.
The Company will adopt SAB 101 effective April 1, 2000. The Company does not
expect the adoption of SAB 101 to have a material effect on its consolidated
financial position or results of operations.
(q) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(r) Reclassification
Certain balances in the accompanying 1998 and 1997 consolidated financial
statements have been reclassified in order to conform to the presentation of
the 1999 consolidated financial statements.
F-11
<PAGE>
PLACEWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(2) Property and Equipment
Property and equipment as of December 31, 1998 and 1999, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Computer equipment and software.............................. $ 890 $2,373
Office furniture and equipment............................... 73 437
Leasehold improvements....................................... 64 1,086
------ ------
1,027 3,896
Accumulated depreciation and amortization.................... (421) (988)
------ ------
$ 606 $2,908
====== ======
</TABLE>
As of December 31, 1998 and 1999, equipment recorded under capital leases
was $529,000 and $750,000, respectively, and accumulated amortization thereon
was $169,000 and $344,000 respectively.
(3) Stockholders' Equity
(a) Convertible Preferred Stock
Convertible preferred stock outstanding as of December 31, 1999, is as
follows:
<TABLE>
<CAPTION>
Shares Issued and Par
designated outstanding value
---------- ----------- ------
<S> <C> <C> <C>
Series:
A............................................. 1,705,000 1,705,000 $ 171
B............................................. 5,200,000 5,120,000 512
C............................................. 5,400,000 4,954,785 495
---------- ---------- ------
12,305,000 11,779,785 $1,178
========== ========== ======
</TABLE>
The rights, preferences, and privileges of the holders of Series A, B, and C
convertible preferred stock are as follows:
. Dividends are noncumulative and payable only upon declaration by the
Company's Board of Directors at a rate of $0.08, $0.16, and $0.30 per
share for Series A, B, and C preferred stock, respectively.
. Holders of Series A, B, and C preferred stock have a liquidation
preference of $1.00, $2.00, and $3.80 per share, respectively, plus any
declared but unpaid dividends over holders of common stock.
. Each share of Series A, B, and C preferred stock is convertible at any
time into one share of common stock subject to certain antidilution
provisions. All shares will convert to common stock automatically on the
date the Company successfully completes an initial public offering.
. Each holder of preferred stock has voting rights equal to the number of
shares of common stock into which such shares could be converted.
(b) Stock Plans
In connection with the 1997 stock option plan (the Plan), the Company is
authorized to issue up to 4,752,833 shares of common stock to directors,
employees, and consultants. The 1997 Plan provides for the issuance of stock
purchase rights, incentive stock options, or nonstatutory stock options.
The stock purchase rights are subject to a restricted stock purchase
agreement whereby the Company has the right to repurchase the stock upon the
voluntary or involuntary termination of the purchaser's employment with the
Company at the original issuance cost. The Company's repurchase right lapses at
a rate determined by the stock plan administrator, but at a minimum rate of 20%
per year. Through December 31, 1999, the Company has issued a net 3,728,750
shares of common stock to founders, employees, and consultants under restricted
stock purchase agreements and through the exercise of employee stock options.
As of December 31, 1999, the Company has
F-12
<PAGE>
PLACEWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
repurchased 529,926 shares, and 1,536,547 shares are subject to repurchase at a
weighted-average purchase price of $0.39 per share. The repurchase rights
expire ratably through the year 2003. Certain of these restricted shares were
issued for full recourse promissory notes with interest rates ranging from
5.28% to 6.20%, and terms of four years.
Under the 1997 Plan, the exercise price for incentive stock options is at
least 100% of the stock's fair market value on the date of grant for employees
owning less than 10% of the voting power of all classes of stock, and at least
110% of the fair market value on the date of grant for employees owning more
than 10% of the voting power of all classes of stock. For nonstatutory stock
options, the exercise price is also at least 110% of the fair market value on
the date of grant for employees owning more than 10% of the voting power of all
classes of stock and no less than 85% for employees owning 10% or less of the
voting power of all classes of stock.
Under the 1997 Plan, options generally expire in 10 years. Vesting periods
are determined by the Company's Board of Directors and generally provide for
shares to vest ratably over a 4-year period, with 25% vesting after one year
from date of grant and monthly thereafter.
(c) Stock-Based Compensation
In 1999 the Company granted approximately 98,000 options to nonemployees for
services rendered, which were 100% vested on the grant date. The $258,000 fair
value of these options was recorded as expense in 1999. The fair value was
measured on the grant date using the Black-Scholes option pricing model and the
following assumptions: no dividends, 70% volatility, 6% interest rate, and 10
year contractual life.
In 1999 the Company also granted approximately 31,000 options to
nonemployees which have vesting terms generally less than one year, and vesting
dates which match milestones specific to each nonemployee. The fair value of
these options was estimated as of the date of grant, and was remeasured as of
each interim balance date and each final vesting date in accordance with EITF
No. 96-18. The fair value is being recorded over the vesting period. As of
December 31, 1999, deferred stock-based compensation for the 15,000 options
that continue to vest was approximately $55,000.
The Company uses the intrinsic-value method in accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for any of its stock options granted or restricted stock sold
because the exercise price of each option or purchase price of each share of
restricted stock equaled or exceeded the fair value of the underlying common
stock as of the grant date for each stock option or purchase date of each
restricted stock share, except for stock options granted and restricted stock
sold from January 1, 1999, through December 31, 1999. With respect to the stock
options granted and restricted stock sold from January 1, 1999, to December 31,
1999, the Company recorded deferred stock compensation of $3,992,000 for the
difference at the grant or issuance date between the exercise price of each
stock option granted or purchase price of each restricted share sold and the
fair value of the underlying common stock. This amount is being amortized on an
accelerated basis over the vesting period, generally four to five years,
consistent with the method described in FASB Interpretation No. 28.
Amortization of the December 31, 1999 balance of deferred stock-based
compensation for the years ended 2000, 2001, 2002, and 2003, would approximate
$1,895,000, $783,000, $351,000, and $73,000, respectively. The amortization of
deferred stock compensation, combined with the expense associated with stock
options granted to non-employees, relates to the following items in the
accompanying consolidated statements of operations (in thousands):
<TABLE>
<CAPTION>
Year ended
December 31,
----------------
1997 1998 1999
---- ---- ------
<S> <C> <C> <C>
Operations................................................. $ -- $ -- $ 127
Sales and marketing........................................ -- -- 586
Research and development................................... -- -- 74
General and administrative................................. 11 6 341
---- ---- ------
Total.................................................... $ 11 $ 6 $1,128
==== ==== ======
</TABLE>
F-13
<PAGE>
PLACEWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Had compensation costs been determined in accordance with SFAS No. 123 for
all of the Company's stock-based compensation plans, net loss (in thousands)
and basic and diluted net loss per share would have been as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Net loss:
As reported................................... $(3,272) $(4,968) $(10,918)
Pro forma..................................... $(3,272) $(4,968) $(10,970)
Basic and diluted net loss per share:
As reported................................... $ (4.67) $ (4.58) $ (6.41)
Pro forma..................................... $ (4.67) $ (4.58) $ (6.43)
</TABLE>
The fair value of each option was estimated on the date of grant using the
minimum value method with the following weighted-average assumptions: no
dividends; risk-free interest rate of 6.0% for the years ended December 31,
1997, 1998, and 1999; and expected life of five years for the years ended
December 31, 1997, 1998, and 1999.
As of December 31, 1999, there were 1,341,241 shares available for grant
under the Plan. A summary of the status of the Company's stock option activity
under the Plan is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------------ -------------------- ---------------------
Weighted- Weighted- Weighted-
Number average average average
of price per Number of price per Number of price per
shares share shares share shares share
------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ -- $ -- 456,250 $0.15 1,079,094 $0.18
Options granted......... 478,250 0.15 1,308,379 0.20 1,973,883 0.92
Options exercised....... (22,000) 0.11 (603,534) 0.19 (1,566,092) 0.39
Options canceled........ -- 0.00 (82,001) 0.17 (208,542) 0.21
------- --------- ----------
Outstanding at end of
year................... 456,250 0.15 1,079,094 0.18 1,278,343 0.94
======= ========= ==========
Options exercisable at
end of year:
Unrestricted options.. 56,249 127,232 44,476
Restricted options.... 400,001 951,862 1,233,867
------- --------- ----------
456,250 1,079,094 1,278,343
======= ========= ==========
Weighted-average fair
value of options
granted during the year
with exercise prices
equal to fair value at
date of grant.......... $ 0.07 $ 0.10 $ --
======= ========= ==========
Weighted-average fair
value of options
granted during the year
with exercise prices
less than fair value at
date of grant.......... $ -- $ -- $ 2.29
======= ========= ==========
</TABLE>
F-14
<PAGE>
PLACEWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999, the exercise prices and weighted-average remaining
contractual life of outstanding options were as follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
---------------------------------- ---------------------
Weighted-
average Weighted- Weighted-
remaining average average
Exercise Number contractual exercise Number exercise
price outstanding life (years) price exercisable price
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
$0.10 15,000 7.21 $0.10 15,000 $0.10
0.20 486,000 9.10 0.20 486,000 0.20
0.38 111,343 9.69 0.38 111,343 0.38
1.00 276,000 9.87 1.00 276,000 1.00
2.00 390,000 9.99 2.00 390,000 2.00
--------- ---------
1,278,343 1,278,343
========= =========
</TABLE>
(d) Warrants
During 1999, the Company issued a warrant to purchase 275,000 shares of
Series C convertible preferred stock, in connection with a marketing
arrangement. The warrant is fully vested and is exercisable on the earlier of
(1) November 2009, (2) upon the achievement of $3,000,000 in net revenue (as
defined) over a one-year period or (3) an uncured breach of contract by the
Company. The warrant has an exercise price of $3.80 and expires in November
2009. The fair value of the warrant is $849,000, as determined using the Black-
Scholes option pricing model with the following assumptions: no dividends; 70%
volatility; risk-free interest rate of 6.61%; and life of 10 years. As of
December 31, 1999, the warrant remains outstanding. The $849,000 warrant value
has been included in sales and marketing expense on the accompanying 1999
consolidated statement of operations. Although the executory contract
associated with the warrant permits the counterparty to cease performance at
any time without cause, management believes that the potential for increased
revenue exceeds this risk.
During 1997, the Company issued a warrant to purchase 40,625 shares of
Series B convertible preferred stock, in connection with a capital lease. The
warrant has an exercise price of $2.00, and expires in September 2007. The fair
value of the warrant, was not significant as determined using the Black-Scholes
option pricing model, with the following assumptions: no dividends; 70%
volatility; risk-free interest rate of 6.12%; and life of 10 years. As of
December 31, 1999, the warrant remains outstanding.
(4) Commitments and Contingencies
(a) Operating and Capital Leases
The Company occupies facilities rented under noncancelable operating leases
expiring in 2002. The Company also leases certain equipment under capital lease
arrangements that expire through 2003.
F-15
<PAGE>
PLACEWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending Capital Operating
December 31, leases leases
------------ ------- ---------
<S> <C> <C>
2000...................................................... $253 $1,134
2001...................................................... 255 1,158
2002...................................................... 157 882
2003...................................................... 12 --
---- ------
Total minimum lease payments............................... 677 $3,174
======
Less amount representing interest.......................... 86
----
Present value of minimum lease payments.................... 591
Less current portion....................................... 204
----
Noncurrent portion of capital lease obligations............ $387
====
</TABLE>
Rent expense for the years ended December 31, 1997, 1998, and 1999, was
approximately $190,000, $240,000, and $508,000, respectively.
(b) Royalties
The Company entered into a software license and technology assignment
agreement in 1996 with a Series A preferred stock holder ("holder"). The
agreement conveyed a non-exclusive, perpetual license for certain technologies
to the Company. The holder is entitled to a royalty payment based on two
percent of net revenues, as defined in the agreement, up to a cumulative
payment of $1,000,000. The royalty accrual commenced in 1999 in accordance with
the terms of the agreement, resulting in royalty expense of approximately
$55,000 in 1999.
(c) Legal proceedings
In July 1999, the Company was contacted by legal counsel representing
another web conferencing provider, with allegations of misappropriated trade
secrets by the Company under an August 1997 License and Distribution Agreement.
After initial attempts to resolve this issue, the counterparty has failed to
respond to any of the Company's requests to move this issue forward, and the
last contact was in October 1999. Although the Company has not received any
additional communications, the Company is prepared to vigorously defend itself
against any claims of trade secret misappropriation, if and when such claims
are brought to court. No reserve has been established for this matter as the
range of a potential settlement is not reasonably estimable.
(5) Income Taxes
The 1997, 1998 and 1999 income tax benefit differs from the amounts computed
by applying the U. S. federal income tax rate as a result of the following:
<TABLE>
<CAPTION>
1997 1998 1999
------- -------- -------
<S> <C> <C> <C>
Federal benefit at statutory rate.................. $(1,112) $(1,689) $(3,712)
State taxes, net of federal income tax benefit..... -- -- 1
Net operating loss, tax credit & temporary
differences not benefitted........................ 1,062 1,624 3,569
Other.............................................. 50 65 142
------- -------- -------
Net income tax benefit............................. $ -- $ -- $ --
======= ======== =======
</TABLE>
F-16
<PAGE>
PLACEWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1998 and
1999, are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $3,339 $6,049
Tax credit carryforwards................................... 487 762
Accrued liabilities not currently deductible for tax
purposes.................................................. 50 384
Fixed assets............................................... 102 191
------ ------
Total gross deferred tax assets.......................... 3,978 7,386
Less valuation allowance..................................... 3,978 7,386
------ ------
Net deferred tax assets.................................. $ -- $ --
====== ======
</TABLE>
The net change in the total valuation allowance for the years ended December
31, 1998 and 1999, was a net increase of $2,305,000, and $3,408,000,
respectively.
As of December 31, 1999, the Company has net operating loss carryforwards
for federal and California income tax purposes of approximately $15,821,000 and
$12,043,000, respectively. The federal net operating loss carryforward expires
beginning in 2011 through 2019. The California net operating loss carryforward
expires primarily in 2004.
As of December 31, 1999, the Company has research and development credit
carryovers for federal and California income tax purposes of approximately
$492,000 and $270,000, respectively. The federal research and experimental
credit expires beginning in the year 2019. The California research and
experimental credit can be carried forward indefinitely.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management does not
believe it is more likely than not that the deferred tax assets will be
realized; accordingly, a full valuation allowance has been established and no
deferred tax asset is shown in the accompanying consolidated balance sheets.
Federal and California tax laws impose substantial restrictions on the
utilization of net operating loss carryforwards in the event of an "ownership
change" for tax purposes, as defined in Section 382 of the Internal Revenue
Code. The Company's ability to utilize its net operating loss and tax credit
carryforwards may be subject to restriction pursuant to these provisions.
(6) Notes Payable and Lease Financing
(a) Equipment Finance Arrangements
In January 1998, the Company entered into an arrangement with a financing
corporation for a lease line of credit for up to $850,000 in new equipment (see
Note 4) and for a note payable collateralized by the Company's existing assets
of up to $400,000, bearing interest at 7.5%. The lease line is no longer
available. As of December 31, 1999, $212,000 is outstanding under the note
payable and is due in equal monthly installments through January 2002. As of
December 31, 1999, future principal payments under this note payable are
$96,000, $107,000, and $9,000 for the years ending December 31, 2000, 2001, and
2002, respectively.
F-17
<PAGE>
PLACEWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On March 16, 1999, the Company entered into an arrangement with another
financing corporation for a lease line of credit for up to $1,200,000 of
equipment. The line is available through September 30, 2000 and is secured by
equipment. As of December 31, 1999, the amount available under the line is
$1,142,000.
(b) Revolving Line of Credit
On March 11, 1999, the Company entered into an arrangement with a bank for a
line of credit up to $750,000. The arrangement consists of a committed
revolving line of credit of an amount not to exceed the lesser of $750,000 or
the borrowing base, as defined by the agreement. Borrowings will be
collateralized by certain assets of the Company. Borrowings against the line of
credit will bear interest at the bank's prime rate plus 1% per annum (9.5% as
of December 31, 1999). The line of credit will expire on January 24, 2001 (see
Note 8a). During 1999 the Company borrowed and repaid $625,000 under this
arrangement. As of December 31, 1999, the amount available under the line of
credit is $750,000.
(7) Significant Customer Information and Segment Reporting
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information establishes standards for the manner in which public companies
report information about operating segments in annual and interim financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The method for
determining what information to report is based on the way management organizes
the operating segments within the Company for making operating decisions and
assessing financial performance. The Company's chief operating decision-maker
is considered to be the chief executive officer (CEO). The CEO reviews
financial information presented on a consolidated basis for purposes of making
operating decisions and assessing financial performance. The consolidated
financial information is identical to the information presented in the
accompanying consolidated statements of operations. Therefore, the Company has
determined that it operates in a single operating segment, specifically, the
providing of web-based conferencing solution.
The desegregated information reviewed on a product basis by the CEO is as
follows:
<TABLE>
<CAPTION>
Year ended
December 31,
------------------
1997 1998 1999
---- ------ ------
<S> <C> <C> <C>
Hosting and Services...................................... $ -- $ 511 $2,433
Licensing................................................. 609 1,113 1,962
---- ------ ------
$609 $1,624 $4,395
==== ====== ======
</TABLE>
Significant customer information is as follows:
<TABLE>
<CAPTION>
Percent of
Percent of total accounts
total revenue receivable
---------------- --------------
Year ended
December 31, December 31,
---------------- --------------
1997 1998 1999 1999
---- ---- ---- --------------
<S> <C> <C> <C> <C>
Customer A..................................... 17% 40% 27% 14%
Customer B..................................... 24% 13% 6% 2%
Customer C..................................... 18% -- -- --
Customer D..................................... 15% -- -- --
</TABLE>
F-18
<PAGE>
PLACEWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In 1999, 6% of the Company's revenue was from two customers that are
shareholders of the Company. As of December 31, 1999, the outstanding accounts
receivable balance related to these customers is not significant. The Company
has no significant foreign operations.
(8) Subsequent Events
(a) Borrowings
In January 2000, the Company modified its $750,000 line of credit
arrangement with a bank (see Note 6). The line of credit maximum borrowing
capacity was increased to $2,500,000 and the maturity date was extended to
January 24, 2001. All other terms remain essentially unchanged. As of February
25, 2000, there was no outstanding balance on this line of credit.
On March 2, 2000, the Company entered into a two-year operating lease
arrangement related to certain switching equipment for future monthly payments
of approximately $19,000.
On March 13, 2000, the Company accepted a proposal from a financing
corporation for a lease line of credit for up to $2,500,000 in new equipment,
with an additional $2,500,000 available on completion of an IPO with minimum
proceeds of $50,000,000 no later than July 1, 2000. The line will bear interest
at approximately 14.8%. This line will be available through March 31, 2001.
(b) Stock Plans
On February 29, 2000, the Company's Board of Directors approved the 2000
Equity Incentive Plan (2000 Plan). The 2000 Plan is intended to replace and
supercede the 1997 Plan. The Plan will be effective on the effective date of
the proposed initial public offering. The Company has reserved 3,000,000 shares
of common stock for issuance under the 2000 Plan. When a stock award expires or
is terminated before it is exercised, the shares not acquired pursuant to the
stock awards shall again becomes available for issuance under the 2000 Plan.
In general, the terms of stock options under the 2000 Plan may not exceed 10
years. An option holder may not transfer a stock option other than by will or
the laws of descent and distribution. The exercise price for 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 for a nonstatutory stock option cannot be
less than 85% of the fair market value of the common stock on the date of
grant. In the event an optionholder is a 10% shareholder, then the exercise
price per share shall not be less than 110% of the fair market value of common
stock on the date of grant.
On February 29, 2000, the Company's Board of Directors approved the
2000 Employee Stock Purchase Plan (the Purchase Plan). A total of 500,000
shares of common stock have been authorized for issuance under the Purchase
Plan. Each year on December 31, beginning on December 31, 2001, the share
reserve will increase by the least of the following: (1) 1% of the total
outstanding common stock of the Company; (2) 250,000 shares of common stock; or
(3) a lesser amount as determined by the Board of Directors. Under the purchase
plan, employees who participate in an offering may have up to 15% of their
earnings for the period of that offering withheld. The amount withheld is used
on each purchase date of the offering period to purchase shares of common
stock. Eligible employees will be able to purchase common stock at a purchase
price equal to the lower of 85% of the fair market value of the common stock at
the first day of the offering period or 85% of the fair market value of the
common stock on the purchase date.
F-19
<PAGE>
PLACEWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On February 29, 2000, the Company's Board of Directors approved the
2000 Non-Employee Directors' Stock Option Plan (the "Non-Employee Directors'
Plan"). The Non-Employee Directors' Plan will be effective on the effective
date of the proposed initial public offering. A total of 650,000 shares of
common stock of the Company have been reserved for issuance under the Non-
Employee Directors' Plan. When a stock option expires or is terminated before
it is exercised, the shares not acquired pursuant to the stock option shall
again become available for issuance under the Non-Employee Directors' Plan. The
Non-Employee Directors' Plan is administered by the Board of Directors, however
the grant of stock options is automatic. Upon the completion of the IPO, each
non-employee director will automatically be granted an option to purchase
30,000 shares of common stock which will vest ratably over 36 months. At the
time of the annual stockholders' meeting, beginning with the annual
stockholders' meeting in 2001, each non-employee director will automatically be
granted an option to purchase 10,000 shares of common stock which will vest
ratably over 12 months. In addition, upon the completion of the initial public
offering, each non-employee director then serving as chair of either the audit
committee or the compensation committee will automatically be granted an option
to purchase 3,000 shares of common stock. Any non-employee director who is
serving as chair of the audit committee or the compensation committee on the
date of each annual meeting of stockholders, commencing with our annual meeting
in 2001, will automatically be granted an option to purchase 3,000 shares of
common stock. Each such option shall vest ratably over 12 months.
Under the Non-Employee Directors' Plan, the exercise price will be 100% of
the fair market value of the common stock on the date of grant. Generally, the
options will vest over a three year period with a third of the shares subject
to the option vesting 12 months from the date of grant and 1/36th of the shares
subject to the option vesting monthly thereafter.
(c)Deferred Stock Compensation
During the period from January 1, 2000 through March 2, 2000, the Company
will record additional deferred stock compensation of approximately $2,006,000
related to approximately 805,000 stock options granted during that period.
Amortization of deferred stock compensation referred to above and recorded at
December 31, 1999 will be approximately $1,095,000 during the three-month
period ended March 31, 2000, and approximately $3,136,000, $1,252,000,
$573,000, and $147,000 will be amortized during 2000, 2001, 2002 and 2003,
respectively.
F-20
<PAGE>
The words "A PlaceWare Web Conference" appear at the top. A screen shot of
the PlaceWare presenter console with the words "Presenter View" appear below
the title. Below the presenter console is an arrow pointing down to a screen
shot of the PlaceWare audience console with the words "Audience view" below the
screen shot. The words "Show interactive visual content in real time" and a
bulleted list below it with the words "Powerpoint Presentations", "Application
Sharing", "Web Tours", White boards", "Text Slides", "SnapShots", "Polling
Slides", "Real time Annotations", "Moderated Q&A", "Audience Chat", and
"Seating Chart" appear to the right of the screen shots in a bulleted list. In
the background the words "sales training", "new product launches", "investor
relations", "customer seminars", "press/analyst briefings", "customer
communications", "customer education", "town hall meetings", "sales meetings",
"user groups/market research", "sales training", "employee meetings", and
"channel communications".
<PAGE>
[PLACEWARE LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the
sale of the securities being registered. All amounts shown are estimates except
for the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 21,708
NASD filing fee.................................................. 9,355
NASDAQ National Market Fees...................................... 95,000
Blue Sky qualification fees and expenses......................... 10,000
Printing and engraving expenses.................................. 200,000
Accountant's fees and expenses................................... 450,000
Legal fees and expenses.......................................... 600,000
Transfer agent and registrar fees................................ 10,000
Miscellaneous.................................................... 103,937
----------
Total.......................................................... $1,500,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article VI of the Registrant's Amended and Restated Certificate of
Incorporation provides for the indemnification of directors to the fullest
extent permissible under Delaware law.
Article XI of the Registrant's Amended and Restated Bylaws provides for the
indemnification of officers, directors and third parties acting on behalf of
the Registrant if such person acted in good faith and in a manner reasonably
believed to be in and not opposed to the best interest of the Registrant, and,
with respect to any criminal action or proceeding, the indemnified party had no
reason to believe his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for
in the Registrant's Bylaws, and intends to enter into indemnification
agreements with any new directors and executive officers in the future.
Item 15. Recent Sales of Unregistered Securities.
(a) Since February 1997, the Registrant has issued and sold (without payment
of any selling commission to any person) the following unregistered securities:
(1) In September and November 1999, the Registrant issued and sold
shares of its Series C Preferred Stock convertible into an aggregate of
4,954,785 shares of common stock to a total of 32 investors for an
aggregate purchase price of $18,828,183.
(2) In April 1997, May and June 1998, and March and April 1999 the
Registrant issued and sold shares of its Series B Preferred Stock
convertible into an aggregate of 5,120,000 shares of common stock to a
total of 37 investors for an aggregate purchase price of $10,240,000.
(3) In February and March 1998, the Registrant issued and sold 112,500
shares of restricted common stock to Barry James Folsom for an aggregate
purchase price of $22,500.
(4) In February 1998, the Registrant issued and sold 11,000 shares of
restricted common stock to Jeffrey Rudy for an aggregate purchase price of
$2,200.
II-1
<PAGE>
(5) In February 1998, the Registrant issued and sold 8,550 shares of
restricted common stock to Stephen Saperstein for an aggregate purchase
price of $1,710.
(6) As of December 31, 1999, 2,191,626 shares of common stock had been
issued upon exercise of options or pursuant to restricted stock purchase
agreements and 1,278,343 shares of common stock were issuable upon exercise
of outstanding options under the Registrant's 1997 Stock Plan.
(b) There were no underwritten offering employed in connection with any of
the transactions set forth in Item 15(a).
The issuances described in Items 15(a)(1), 15(a)(2), (15)(a)(3), 15(a)(4)
and 15(a)(5) were deemed to be exempt from registration under the Securities
Act in reliance upon Section 4(2) thereof as transactions by an issuer not
involving any public offering. The issuances described in Item 15(a)(6) were
deemed to be exempt from registration under the Securities Act in reliance upon
Rule 701 promulgated thereunder in that they were offered and sold either
pursuant to written compensatory benefit plans or pursuant to a written
contract relating to compensation, as provided by Rule 701. In addition, such
issuances were deemed to be exempt from registration under Section (4)(2) of
the Securities Act as transactions by an issuer not involving any public
offering. The recipients of securities in each such transaction represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the securities issued in such transactions. All
recipients had adequate access, through their relationships with the Company,
to information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Document Page No.
------- ----------------------- ----------
<C> <S> <C>
1.1 Form of Underwriting Agreement**
3.1 Restated Certificate of Incorporation of PlaceWare, dated
September 17, 1999*
3.2 Form of Amended and Restated Certificate of Incorporation
of the Registrant to be filed promptly after the closing
of the offering*
3.3 Bylaws of the Registrant as currently in effect*
3.4 Bylaws of the Registrant to be in effect after the
closing of the offering*
4.1 Specimen Common Stock Certificate
4.2 Third Amended and Restated Investor Rights Agreement*
5.1 Opinion of Cooley Godward LLP
10.1 Executive Severance Benefit Plan*
10.2 2000 Equity Incentive Plan*
10.3 2000 Non Employee Directors' Stock Option Plan
10.4 2000 Employee Stock Purchase Plan*
10.5 Offer letter to Barry James Folsom, as amended
10.6 Offer letter to Kevin R. Evans, as amended
10.7 Sublease between Registrant and Proxim, Inc. dated August
23, 1999*
10.8 Software License and Technology Agreement between
Registrant and Xerox Corporation dated November 25, 1996*
10.9 Master Lease Agreement between Registrant and Comdisco,
Inc. dated September 30, 1997 and related documents*
10.10 Loan and Security Agreement between Registrant and
Silicon Valley Bank dated March 11, 1999 and related
documents*
10.11 Master Lease Agreement between Registrant and Linc
Capital, Inc. dated May 3, 1999 and related documents*
10.12 Internet Services and Products Agreement between
Registrant and Exodus Communications, Inc. dated November
27, 1996 and related documents
21.1 Subsidiaries of the Registrant*
23.1 Consent of KPMG LLP, Independent Auditors
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S> <C>
23.2 Consent of Counsel (see Exhibit 5.1)*
24.1 Power of Attorney (see page II-4)*
27.1 Financial Data Schedules*
</TABLE>
- --------
* Previously filed
** To be filed by amendment
(b) Financial Statement Schedules.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto, duly authorized, in the City of Mountain View, California, on April
12, 2000.
PLACEWARE, INC.
Barry James Folsom*
By: _________________________________
Barry James Folsom
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Barry James Folsom* President, Chief Executive April 12, 2000
____________________________________ Officer and Director
Barry James Folsom
/s/ Kevin R. Evans Chief Financial Officer and April 12, 2000
____________________________________ Secretary
Kevin R. Evans
J. Phillip Samper* Chairman of the Board of April 12, 2000
____________________________________ Directors
J. Phillip Samper
Lon H. H. Chow* Director April 12, 2000
____________________________________
Lon H. H. Chow
Philip T. Gianos* Director April 12, 2000
____________________________________
Philip T. Gianos
Domenic J. LaCava* Director April 12, 2000
____________________________________
Domenic J. LaCava
Richard P. Magnuson* Director April 12, 2000
____________________________________
Richard P. Magnuson
Rory T. O'Driscoll* Director April 12, 2000
____________________________________
Rory T. O'Driscoll
</TABLE>
<TABLE>
<S> <C> <C>
/s/ Kevin R. Evans
*By: _______________________________
Kevin R. Evans
Attorney-in-fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Document Page No.
------- ----------------------- ----------
<C> <S> <C>
1.1 Form of Underwriting Agreement**
3.1 Restated Certificate of Incorporation of PlaceWare, dated
September 17, 1999*
3.2 Form of Amended and Restated Certificate of Incorporation
of the Registrant to be filed promptly after the closing
of the offering*
3.3 Bylaws of the Registrant as currently in effect*
3.4 Bylaws of the Registrant to be in effect after the
closing of the offering*
4.1 Specimen Common Stock Certificate
4.2 Third Amended and Restated Investor Rights Agreement*
5.1 Opinion of Cooley Godward LLP
10.1 Executive Severance Benefit Plan*
10.2 2000 Equity Incentive Plan*
10.3 2000 Non Employee Directors' Stock Option Plan
10.4 2000 Employee Stock Purchase Plan*
10.5 Offer letter to Barry James Folsom, as amended
10.6 Offer letter to Kevin R. Evans, as amended
10.7 Sublease between Registrant and Proxim, Inc. dated August
23, 1999*
10.8 Software License and Technology Agreement between
Registrant and Xerox Corporation dated November 25, 1996*
10.9 Master Lease Agreement between Registrant and Comdisco,
Inc. dated September 30, 1997 and related documents*
10.10 Loan and Security Agreement between Registrant and
Silicon Valley Bank dated March 11, 1999 and related
documents*
10.11 Master Lease Agreement between Registrant and Linc
Capital, Inc. dated May 3, 1999 and related documents*
10.12 Internet Services and Products Agreement between
Registrant and Exodus Communications, Inc. dated November
27, 1996 and related documents
21.1 Subsidiaries of the Registrant*
23.1 Consent of KPMG LLP, Independent Auditors
23.2 Consent of Counsel (see Exhibit 5.1)*
24.1 Power of Attorney (see page II-4)*
27.1 Financial Data Schedules*
</TABLE>
- --------
* Previously filed
** To be filed by amendment
<PAGE>
EXHIBIT 4.1
- ---------------- ---------------
Number Shares
- ---------------- ---------------
PlaceWare(R)
Web Conferencing
THIS CERTIFICATE IS TRANSFERABLE CUSIP 726130 10 7
IN THE CITY OF RIDGEFIELD PARK, SEE REVERSE FOR CERTAIN
N.J. OR THE CITY OF NEW YORK, N.Y. DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
- --------------------------------------------------------------------------
THIS CERTIFIES THAT
is the record holder of
- --------------------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.0001 PAR VALUE PER SHARE,
OF
____________________________ _____________________________
____________________________ PlaceWare, INC. _____________________________
____________________________ _____________________________
transferable on the books of the Corporation by the holder, hereof in person
or by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
/s/ Kevin R. Evans [SEAL] /s/ Barry James Folsom
SECRETARY AND CHIEF FINANCIAL OFFICER PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PLEASE NOTE THAT 25% ADDITIONAL WILL BE CHARGED WHEN SHIPMENT IS REQUESTED ON
THE SAME DAY THAT PROOF APPROVAL IS GIVEN OR 15% WHEN SHIPMENT IS REQUIRED THE
NEXT DAY OR 7% WHEN SHIPMENT IS REQUIRED WITHIN 52 HOURS OF APPROVAL. WE CAN
IMPRINT BONDS FOR CLOSING. CERTIFICATES MAY BE ORDERED IN SHEETS, MOUNTED ON
CARRIERS OR IN TRUE CONTINUOUS FORM.
FAX NO. 734 451-2249 PHONE 734 451-2222
<PAGE>
PLACEWARE INC.
The Corporation is authorized to issue Common Stock and Preferred Stock.
The Board of Directors has authority to fix the number of shares and the
designation of any series of Preferred Stock and to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
unissued shares of Preferred Stock.
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge at
the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in
full according to applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - __________________ Custodian____________________
TEN ENT - as tenants by the entreaties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act_____________________________________________
in common (State)
UNIF TRF MIN ACT - ____________________ Custodian (until age _______)
(cust)
____________________________under Uniform Transfers
(Minor)
to Minors Act ___________________________________
(State)
</TABLE>
Additional abbreviations, may also be used though not in the above list.
For Value Received._________________________________________hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------
- -------------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE(S)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Shares represented by the within Certificate, and do hereby irrevocably
constitute and
appoint _________________________________________________________ Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated ____________________________ _______________________________________
NOTICE: THE SIGNATURE TO THIS
In presence of ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE
__________________________________ CERTIFICATE IN EVERY PARTICULAR. WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE
__________________________________ WHATEVER.
Signature(s) Guaranteed
By ___________________________________________________
THE SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF COOLEY GODWARD LLP]
[DRAFT]
April ___, 2000
PlaceWare, Inc.
295 North Bernardo Avenue
Mountain View, CA 94043
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by PlaceWare, Inc. (the "Company") of a Registration Statement
on Form S-1 on March 3, 2000 (the "Registration Statement") with the
Securities and Exchange Commission covering the offering of up to five million
five hundred thousand shares (5,500,000) (plus up to eight hundred twenty-five
thousand (825,000) additional shares of Common Stock for which the
underwriters have been granted an overallotment option) shares of the
Company's Common Stock, $.0001 par value (the "Shares").
In connection with this opinion, we have examined and relied upon the
Registration Statement and related Prospectus, the Company's Restated
Certificate of Incorporation and Bylaws, as currently in effect, and the
originals or copies certified to our satisfaction of such records, documents,
certificates, memoranda and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion expressed below.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid, and non-
assessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included on the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Sincerely,
Cooley Godward LLP
By:________________________
Mark P. Tanoury
<PAGE>
EXHIBIT 10.3
PlaceWare, Inc.
2000 Non-Employee Directors' Stock Option Plan
Adopted by the Board of Directors February 29, 2000
Approved By Stockholders ________, 2000
Effective Date: Date of the Initial Public Offering
Termination Date: None
1. Purposes.
(a) Eligible Option Recipients. The persons eligible to receive Options
are the Non-Employee Directors of the Company.
(b) Available Options. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.
(c) General Purpose. The Company, by means of the Plan, seeks to retain
the services of its Non-Employee Directors, to secure and retain the services of
new Non-Employee Directors and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "Annual Grant" means an Option granted annually to the Non-Employee
Director who meets the specified criteria pursuant to subsection 6(b) of the
Plan.
(c) "Annual Meeting" means the annual meeting of the stockholders of the
Company.
(d) "Board" means the Board of Directors of the Company.
(e) "Chairman" means the Non-Employee Director selected by the Board to
serve as a chairman of a Primary Committee.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Common Stock" means the common stock of the Company.
(h) "Company" means PlaceWare, Inc., a Delaware corporation.
1.
<PAGE>
(i) "Consultant" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.
(j) "Continuous Service" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
(k) "Director" means a member of the Board of Directors of the Company.
(l) "Disability" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(m) "Employee" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
2.
<PAGE>
(p) "Initial Grant" means an Option granted to a Non-Employee Director who
meets the specified criteria pursuant to subsection 6(a) of the Plan.
(q) "IPO Date" means the effective date of the initial public offering of
the Common Stock.
(r) "Non-Employee Director" means a Director who at the time of grant is
not an Employee.
(s) "Nonstatutory Stock Option" means an Option not intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(t) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(u) "Option" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(v) "Option Agreement" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(w) "Optionholder" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(x) "Plan" means this PlaceWare, Inc. 2000 Non-Employee Directors' Stock
Option Plan.
(y) "Primary Committee" means (i) the committee designated by the Board as
the compensation committee, (ii) the committee designated by the Board as the
audit committee and (iii) such other committees designated by the Board as a
primary committee.
(z) "Primary Committee Grant" means an Option granted to a Non-Employee
Director who meets the specified criteria pursuant to subsection 6(c) of the
Plan.
(aa) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(bb) "Securities Act" means the Securities Act of 1933, as amended.
3. Administration.
(a) Administration by Board. The Board shall administer the Plan. The
Board may not delegate administration of the Plan to a committee.
(b) Powers of Board. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
3.
<PAGE>
(i) To determine the provisions of each Option to the extent not
specified in the Plan.
(ii) To construe and interpret the Plan and Options granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Option Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan or an Option as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
4. Shares Subject to the Plan.
(a) Share Reserve. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Options shall not exceed in the aggregate six hundred fifty thousand (650,000)
shares of Common Stock ("Reserved Shares").
(b) Reversion of Shares to the Share Reserve. If any Option shall for any
reason expire or otherwise terminate, in whole or in part, without having been
exercised in full, the stock not acquired under such Option shall revert to and
again become available for issuance under the Plan.
(c) Source of Shares. The stock subject to the Plan may be unissued shares
or reacquired shares, bought on the market or otherwise.
5. Eligibility.
Nondiscretionary Options as set forth in section 6 shall be granted under
the Plan to all Non-Employee Directors. Notwithstanding the foregoing, no
Options shall be granted under the Plan to any Non-Employee Director who is a
representative of a stockholder or stockholders of the Company and who in such
capacity and/or by virtue of any agreement with or policy of such stockholder or
stockholders is unable to receive Options.
6. Non-Discretionary Grants.
(a) Initial Grants. Without any further action of the Board, each Non-
Employee Director shall be granted the following Initial Grants:
(i) On the IPO Date, each person who is then a Non-Employee Director
automatically shall be granted an Initial Grant to purchase thirty thousand
(30,000) shares of Common Stock on the terms and conditions set forth herein.
Notwithstanding the foregoing, any
4.
<PAGE>
Non-Employee Director who received a stock option grant from the Company prior
to the IPO Date shall not be eligible for an Initial Grant pursuant to this
Section 6(a)(i).
(ii) After the IPO Date, each person who is elected or appointed for
the first time to be a Non-Employee Director, automatically shall, upon the date
of his or her initial election or appointment to be a Non-Employee Director by
the Board or stockholders of the Company, be granted an Initial Grant to
purchase thirty thousand (30,000) shares of Common Stock on the terms and
conditions set forth herein.
(b) Annual Grants. Without any further action of the Board, each Non-
Employee Director shall be granted the following Annual Grants:
(i) Commencing with the Annual Meeting in 2001, each person who is
then a Non-Employee Director automatically shall be granted an Annual Grant to
purchase ten thousand (10,000) shares of Common Stock on the terms and
conditions set forth herein; provided, however, that if the person has not been
serving as a Non-Employee Director for the entire period since the preceding
Annual Meeting, then the number of shares subject to the Annual Grant shall be
reduced pro rata for each full quarter prior to the date of grant during which
such person did not serve as a Non-Employee Director.
(c) Primary Committee Grants. Without any further action of the Board, any
person who is a Chairman of a Primary Committee shall be granted the following
Primary Committee Grants:
(i) On the IPO Date, any person who is then a Chairman of a Primary
Committee automatically shall be granted a Primary Committee Grant to purchase
three thousand (3,000) shares of Common Stock on the terms and conditions set
forth herein.
(ii) After the IPO Date, commencing with the Annual Meeting in 2001,
each person who is appointed or elected, or reappointed or reelected, Chairman
of a Primary Committee by the Board automatically shall be granted a Primary
Committee Grant to purchase three thousand (3,000) shares of Common Stock on the
terms and conditions set forth herein.
7. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) Exercise Price. The exercise price of each Option shall be one hundred
percent (100%) of the Fair Market Value of the stock subject to the Option
on the date the Option is
5.
<PAGE>
granted. Notwithstanding the foregoing, an Option may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of (i) cash or check or (ii) delivery to the
Company of other Common Stock.
(d) Transferability. An Option shall be transferable to the extent
provided in the Option Agreement. If an Option does not provide for
transferability, then the Option shall not be transferable except by will or by
the laws of descent and distribution and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder. Notwithstanding the
foregoing, the Optionholder may, by delivering written notice to the Company, in
a form satisfactory to the Company, designate a third party who, in the event of
the death of the Optionholder, shall thereafter be entitled to exercise the
Option.
(e) Vesting. Options shall vest and become exercisable as follows:
(i) Initial Grants shall vest and become exercisable in equal
monthly installments over a three (3) year period measured from the date of
grant.
(ii) Annual Grants shall vest and become exercisable in equal monthly
installments over a one (1) year period measured from the date of grant.
(iii) Primary Committee Grants shall vest and become exercisable in
equal monthly installments over a one (1) year period measured from the date of
grant.
(f) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionholder's Continuous Service, or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionholder does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate.
(g) Extension of Termination Date. If the exercise of the Option following
the termination of the Optionholder's Continuous Service (other than upon the
Optionholder's death or Disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 7(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
6.
<PAGE>
(h) Disability of Optionholder. In the event an Optionholder's Continuous
Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionholder does
not exercise his or her Option within the time specified herein, the Option
shall terminate.
(i) Death of Optionholder. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise the
Option as of the date of death) by the Optionholder's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionholder's death, but only
within the period ending on the earlier of (1) the date eighteen (18) months
following the date of death or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
8. Covenants of the Company.
(a) Availability of Shares. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such Options.
(b) Securities Law Compliance. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Options and to issue and sell shares of Common Stock
upon exercise of the Options; provided, however, that this undertaking shall not
require the Company to register under the Securities Act the Plan, any Option or
any stock issued or issuable pursuant to any such Option. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
Options unless and until such authority is obtained.
9. Use of Proceeds from Stock.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
10. Miscellaneous.
(a) Stockholder Rights. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Option unless and until such Optionholder has satisfied all requirements
for exercise of the Option pursuant to its terms.
7.
<PAGE>
(b) No Service Rights. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionholder any right to
continue to serve the Company as a Non-Employee Director or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(c) Investment Assurances. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to the Optionholder's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (ii) to give written assurances satisfactory
to the Company stating that the Optionholder is acquiring the stock subject to
the Option for the Optionholder's own account and not with any present intention
of selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(iii) the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(d) Withholding Obligations. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option; or (iii) delivering to the
Company owned and unencumbered shares of the Common Stock.
11. Adjustments upon Changes in Stock.
(a) Capitalization Adjustments. If any change is made in the stock subject
to the Plan, or subject to any Option, without the receipt of consideration by
the Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and
8.
<PAGE>
maximum number of securities subject both to the Plan pursuant to subsection
4(a) and to the nondiscretionary Options specified in Section 5, and the
outstanding Options will be appropriately adjusted in the class(es) and number
of securities and price per share of stock subject to such outstanding Options.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)
(b) Change in Control--Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then all outstanding Options shall
terminate immediately prior to such event.
(c) Change in Control--In the event a Non-Employee Director, who first
became a Non-Employee Director prior to the IPO Date, is terminated in
connection with a Change in Control, one hundred percent (100%) of the unvested
Options held by such Non-Employee Director shall accelerate. In the event a Non-
Employee Director, who first became a Non-Employee Director on after the IPO
Date, is terminated within twelve (12) months of a Change in Control, one
hundred percent (100%) of the unvested Options held by such Non-Employee
Director shall accelerate.
For the purposes of this section 11(c), Change in Control means (1) a sale
of all or substantially all of the assets of the Company, (ii) a merger or
consolidation in which the Company is not the surviving corporation or (iii) a
reverse merger in which the Company is the surviving corporation but the shares
of Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; (2) an acquisition by any person, entity or group within the
meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or an Affiliate) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act,
or comparable successor rule) of securities of the Company representing at least
fifty percent (50%) of the combined voting power entitled to vote in the
election of Directors; or (3) the individuals who, as of the date of the
adoption of this Plan, are members of the Board (the "Incumbent Board"), cease
for any reason to constitute at least fifty percent (50%) of the Board. If the
election, or nomination for election, by the Company's stockholders of any new
Director was approved by a vote of at least fifty percent (50%) of the Incumbent
Board, such new Director shall be considered as a member of the Incumbent Board.
12. Amendment of the Plan and Options.
(a) Amendment of Plan. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
9.
<PAGE>
(b) Stockholder Approval. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval.
(c) No Impairment of Rights. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(d) Amendment of Options. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.
13. Termination or Suspension of the Plan.
(a) Plan Term. The Board may suspend or terminate the Plan at any time. No
Options may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) No Impairment of Rights. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.
14. Effective Date of Plan.
The Plan shall become effective on the IPO Date, but no Option shall be
granted unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.
15. Choice of Law.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.
10.
<PAGE>
February 29, 2000 Exhibit 10.5
Mr. Barry James Folsom
27197 Black Mountain Road
Los Altos Hills, CA 94022
Re: Executive Severance Benefit Plan
Dear Barry:
This letter is in regard to the PlaceWare, Inc. Executive Severance Benefit Plan
(the "Plan") that the Board of Directors of PlaceWare, Inc. (the "Company")
adopted on February 29, 2000.
The Plan replaces the Company's severance policy set forth in the Interoffice
Memo dated March 2, 1999 that you distributed to all executives working at the
Company on that date (the "Interoffice Memo"). For your convenience, we have
attached a copy of the Interoffice Memo to this letter.
In exchange for being eligible for the benefits provided under the Plan, we
request that you agree to the replacement of the Interoffice Memo and the
modification to the following provisions of your offer letter from the Company
dated February 12, 1998 (the "Offer Letter"):
"In the event that the Company is subject to a Change in Control (as
defined in the 1997 Stock Plan), you will immediately vest in, and the
Company's right of repurchase will lapse with respect to, fifty
percent (50%) of any remaining unvested option shares that you hold or
have the right to acquire under this paragraph 4."
"In the event that the Company terminates your employment without
Cause more than 12 months after your commencement of full-time
employment, your base salary will be continued in accordance with the
Company's standard payroll practices until the date six months after
the termination of your employment. If you elect to continue your
health insurance coverage pursuant to COBRA following such
termination, the Company will pay the monthly premium for a maximum of
six months."
Upon signing this agreement, the foregoing provisions of your Offer Letter will
instead read as follows:
"As an executive of PlaceWare, Inc., you will be listed on Schedule I
to the PlaceWare, Inc. Executive Severance Benefit Plan (the "Plan")
and thus eligible to receive benefits in accordance with the terms of
the Plan. As of the date you sign this letter, the Company hereby
approves, in addition to the three (3) months of severance for which
you may be eligible under Section 4(a) of the Plan, an additional six
(6) months of severance so that you are eligible for a total of nine
1.
<PAGE>
(9) months of severance payable pursuant to the terms of the Plan. If
you remain continuously employed by the Company until February 16,
2001, the Company hereby approves an additional three (3) months of
severance under the terms of the Plan, for a total of twelve (12)
months of severance payable pursuant to the terms of the Plan."
We have attached a copy of the Executive Severance Benefit Plan for your review.
Upon signing this letter in the space provided below, you agree to release,
acquit and forever discharge the Company of and from any and all claims,
liabilities, demands, causes of action, costs, expenses, attorneys fees,
damages, indemnities and obligations of every kind and nature, in law, equity,
or otherwise, arising out of or in any way related to the provisions of the
Offer Letter that you have agreed to modify as well as the Interoffice Memo
which has been replaced by the Executive Severance Benefit Plan.
Sincerely,
/s/ Philip Samper
Philip Samper
Chairman of the Board of Directors
I have read and accepted this modification to the Offer Letter.
Barry James Folsom /s/ Barry James Folsom
- -------------------------- --------------------------
Print Name Signature
February 29, 2000
- --------------------------
Date
Attachments: PlaceWare, Inc. Executive Severance Benefit Plan
Interoffice Memo
2.
<PAGE>
Exhibit 10.6
[Company Letterhead]
March 22, 2000
Kevin R. Evans
18137 Via Encantada
Monte Sereno, CA 95030
Re: Executive Severance Benefit Plan
Dear Kevin:
This letter is in regard to the PlaceWare, Inc. Executive Severance Benefit Plan
(the "Plan") that the Board of Directors of PlaceWare, Inc. (the "Company")
adopted on February 29, 2000.
In exchange for being eligible for the benefits provided under the Plan, we
request that you agree to modify the following provisions of your offer letter
from the Company dated November 5, 1999 (the "Offer Letter"):
"As an officer of the company, recommendation to the PlaceWare, Inc.'s
Board of Directors that in the event the company is subject to a Change in
Control (as defined in the 1997 Stock Plan), you will immediately vest in,
and the company's right of repurchase will lapse with respect to, one
hundred percent (100%) of any remaining unvested option shared that you
hold or have the right to acquire. Additionally, you will be given 6
months of severance. In the event of change of location greater than 50
miles or change of CEO and change of responsibility, you will be given 6
months of severance and 6 months of vesting."
Upon signing this agreement, the foregoing provisions of your Offer Letter will
instead read as follows:
"As an executive of PlaceWare, Inc., you will be listed on Schedule I to
the PlaceWare, Inc. Executive Severance Benefit Plan (the "Plan") and thus
eligible to receive benefits in accordance with the terms of that Plan and
as modified in this agreement. As of the date you sign this letter, you
will be entitled to the benefits provided below:
(a) the Company hereby approves, in addition to the three (3) months
of severance for which you may be eligible under Section 4(a) of the Plan,
an additional (3) three months of severance so that you are eligible for a
total of six (6) months of severance payable pursuant to the terms of the
Plan;
(b) in the event your employment with the Company terminates due to an
Involuntary Termination Without Cause (as defined in the Plan) that is not
in connection with a Change in Control (as defined in the Plan), the
Company will accelerate the vesting of all of your unvested stock options
to purchase stock of
1.
<PAGE>
the Company or any successor thereto by six (6) months measured from the
effective date of such termination. All other benefits in Section 4 of the
Plan, including the increase of severance described in (a) above, shall be
paid according to the terms of the Plan; and
(c) in the event you are Constructively Terminated (as defined below)
not in connection with a Change in Control (as defined in the Plan),
pursuant to Section 3(c) of the Plan, the Company hereby approves (i) a
total of six (6) months of severance and (ii) the acceleration of the
vesting of all of your unvested stock options to purchase stock of the
Company or any successor thereto by six (6) months measured from the
effective date of such termination. All other benefits in Section 4 of the
Plan shall be paid according to the terms of the Plan.
For purposes of the above section (c) only, Constructively Terminated means
that you voluntarily terminate your employment with the Company after any
of the following are undertaken by the Company: (i) the relocation of the
principal place of your employment to a location that is more than fifty
(50) miles from your current principal place of employment or (ii) change
of the Company's chief executive officer or (iii) material change of your
current responsibilities."
We have attached a copy of the Executive Severance Benefit Plan for your review.
Upon signing this letter in the space provided below, you agree to release,
acquit and forever discharge the Company of and from any and all claims,
liabilities, demands, causes of action, costs, expenses, attorneys fees,
damages, indemnities and obligations of every kind and nature, in law, equity,
or otherwise, arising out of or in any way related to the provisions of the
Offer Letter that you have agreed to modify.
Sincerely,
/s/ Barry James Folson
I have read and accepted this modification to the Offer Letter.
Kevin R. Evans /s/ Kevin R. Evans
- ------------------------------- -------------------------------
Print Name Signature
March 22, 2000
- -------------------------------
Date
Attachments: PlaceWare, Inc. Executive Severance Benefit Plan
2.
<PAGE>
EXHIBIT 10.12
[LOGO] EXODUS
EXODUS COMMUNICATIONS, INC.
Internet Services and Products Agreement
This Agreement defines the terms and conditions between Exodus Communications,
Inc., (hereafter referred to as Exodus) and Placeware, Inc. (hereinafter
referred to as Customer) whereby Exodus provides value-added internet services
and related products to Customer.
1. Exodus will provide the following services and products at the process
shown (see Addenda for additional services):
Connection Type_______ Usage Level_____ Price______ Billing Period_______
One Time Installation Cost Price______
Telco Connection provided by:___________ Price______ Billing Period_______
One Time Installation Cost Price______
Other:__________________________________ Price______ Billing Period_______
Other:__________________________________ Price______ Billing Period_______
Equipment: see Attachment A (if applicable)
Request for Services Feb 1, 1997
----------------------
Date
Exodus will not increase prices for services provided during the Billing
Period identified above. Exodus reserves the right to change prices beyond
the billing period upon notice to Customer 30 days in advance of any
change. All prices are exclusive of any tax levy, customs duty, import tax
or similar governmental charge that may be ___ by any jurisdiction. All
such taxes are the responsibility of Customer
2. The term of this Agreement is for one year from the date Internet access is
connected. Customer may cancel within the first 30 days without penalty,
thereafter it is non cancelable, and will automatically renew yearly
thereafter, unless 60 day advanced notice is given by either party prior to
this agreement's anniversary date. Customer may cancel with 30 day advance
notice if Customer can show that Exodus has failed to provide commercially
reasonable service levels or price increases (if any) are not acceptable to
customer. At the time Exodus connection service is installed or product is
shipped, Exodus will invoice the Customer. Payment for subsequent billing
periods will be issued in advance of the provision of service. Invoices are
due upon receipt.
3. Exodus makes no warranty of any kind with respect to services and products
provided under this Agreement. Exodus DISCLAIMS ALL WARRANTIES, EXPRESS AND
IMPLIED, INCLUDING THE WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE AND NON-INFRINGEMENT WITH RESPECT TO THE DOMAIN NAMES
OBTAINED FOR CUSTOMERS, SERVICES OR ANY INFORMATION OBTAINED THROUGH THE
SERVICES. In situations
1.
<PAGE>
involving performance or nonperformance of services or products furnished
under this Agreement, Customer's sole remedy shall be in the case of
products, repair, or return of the defective product to Exodus for refund,
at the discretion of Exodus. In the case of services, refund of a pro rata
portion of the price paid for services which were not provided. Credit will
only be issued for periods of lost service greater than 24 hours.
4. Exodus will not be liable for any damages Customer may suffer arising out
of acts of God, use, or inability to use, Exodus's internet service or
related products unless such damages are caused by an intentional and
willful act of Exodus. In no event shall Exodus be liable for unauthorized
access to Customer's transmission facilities or Customer premise equipment
or for unauthorized access to or alteration, theft or destruction of
Customer's data files, programs, procedures or information through
accident, fraudulent access or devices, or any other method. Exodus will
not be liable for indirect, incidental, special or consequential damages or
for any lost property or data of Customer. Exodus's liability for damages
to Customer for any cause whatsoever, regardless of ___ of action,
including negligence, shall not exceed the amount equal to the price of
products and services purchased by Customer during the twelve month period
preceding the event which cause the damages or injury.
5. Exodus will indemnify and hold Customer harmless against any claims or
demand by an third party that buy hardware or software provided by Exodus
to Customer hereunder, infringes any U.S. copyright or patent. Except for
such indemnity, Customer agrees to indemnify and hold Exodus harmless
against any claim or demand by any third party due to or arising out of the
use by Customer of Internet services and related products provided
hereunder.
6. Customer is solely responsible for the content of any transmissions by
Customer and any third party utilizing customer's facilities or Exodus's
facilities. Use of other organization's network or computing resources are
subject to their respective permission and usage policies. Customer agrees
to comply will all applicable laws with regard to the transmission and use
of information and consent, solicitation of any activity that is prohibited
by applicable law over Internet. Customer further agrees not to use the
Internet service for illegal purposes, to interfere with or disrupt other
network users, network services or network equipment. Customer shall be
liable for and shall indemnify and defend EXODUS from and against any
claims in anyway arising from or related to (i) the alleged infringement of
patent, trademark, design, copyright or any other intellectual property
rights in relation to the Customer's use of the services and (ii) Customer
use or inclusion of any information, photographs, art work or other content
(including without limitation claims based on invasion of privacy, right of
publicity, the Communications Decency Act of 1996, obscenity or
pornography, and the violation of any states or ordinances or other laws).
7. Customer understands that Internet use, and related products and services
provided under this Agreement, may require registrations and related
administrative reports which are public in nature. In addition Customer
agrees Exodus may include its name in directories of Exodus customers.
2.
<PAGE>
8. Unless otherwise authorized in writing by Exodus and attached as an Addenda
to this agreement, Customer shall link access to and use of the Internet
connection services to its employees solely for Customer's business
purposes and shall not resell or otherwise generate income by providing
access to the Internet service to third parties. Customer's right to use
the Internet services and products provided hereunder is limited to
Customer and is nontransferable.
9. Failure by the Customer to comply with the terms of this agreement will
result in immediate termination of Exodus Internet services.
10. Customer agrees not to export or re-export (including by way of electronic
transmission), directly or indirectly, any software or technical data
through the Internet services without first obtaining any required export
license or governmental approval.
11. This Agreement, together with any Addenda, constitutes the entire agreement
of the parties with respect to the services and products provided hereunder
and supersede any prior agreements. These terms and conditions shall
prevail notwithstanding any different or additional terms and conditions in
any forms provided by Customer. No waiver of any rights hereunder shall be
deemed to be a waiver of the same right or any other omission. This
Agreement shall be governed by the laws of the State of California without
regards to conflicts of law principles.
These Terms and Conditions have been read, are understood, and are hereby
accepted.
________________________________________ ______________________________________
Customer Representative (Signature) Date Exodus Representative (Signature) Date
William W. Shott
- -------------------------------------- --------------------------------------
Name Name
President
- -------------------------------------- --------------------------------------
Title Title Parties
3.
<PAGE>
[LOGO] EXODUS
EXODUS COMMUNICATIONS, INC.
Co-Location Addendum
to
Internet Services and Products Agreement
This CO-LOCATION ADDENDUM is part of the INTERNET SERVICES AND PRODUCTS
AGREEMENT ("Internet Services Agreement") effective as of November 27, 1996,
---------------------------
between Exodus Communications, Inc. ("Exodus") and you ("Customer").
------ --------
The following additional terms and conditions apply under this Addendum.
1. Co-Located Equipment and Fees.
-----------------------------
"Equipment" Description___________________________________________
---------
"Facility" Description _________________________________
--------
Co-location Connection Type ---------------------------------
Connection Fee $ / Billing Period______
-------------
Facility Fee $ / Billing Period______
-------------
# Access Cards (3 max) _________@ $100/card
Other Charges $
----------------------------------
Request for Services Feb 1, 1997
--------------------------
Date
2. Installation: Maintenance; Removal. Exodus agrees to allow Customer to
----------------------------------
place the Equipment in the Facility subject and subordinate to the terms and
provisions of Exodus' lease with its landlord. Such placement shall be subject
to this Addendum and Exodus' installation and maintenance specifications (the
"Specifications"), which Exodus shall provide to Customer from time to time and
--------------
Customer agrees to comply therewith. Customer agrees that it will be solely
responsible, and at Exodus' request will reimburse Exodus, for all costs and
expenses associated with placing, installing, maintaining, operating and
removing the Equipment and related materials, including but not limited to, all
necessary preparations required to comply with the Specifications, costs
associated with relocation or removal for the equipment one installed, all
electric, telephone and other utility charges attributable to the equipment and
related use of the Facility, and all taxes or other government fees arising from
or related to the performance of Exodus' obligations under this Addendum.
Customer further agrees that upon termination of this Addendum, Customer will
leave the Facility in as good condition as it was in at the beginning of the
term of this Addendum, and will remove the Equipment and any property which it
is obligated or permitted to remove prior to the termination date.
3. Security. Exodus will maintain the Facility at its premises which
--------
will be staffed by an Exodus employee at all times. The Exodus employee will
require all visitors to the
1.
<PAGE>
premises to sign a sign-in sheet and specify the reason for their visit.
Customer acknowledges that Exodus will allow representatives of Co-location
customers unlimited and unsupervised access to their respective facilities, and
such facilities may be located with and immediately accessible to other
customer's facilities, including Customer's Facility. Exodus will take
reasonable measures to protect the security of each customer's facility and
equipment, including the measures described in this Section 3. Notwithstanding
such actions, EXODUS ASSUMES NO LIABILITY FOR ANY DAMAGE OR LOSS TO CUSTOMER'S
FACILITY AND/OR EQUIPMENT RESULTING FROM ANY OTHER CUSTOMER'S ACCESS TO ITS
FACILITY OR EXODUS PREMISES. ANY SUCH DAMAGE OR LOSS WILL BE THE EXCLUSIVE
RESPONSIBILITY OF THE CUSTOMER WHO CAUSED AND THE CUSTOMER WHO INCURRED SUCH
LOSS OR DAMAGE. Exodus will provide reasonable assistance to resolve any
disputes regarding any such losses or damages.
4. Access. Exodus hereby grants Customer's representatives listed below
------
(the "Representatives") unlimited access, twenty-four (24) hours per day, seven
(7) days per week, to the Facility. Access will be via Access cards and is
limited to the Representatives. Whenever Customer requires access to the
Facility for persons other than its Representatives, Customer shall give Exodus
twenty-four (24) hours prior notice by calling Exodus at a phone number to be
provided by Exodus and requesting Exodus to arrange for such access. Customer
shall reimburse Exodus for all extraordinary costs incurred by Exodus in
arranging such access. EACH REPRESENTATIVES AND ANY OTHER PERSONS ACCESSING THE
FACILITY MUST SIGN A SIGN-IN SHEET AND ACCESS THE FACILITY AT THEIR OWN RISK AND
EXODUS ASSUMES NO LIABILITY WHATSOEVER FOR ANY HARM TO SUCH PERSONS OR DAMAGE TO
PROPERTY BROUGHT BY SUCH PERSONS TO THE FACILITY. Customer's Representatives
are:
Name: Alene Kerchevel Tile: Network Administrator
------------------------------ ------------------------------
Name: Mike Jordan Title: VP Engineering
------------------------------- ------------------------------
Name: Pavel Curtis Title:______________________________
-------------------------------
5. Condition of Premises/Limitation of Liability. CUSTOMER HEREBY ACCEPTS
---------------------------------------------
THE FACILITY IN AN "AS IS" CONDITION at the commencement of the term of this
Addendum, and acknowledges that Exodus has no obligations to make alternations,
improvements or additions, decorations, or changes within the Facility or any
part thereof. Exodus may be required to relocate the Equipment within its
premises during the term of this Addendum, and Customer authorizes Exodus to
take such action provided Exodus does not disrupt or otherwise impair Customer's
service without first notifying Customer of such planned relocation. CUSTOMER
ACKNOWLEDGES AND AGREES THAT EXODUS SHALL NOT BE LIABLE FOR ANY COSTS, EXPENSES
OR OTHER DAMAGES INCURRED BY CUSTOMER OR ANY THIRD PARTY AS A RESULT OF THE
PERFORMANCE OF EXODUS' OBLIGATIONS PURSUANT TO THIS ADDENDUM OR OTHERWISE
RELATED TO THE EQUIPMENT. EXCEPT AS A RESULT OF EXODUS' GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT, IN NO EVENT WILL EXODUS BE LIABLE TO CUSTOMER FOR ANY
DAMAGES OR LOSSES DUE TO THE FAILURE OR MALFUNCTION OF THIS EQUIPMENT LOCATED IN
THE FACILITY. Notwithstanding
2.
<PAGE>
the foregoing, and without imposing any duty or obligation on Exodus, Exodus
will endeavor to protect the Facility and Equipment from damage and will notify
Customer promptly of any problems or anticipated problems related thereto and
identified by Exodus. TO THE EXTENT EXODUS IS LIABLE FOR ANY DAMAGE TO
CUSTOMER'S EQUIPMENT FOR ANY REASON, SUCH LIABILITY WILL BE LIMITED SOLELY TO
THE EQUIPMENT LISTED ABOVE.
6. Rights to Equipment; Insurance. Customer represents, warrants and
------------------------------
covenants that it owns or has the legal right and authority, and will continue
to own or secure the legal right and authority, during the term of this
Addendum, to use the Equipment and Facility as contemplated by this Addendum.
Customer further covenants and agrees to keep in force and affect during the
term of this Addendum for the benefit of Exodus, Exodus' landlord and Customer,
a policy of comprehensive liability insurance conforming to the requirements of
the applicable provisions of Exodus' lease of the premises containing the
Facility, as presented by Exodus to Customer from time to time.
7. Customer's Responsibility for Losses or Damages; Indemnification.
----------------------------------------------------------------
Customer will be liable to Exodus, Exodus' landlord, other co-location
customers, their respective officers, directors, suppliers, agents, employees
and consultants, for any losses, damages or costs resulting from Customer's
actions or inactions relating to or arising under this Addendum, including
damage caused by Customer's Equipment or resulting from Customer's access to the
Facility. Customer covenants and agrees to indemnify, defend and hold Exodus,
Exodus' landlord, other co-location customers, their respective officers,
directors, suppliers, agents, employees and consultants harmless from and
against any and all costs, liabilities, suits, actions, claims, damages, charges
and expenses, including reasonable attorney fees, resulting from Customer's
Equipment or use of or access to the Facility, unless arising from the willful
misconduct of Exodus.
8. Casualty or Eminent Domain. In the event of taking by eminent domain
--------------------------
or by fire or other casualty to the Facility, Customer shall acquiesce and be
bound by any action taken by or agreement entered into between Exodus and its
landlord with respect thereto.
9. Not a Lease. This Co-location Addendum is a services agreement and is
-----------
not intended to and will not constitute a lease of real property. Customer
acknowledges and agrees that it has no rights as a tenant or otherwise under any
real property and/or landlord/tenant laws, regulations or ordinances. Upon
termination of this Addendum for any reason, Exodus will have the right to
remove immediately all of Customer's Equipment located at the Facility.
10. Entire Agreement. Exodus and Customer agree that the terms and
----------------
conditions of the Internet Services Agreement and any prior addenda thereto are
hereby incorporated by reference and made a part hereof to the same extent as if
such terms and conditions were set forth in full herein. To the extent that any
terms and conditions in this Addendum conflict with the terms and conditions in
the Internet Services Agreement or prior addenda thereto, the terms and
conditions of this Addendum will supersede any conflicting prior terms and
conditions.
3.
<PAGE>
There Terms and Conditions have been read, are understood, and are hereby
accepted.
Customer Exodus Communications, Inc.
By:_______________________________ By:_____________________________________
Authorized Signature
Name: Wiliam Shott Name:___________________________________
-----------------------------
Title: President Title:__________________________________
----------------------------
Date: November 22, 1996 Date____________________________________
-----------------------------
(This is the effective date of this
addendum)____
Placeware, Inc.
- ---------------------------
4.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
PlaceWare, Inc.:
We consent to the use of our reports included herein and to the references to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
/s/ KPMG LLP
Mountain View, California
April 11, 2000
